Factors contributing to Globalisation:
- Improvements in transportation- cheaper
- Improvements in information and communication technology- quicker and cheaper
- Rising real living standards- citizens demanding more variety
- Decline in protection- encouraging trade (WTO)
Advantages of MNCs:
- Cheaper Labour costs
- Transport costs
- A favourable tax environment
- Ability of government grants
- Ability to take advantage of the different strengths of many countries.
Disadvantages of MNCs:
- Loss of jobs
- Export of technology
- Dependency on imports
- Loss of tax revenues
International specialisation and trade
Benefits of International Trade:
- Can get goods not available in their country
- Increases choice
- Lower prices
- Increases competition
- Increases world output
- Reduces firms reliance on domestic markets
Costs of International trade:
- Pollution from 'dirty' industries- often manufacturing is moved to countries with lower environmental standards.
- Transport of the finished goods or parts- a car may be assembled in the UK but the parts will come from many other countries
- Air miles- contributing to global warming
The World Trade Organisation
Benefits of Free Trade:
- More Choice
- Lower prices
- Increased competition causes firms to innovate
- Exports of goods and services will increase economic growth
- Increases world output and wealth.
The WTO is responsibe for trying to increase free trade. It provides a set of rules so that members know what they are and are not allowed to do when it comes to trading between countries.
Reasons for Protecting some industries:
- Infant Industry- counties often clain that given the chance to develop ab industry they could have a potential advantage. They prtect this industry against more efficient existing industries in other countries, so that it can grow.
- Protect Jobs- Only by preventing foreign goods from entering a country will unemployment be prevented.
- Prevent negative externalities-countries may want to prevent goods that have negative externalities 9such as illegal drugs0 from entering the country.
Advantages of the Single Market:
- Free movement of Capital.
- Free movement of Labour.
- Competition- increasing competition should improve productivity.
- Higher economic growth and standards of living.
Disadvantages of the Single Market:
- Job Losses.
- Sttracts capital and jobs away.
- Manufacturing firms are attracted to low labour costs of these poorer member countries.
- Multinational companies drive out local firms.
Advantages of the Single Currency:
- Elimination of exchange rate risks- firms buy and sell for future delivery. Having one currency removes the danger of the value changing before payment is made. This increases trade.
- Price transparency
- Transaction costs- no need to change currencies between member countires, thus saving money. This increases trade.
- Employment- easier for people to cross into the next country to work.
Disadvantages of the Single Currency:
- Sensitivity to interest rates- Unlike most European countires, most UK householders own their own house and their mortgages are a high percentage of their income. UK monetarpolicy needs to take this into account when changing interest rates.