Book 13A - Globalisation

Define globalisation

(Def.): Increased integration of economies around the world, through the movement of goods, services, capital, labour and knowledge across international borders

Define slowbalisation, deglobalisation, reglobalisation

• Slowbalisation: pace of global integration slowed 

• Deglobalisation: reverse of global integration (countries reduce participation in international trade) 

• Reglobalisation: seeks to balance global connectivity with regional self-sufficiency

Define fragmentation of production process

Fragmentation of production process: Firms from developed countries forge production networks with developing countries

Compare offshoring and outsourcing

• Offshoring: firms invest in production plants in developing countries that produce the raw materials to reduce costs  -> materials shipped back to home country to manufacture product 

• Outsourcing: moving internal operations to a 3rd party (Eg. Selling plant to a supplier)

Describe EU-Japan trade deal 

• Under the pact, Japan will remove tariffs on 94% of all imports from the EU, including 82% of farm and fishery products

• The EU will eliminate tariffs on 99% of imports from Japan

Explain how telecomms tech leads to globalisation

• Firms are also able to better manage resources overseas using communication platforms and reduce costs of telecommunications 

• Firms offshore different stages of production to exploit cost advantages in other countries -> growth of MNCs -> greater capital flows between countries 

• Greater labour flows due to Improvement in internet penetration around the world and the proliferation of the use of smartphones have made workers less resistant to relocating overseas as they are now able to keep in contact with their family through communications platforms

Explain how transportation tech leads to globalisation

• Containerisation and technological advancements in maritime shipping and aviation have allowed smoother, quicker trade between countries at a lower cost -> allows countries exporting goods to enjoy a larger rise in X and countries relying on M to enjoy lower costs of production

• More countries willing to rely on trade as an engine of growth

• Lower transport cost and shorter delivery times allow firms to offshore different stages of production of goods and services to other lower cost countries

• Leads to greater capital flows between countries

State eval methods for globalisation

1. Whether costs can be reduced (Eg. Skills retraining, income redistribution, diversify export markets) 

2. Extent of benefits from internal trade given context of economy

Explain how trade flows increases consumer welfare

• Higher levels of consumption

• Greater variety of goods (access to goods that were previously not available)

• Lower domestic prices due to EOS 
  

• Eg. If a country wants to consume strawberries, it could cultivate them but incur very high opportunity cost under ‘unnatural’ manufactured conditions

• Trade enables it to import the fruit from temperate countries at low prices AND there is more consumer choice

Explain how trade flows lead to AEG

• IF X > M -> AD overall increase 

• Eg. Developing countries may lack sufficient domestic demand for certain natural resources that are relatively plentiful in local supply 

• International trade can be a ‘vent for surplus’ for developing countries by exporting these resources 

• Trade enables fuller utilisation of otherwise underemployed or unemployed resources -> increasing output

Explain how trade flows lead to PE and reduce cost-push inflation

• Larger market base -> reap greater EOS -> more PE + reduce inflation

• Rise in M = competition with foreign firms -> prevent firms from becoming complacent -> firms forced to become more PE by engaging in R&D -> AS increase and DE 

Explain how trade flows lead to PEG

• Producers can seek resources at the lowest cost possible from across the globe

• Allows small countries that lack natural resources to overcome their poor resource endowment by importing resources from overseas VS developing countries can import technologically advanced capital equipment  

• Cheaper FOP -> lower UCOP -> AS increase 

• Increase ability to import resources and capital goods -> increase quantity of capital goods -> PC increase

Explain how trade flows lead to strutural change

• Accompanying the development of trade would be the development of complementary services like shipping, air travel, banking, tourism -> structural change to be less dependent on the secondary sector (Eg. Merchandise trade and manufacturing)  -> expand tertiary sector by diversifying into production of services 

• Production of higher-value goods -> EG and SOL

State benefits of trade flows

1. Increase consumer welfare

2. AEG

3. PEG

4. Increase PE

5. Structural change