4.1.3 Factors Contributing to Increased Globalisation

What is trade liberalisation?

Trade liberalisation is the removal or reduction of barriers to trade between different countries

What is a tariff?

Tariffs are taxed on imported goods

What are quotas?

Quotas are limits on the quantity of goods that can be imported

What are subsidies?

Subsidies are government support that gives domestic producers an advantage over foreign competitors

How can trade liberalisation happen?

• Reducing or eliminating tariffs

• Removing quotas

• Cutting subsidies

• Signing trade agreements

What are the advantages of trade liberalisation?

• Increased international trade allows businesses to increase their market size - this leads to increased output, so countries can benefit from economies of scale

• Freer trade helps businesses reduce costs, as imported raw materials and components can be sourced more cheaply

What are the disadvantages of trade liberalisation?

• Domestic firms may not be able to compete against international firms

• Some industries may be subject to dumping as businesses abroad may sell excess products at unfairly low prices

What are the reasons for increased globalisation?

1. Political change - changes in the government of a country can influence the country’s attitude to trade

2. Reduced cost of transport and communication - economies of scale due to innovation in containerisation of large ships have reduced business costs, technological advancements have made it easier for buyers and sellers to connect with one another

3. Increased significance of global companies - with increasing numbers of transnational companies operating globally, there is increased pressure on countries to engage in free trade

4. Increased investment flows - it allows businesses to establish themselves in countries where they may face trade barriers

5. Migration - better transportation and deregulation have allowed workers to have more flexibility when looking for work

6. Growth of the global labour force - more people working means more income to spend on goods and services, boosting global demand, an increased supply of labour Leeds to falling wages, which is beneficial in reducing business costs, more people working generates increased levels of entrepreneurship

7. Trade liberalisation - reducing or removing trade barriers makes it easier and cheaper for businesses to export and import goods across borders, encouraging international trade, with fewer restriction businesses can more easily expand into new markets, this can lead to stronger economic links between countries and greater global independence

What is structural change?

• Structural change occurs when a country, industry or market changes which sector it primarily operates in

• For example, moving away from agriculture and manufacturing and towards services