4.1.1 Globalisation

What is international trade?

Exchange of goods and services between nations.

What is free trade?

No trade barriers/government intervention on goods/services flows.

What is globalisation?

Increasing integration and interdependence of economies.

What crosses borders through globalisation?

Goods/services, capital, knowledge and workers.

What are key traits of globalisation?

MNC/trade growth, opening economies, supply chains, liberalisation, labour/capital mobility and outsourcing.

What is an MNC?

A multinational corporation operating across multiple countries.

What has happened to large closed economies?

They have opened and rapidly developed, e.g. India and China.

What has happened to global supply chains?

They have expanded, with production becoming more fragmented.

What is trade liberalisation?

Removal or reduction of restrictions on international trade.

Why has labour mobility increased?

Workers are more willing to cross borders for employment.

What is outsourcing?

Contracting production or services to external firms, often abroad.

What is FDI?

Foreign direct investment in another country's businesses or production.

What is inward investment?

Foreign investment entering a country.

What are the three motives for FDI?

Market seeking, resource seeking and efficiency seeking.

What is market-seeking FDI?

Producing in attractive markets to access local demand.

Why can China attract market-seeking FDI?

Rapid growth after opening made its market attractive.

Why does the EU attract non-EU FDI?

Firms want access to the EU Single Market.

What is resource-seeking FDI?

Investment to gain access to key resources.

What resources attract FDI?

Natural resources and skilled or cheap labour.

What is efficiency-seeking FDI?

Locating production where it can be most efficient.

How can FDI increase employment?

Foreign firms create jobs in the host economy.

How can FDI increase trade?

Foreign firms can expand exports and imports.

How does FDI provide capital?

Foreign firms bring investment funds into host economies.

How does FDI provide technology?

Foreign firms can introduce new technologies.

How can FDI promote developing-country growth?

It provides capital/trade-raising capacity they may lack.

What is profit repatriation?

Sending profits earned abroad back to the firm's home country.

How can profit repatriation limit long-run growth?

Profits leave the host economy.

How can tax concessions attract FDI?

Governments offer lower taxes to attract foreign firms.

How can FDI increase inequality?

Technology and benefits may not be distributed equally.

Why might technology from FDI remain undistributed?

Foreign firms may retain control of their technology.

What reduced transport costs over the last 50 years?

Containerisation and air freight.

How did containerisation support globalisation?

It made transporting goods cheaper and more efficient.

How did air freight support globalisation?

It enabled faster international transport.

How did the internet support globalisation?

It made communication cheap and fast.

How did e-commerce support globalisation?

It enabled cheap, rapid international transactions.

How does global media support globalisation?

It rapidly shares information about goods/services with consumers.

What is the WTO?

An organisation supporting rules-based international trade.

Are WTO free-trade agreements trading blocs?

No, the WTO is not a trading bloc.

How have tariffs changed?

Many trade barriers have been reduced.

What are trading blocs?

Groups of countries reducing trade barriers between members.

What is a customs union?

A trading bloc with common external tariffs.

What is an example of a customs union?

The EU.

What replaced NAFTA in 2020?

The United States-Mexico-Canada Agreement (USMCA).

When did China join the WTO?

2001.

Why was China's WTO entry significant?

It brought the world's largest population into rules-based global trade.

How did China's WTO entry affect trade confidence?

Following WTO rules increased confidence in Chinese trade.

What is financial-market deregulation?

Removing restrictions on financial-market activity.

How does deregulation support globalisation?

It allows freer international capital flows.

How does financial technology support globalisation?

It makes financial transactions faster.

How does migration support globalisation?

Workers can move across borders for employment.

How does the EU Single Market support migration?

Residents can live and work in other EU states.

What is an MNC's main motive?

Profit.

How can MNCs exploit consumers?

Monopolies may charge high prices for low-quality goods/services.

How can MNCs exploit workers?

Informal work may involve low wages and poor conditions.

Why can workers have weak bargaining power?

High unemployment reduces their ability to negotiate.

How can specialisation benefit governments?

It increases efficiency and can promote growth.

How can international trade increase government efficiency?

Greater competition and specialisation can reduce inflation.

How can MNC profit repatriation harm developing countries?

Profits leave the host economy.

How can MNCs reduce tax liabilities?

They may move profits to countries with lower tax liabilities.

Which firms are examples of profit-repatriating MNCs?

Starbucks and Amazon.

How can globalisation reduce government policy autonomy?

Governments face greater external economic pressures.

How can globalisation create political tensions?

Countries can pressure others over exchange rates, trade and economic policy.

What happened in US-China exchange-rate tensions in 2003?

The US pressured China over its managed exchange rate.

How did China manage its exchange rate?

It bought US government securities, keeping interest rates low.

What effect did this have on China's currency?

Depreciation made Chinese exports more price-competitive.

What was China's eventual exchange-rate response?

It moved the exchange rate towards equilibrium.

How did EU labour mobility affect Ukrainian refugees in 2022?

They could move to EU states under labour-mobility arrangements.

What did US/EU sanctions on Russia affect in 2022?

Russia's energy sector and European energy dependence.

How does globalisation transmit external shocks?

Integrated economies spread shocks rapidly through trade and finance.

Why do oil-price changes spread across economies?

Oil is an energy input for many firms.

How can oil-price fluctuations affect firms?

They change costs, causing knock-on effects.

What happened during the 2008 financial crisis?

Financial problems spread rapidly between integrated economies.

What did central banks do in October 2008?

Several lowered interest rates together.

Which countries faced Eurozone public-debt crises?

Ireland, Greece and Portugal.

How can integrated economies be more resilient?

Diverse revenue and supply sources can reduce dependence.

How can MNCs support training?

They may invest in worker training.

How can MNCs support infrastructure?

They may invest in infrastructure in host economies.

How can MNCs diversify economies?

They introduce new industries, products and markets.

How can MNCs improve production standards?

They may provide minimum health, safety and quality standards.

What is brain drain?

Loss of skilled workers when they migrate abroad.

How do producers benefit from globalisation?

Larger markets, new products and economies of scale.

How does globalisation help firms enter new markets?

Firms gain access to larger international markets.

How can globalisation expand products?

Firms can develop and sell new products, e.g. UK financial services.

What is an economy of scale?

Lower average costs from producing at a larger scale.

How does low-cost foreign competition affect manufacturing?

It can cause manufacturing decline.

How can globalisation cause supply-chain disruption?

Events such as Brexit and COVID can disrupt international supply chains.

How do consumers benefit from globalisation?

Higher living standards, greater choice and lower prices.

How can globalisation reduce absolute poverty?

Economic development can raise incomes, e.g. in China.

What is cultural homogenisation?

Increasing similarity between cultures through global products and media.

What are examples of cultural homogenisation?

KFC and McDonald's.

How can globalisation affect local firms?

Foreign firms can crowd them out.

What can crowding out local firms cause?

Less local consumer choice.

How does globalisation affect workers?

It creates more job opportunities but can relocate jobs internationally.

Where may primary and secondary-sector jobs move?

To lower-wage economies.

How can this affect developed economies?

It can cause structural unemployment.

What is deindustrialisation?

Decline of manufacturing employment and output.

How can deindustrialisation cause structural unemployment?

Workers may lack skills needed for expanding service jobs.

How can globalisation increase inequality?

Skill mismatches and uneven gains can widen income differences.

How can globalisation affect the environment?

It can increase pollution, emissions and resource depletion.

Why may firms choose countries with loose environmental laws?

Lower regulation can reduce production costs.