Economics Unit 4 Revision Kasmir Chris Mcculloch Globalisation How it affects us the process by which the world is becoming increasingly interconnected as a result of increased trade and cultural exchange It is the result of technological changes that enable people goods money above all information and ideas to travel the world much than ever before and faster Financial crisis Effects or export as they may not be doing well Cost push inflation Our growth GDP We may have to bail them out Greece More land Cheaper workers More competitors and potential customers Have to trade internationally so therefore if we left the EU then we wouldn t be able to produce the goods that we need Take advantage of other countries innovations Gives us access to more products and services More competitors How has globalisation grown Advances in technology Internet Telecommunications Quick and more efficient transport Access to information is easier Media Why has globalisation grown To increase trade and access new customers in new countries To increase brand recognition across the world To exploit factors of production Cheaper land Cheaper labour Emerging markets BRIC Increases in travel and tourists Culture Media Differences in tax systems Economies of scale Globalisation involves An expansion in trade in goods and services between countries An increase in transfers of financial capital across national boundaries e g foreign investment by multi national companies The Internationalisation of products designing a product to fit a global scale and global brands Shifts in production and consumption e g outsourcing and more international supply chains Increased levels of labour migration Entry of countries into the global trading system Main drivers of globalisation Improvements in transportation Technological change De regulation of global financial markets Differences in tax systems Lower import tariffs Economies of scale Consequences of globalisation Foreign Competition has entered markets previously only catered for by domestic producers Unemployment and deindustrialisation occurs as production moves out of developed countries Mergers and joint ventures Greater economies of scale businesses operating globally have been able to spread their costs over a larger number of units The case for and against globalisation Case for Globalisation has helped countries such as China who have then helped struggling economies such as Africa Countries have been able to benefit by specialisation Trade can boost living standards in all countries Jobs are created and unskilled workers are turned into effective staff Economic growth Extraordinary array of high quality low priced goods Huge economies of scale smaller costs for customers Case against Banks and insurance companies suddenly announce redundacies as they move cus tomer service jobs to india Western countries plundering the primary recourses of poorer countries Loss of cultural diversity Economic exploitation Land exploitation Labour exploitation The environment is being threatened by travel pollution Greater consumption of scarce recourses Local producers suffering at expense to multination businesses Developed countries A country which is fully developed in terms of infrastructure and a high developed economy Examples include UK and USA Developing countries have provided developed countries with cheap raw materials Lower prices goods have helped to keep inflation low and this in turn has benefited the developed country with cheap interest rates Real incomes have been increased due to cheaper goods which has increased living standards Jobs lost due to outsourcing Moving manufacturing to a developing world has helped developed countries to have a cleaner environment Developing countries A country which is beginning to open up their economy to exploit developed countries opportunity and allow other countries to use their recourses Examples include BRIC countries Brazil Russia India China Increasing levels of trade have helped developing countries to become more integrated in to the world economy Reduced levels of unemployment and poverty due to increased trade Developing countries are affected by demand from developed countries e g recession in a developed country means that demand will fall for the goods produced in the developing country Tariffs imposed by developing countries reduces the chance to exploit comparative advantage Multinational corporation A business which operates in several countries Examples include Mcdonalds Tesco HSBC Apple Multination corporations MNC s have been crucial in the development of globalisation Most began in developed countries provided most of the foreign investment into developing countries locating their or generating their raw materials there and from MNC s impact on developing countries depends on Willingness to accommodate the needs of the local economy The ability of the host government to regulate their activities Wether there are incentives available Trade Absolute and comparative advantage Absolute advantage the ability of a country individual company or region to produce a good or service at a lower cost per unit than the cost at which any other entity produces that good or service Comparative advantage the ability of a firm or individual to produce goods and or services at a lower opportunity cost than other firms or individuals 1 For example with labour the better skills experience training you have it will give you more labour productivity which means more CA 2 Get economies of scale through innovation and afford to spend more to spread over more units means increased CA 3 Affects the price which you can sell it for to determine wether you have CA or not 4 Subsidy CA up Quota CA down 5 Brand loyalty quality etc The pattern and the balance of trade in goods and services are always changing This is because of shifts in CA and movements in relative prices of traded products in many international markets The pattern of trade is also affected by the economic growth and development of particular countries and by foreign investment decisions of UK and overseas companies The WTO is a place where member governments go to deal with the rules of trade between nations It acts as a negotiating form provides rules and helps to settle disputes it also helps to maintain trade barriers to protect consumers Protectionism represents any attempt by the government to impose restrictions on trade in goods and services Why do they do