4.3.1 Globalisation

4.3.1 What are the causes and effects of globalisation?

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  • Created by: Adam
  • Created on: 26-02-14 16:34

Globalisation

Causes

  • Fall in transport costs. Costs of transporting goods has decreased significantly, enbaling goods to be imported and exported more cheaply.
  • Fall in communication costs. In partiuclar the decline in the cost of the internet. Technological advances have made this possible.
  • Lowering of trade barriers. The WTO has been responsible for negotiating reducitons in tariffs and other barriers to trade.
  • Collapse of communism. Opening up of large economies through the collapse of communist politics has led to more trade and more foreign investment.
  • Transnational companies. The significance of these global companies has increased since they have taken advantage of low trade barriers and development of the internet to organise trade on a global scale.

Effects

  • Free trade and comparative advantage is a benefit of globalisation. When countries specialise in producing a certain good or service then world output and living standards will increase.
  • For consumers, globalisaiton is a benefit because there is a wider choice of goods, usually at a lower price
  • For producers, globalisation is a benefit becuase of lower production costs, usually as a result of relocating operations and economies of scale.
  • Costs of globalisation include that it usually promotes exploitation of workers, children and farmers in particular. Health and safety regulations are usually less demanding in developing countries.
  • The external costs associated with free trade include the degredation of the environment which results in global warming. Increased trade is not environmentally sustainable.
  • Globalisation has been associated with increased inequality. Richer countries have better access to resources such as internet.
  • Liberalisation of financial markets has been associated with global instability. Collapse of confidence in banking system have resulted in global credit crunches.
  • Global imbalances, e.g. USA running large fiscal deficits and China running large surpluses, is unsustainable in the long term.

Overall summary

Globalisation is caused by many factors including falls in trasport and communication costs, lowering of trade barriers, and changes in political stances. It has advantages including free trade and comparative advantage which usually leads to increased world output and better living standards, lower prices and more choice for consumers, and lower costs of production for producers. It does, however, have its disadvantages including the exploitation of workers and differences in health regulations, externalities such as environmental degredation, and global instability as a result of too much liberalisation; both financially and fiscally. 

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