4.3.1 What are the causes and effects of globalisation? Part I

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4.3.1 what are the causes and effects of globalization?


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What is globalisation? 


Ann Krueger, the first deputy-managing director of the IMF, defined globalization as ‘a phenomenon by which economic agents in any give part of the world are much more affected by events elsewhere in the world’


Globalisation refers to the closer integration of world economies.


Factors contributing to globalisation:


I.               Advances in technology within communication and transport industries. With communication systems and transport becoming more advanced, international trade has been made a possibility

II.              Deregulation of international markets has led to firms being able

III.            Marketing of goods and services has been revolutionized with the spread of the internet and e-commerce

IV.            Trade liberalization, the breaking down of artificial barriers to the flows of goods, services, capital, knowledge and people has liberlised trade to the point that market have become incredibly interdependent.

V.             Increased significance of transnational companies.


Technological Advancements:

Technological advancements in communication systems and transport have allowed firms to make the distribution and production of their goods and services more efficient. This has contributed to globalisation through increasing the size of labour markets that are available to a firm, increasing the amount of consumers that are able to purchase the goods and services produced by a firm and to lower the costs of distribution and production.




I.               Improvements in transportation has enabled firms to fragment their production processes to take advantage of varying cost condition in different parts of the world.


For example, it is now possible to site labour-intensive parts of a production process in parts of the world where labour is relatively plentiful, and thus relatively cheap this is one way in which multinational corporation arise, in some cases operating across a wide range of countries. This leads to one of the major disadvantages of globalisation, exploitation. Globalisation has opened up labour markets to massive MNCs that are larger (meaning that they are likely to be cheaper) and that are in countries where employment regulation is either non-existent or superficial.


II.              Improved transport has made global travel easier and more accessible. For example, there has been a rapid growth in air-travel, enabling greater movement of people and goods across the globe.

III.            Increased geographical mobility of labour

IV.            Increased mobility of capital





I.               Communications technology has developed rapidly with the growth of the Internet and e-commerce, enabling firms to compete more easily in global markets. The importance of e-mail and other forms of communication such as video-conferencing and Skype should not be underestimated. It is now taken for granted that there can be instant communication across the globe. This had made it easier for firms to communicate within their organisations and to communicate with other firms, and has certainly fuelled the closer integration of firms and economies.


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