2.2.1 Globalisation

Globalisation

Increased integration and interdependence between global economies

Reasons for globalisation

• Fewer tariffs and quotas

• Reduced cost of transport

• Reduced cost of communication

• Increased significance of MNCs

Tariffs

A tax on imports

Quota

A physical limit on the number of imports

Impacts of globalisation

• Rising living standards

• Greater choice

• Lower prices

• Closing of traditional industries

• Environmental impact

MNC (multinational company)

A company that operates in more than one country

FDI (or inward investment

When a company makes an investment in a foreign country

Reasons for the emergence of MNcs and FDIs

• To benefit from economies of scale

• To access natural resources/cheap materials

• Lower transport and communication costs

• To access customers in different regions

Advantages of MNCs/FDIs

• Creating jobs

• Investing in infrastructure

• Developing skills

• Developing capital

• Contributing to taxes

Disdvantages of MNCs/FDIs

• Avoiding paying taxes

• Environmental damage

• Moving profits abroad