GLOBALISATION
CC: Costs and benefits of globalisation - need to look at eval
Definitions:
• Globalisation - increased integration of different economies around the world.
K = BENEFIT FIRMS: Globalisation has increased X led growth and LRAS
A = Trade enables them to specialise in the good in which they are most efficient (c/a) --> because they can
trade they have a larger market to sell into --> increase exports --> rise in X led growth --> rise in AD --> rise in
GNI --> rise in development --> gov will have a fiscal dividend (explained in P4) --> firms will have more X
revenue --> more capital goods can be brought --> more investment in economy --> more competitive --> rise
in LRAS --> in long run specialisation and investment reinforces the initial c/a
Ev = if development was in PPD its TOT will go down
= Depends on the type of firm
= Depends on how big the advantage is/how strong initial c/a is
K = BENEFIT TO CONSUMER:
A = can now consume beyond PPF --> increase in consumption possibilities and there will be a reduction in
price of goods --> as buying from lower costs more efficient overseas companies --> increase in supply of M -->
increase in consumer surplus --> increase in choice --> particularly for developing countries who now have
more access to live sustaining goods
Ev = don’t know the standards could be lower
= Domestic consumers may lose jobs to cheaper overseas competitors
K = BENEFIT OF FDI
A = --> more AD/AS --> improves balance of payment--> bring new capital into economy --> reduces savings
and currency gap --> raises standards of living and development --> more workers trained --> skills of workers
improves --> Marginal physical product rises --> marginal revenue product --> earn a higher wage --> workers
have a higher income --> local multiplier --> benefiting local economy
Ev = As long as investment is in hiring local workers
= FDI can be environmentally unfriendly
= How much profit stays in the country ?
K = BENEFIT TO GOV
A = Gov - more exports --> higher corporation tax --> due to higher profits --> consumers better off --> more
expenditure tax --> workers incomes may be rising --> more income tax --> spend more --> expenditure tax -->
increase tax revenue --> more Gov spending --> on HDI factors --> this will skill more workers --> increase in
employment --> increase in productivity --> raise LRAS
Ev =If highly indebted country may use revenue to reduce deficit rather than spend it on development
Corruption in developing country
1
,Causes of globalisation
Definitions:
• Globalisation - increased economic independence between countries
K = fall in transport costs
A = Rise in TNC —> gain EOS to invest in new infrastructure e.g larger planes and containerisation —> better
transport infrastructure around the world —> decrease travel costs and time —> increasing international
movement of labour and fuel efficiency —> rise in globalisation
A = 1970, there were 7,000 TNCs, whilst today there are 63,000 parent companies
Ev = For some countries this is more important than in others - particularly China
K = rise in trading blocs as a result of WTO
A = rise in trading blocs —> reduction in trade barriers —> rise in trade liberalisation —> countries specialising
in their comparative advantage —> increase in trade between countries —> rise in globalisation
A = average tariff rate in developed countries (1960s) = 10% now = 2% which shows the rise in trade
K = reduction communication costs
A = improvements in IT —> reduction in communication costs —> easier for firms to FDI —> increase in foreign
direct investment —> increase in globalisation
A = development of the internet like email, websites PayPal ect.
2
,Consequences of Globalisation to developing economies
Definition
• Globalisation - increased economic independence between countries
• developing economy: country with a less developed industrial base and a low Human Development
Index (HDI) relative to other countries e.g BRICS
K = increase HDI
A = FDI —> rise in employment and real GDP —> rise in firms profits —> increase in corporation tax and
income tax revenue —> gov will be able to increase expenditure on health education and welfare —> high SOL
and development —> reduce poverty/inequality —> increase life expectancy —> more economic
opportunities reflected in HDI
A = India’s HDI rose from 0.47 in 2008 to 0.6 in 2018
E = developing countries are more likely to benefit from globalisation if there is investment in human capital in
order to ensure people benefit from EG and income inequalities do not rise
K = will improve the balance of payments
A = FDI —> higher AD/AS —> raise real GDP —> rise in EG —> rise in employment —> improving BOP current
account —> increase ability to sustain current account deficit without experiencing currency deprecation —>
improve BOP financial account
A = 2019 India's current account gap narrowed in fiscal Q4 on improved trade balance
E = developing economies/governments which manage globalisation are more likely to experience benefits
than those who do not e.g China
= depends on comparative advantage
K = increase GDP
A = trade allows developing economy to specialise according to its CA —> improve resources allocation —> can
consumer outside PPC —> Shift AS right —> rise in capital goods imported —> rise in GDP
A = April-September 2019, the Indian economy grew 4.8 per cent
E = less developed countries: unlikely to benefit as economy is dominated by primary sector production
E = developing economies that have a comparative advantage in the manufacturing sect are more likely to
benefit from globalisation
3
, SPECIALISATION AND TRADE
Using the theory of C/A analyse how an economy can benefit from trade
Definitions
• K = comparative advantage: is when two countries specialise a d trade in products when're they have
the lowest relative opportunity costs
• K = opportunity cost: a country has a c/a when the sacrifice in production of one good required to
raise the output of another good is less than that in other countries
DIAGRAM
A = by trading at mutually beneficial terms of trade (between the two OC) C/A allows an economy to consume
beyond its PPF —> increase in economic welfare —> country can consume goods at a lower opportunity costs
than if they were to produce them itself as seen below
Ev = high transport costs make trade not worthwhile
= there could be high barriers and tariffs
= factors of production may not always be perfectly mobile making trade difficult
4
CC: Costs and benefits of globalisation - need to look at eval
Definitions:
• Globalisation - increased integration of different economies around the world.
K = BENEFIT FIRMS: Globalisation has increased X led growth and LRAS
A = Trade enables them to specialise in the good in which they are most efficient (c/a) --> because they can
trade they have a larger market to sell into --> increase exports --> rise in X led growth --> rise in AD --> rise in
GNI --> rise in development --> gov will have a fiscal dividend (explained in P4) --> firms will have more X
revenue --> more capital goods can be brought --> more investment in economy --> more competitive --> rise
in LRAS --> in long run specialisation and investment reinforces the initial c/a
Ev = if development was in PPD its TOT will go down
= Depends on the type of firm
= Depends on how big the advantage is/how strong initial c/a is
K = BENEFIT TO CONSUMER:
A = can now consume beyond PPF --> increase in consumption possibilities and there will be a reduction in
price of goods --> as buying from lower costs more efficient overseas companies --> increase in supply of M -->
increase in consumer surplus --> increase in choice --> particularly for developing countries who now have
more access to live sustaining goods
Ev = don’t know the standards could be lower
= Domestic consumers may lose jobs to cheaper overseas competitors
K = BENEFIT OF FDI
A = --> more AD/AS --> improves balance of payment--> bring new capital into economy --> reduces savings
and currency gap --> raises standards of living and development --> more workers trained --> skills of workers
improves --> Marginal physical product rises --> marginal revenue product --> earn a higher wage --> workers
have a higher income --> local multiplier --> benefiting local economy
Ev = As long as investment is in hiring local workers
= FDI can be environmentally unfriendly
= How much profit stays in the country ?
K = BENEFIT TO GOV
A = Gov - more exports --> higher corporation tax --> due to higher profits --> consumers better off --> more
expenditure tax --> workers incomes may be rising --> more income tax --> spend more --> expenditure tax -->
increase tax revenue --> more Gov spending --> on HDI factors --> this will skill more workers --> increase in
employment --> increase in productivity --> raise LRAS
Ev =If highly indebted country may use revenue to reduce deficit rather than spend it on development
Corruption in developing country
1
,Causes of globalisation
Definitions:
• Globalisation - increased economic independence between countries
K = fall in transport costs
A = Rise in TNC —> gain EOS to invest in new infrastructure e.g larger planes and containerisation —> better
transport infrastructure around the world —> decrease travel costs and time —> increasing international
movement of labour and fuel efficiency —> rise in globalisation
A = 1970, there were 7,000 TNCs, whilst today there are 63,000 parent companies
Ev = For some countries this is more important than in others - particularly China
K = rise in trading blocs as a result of WTO
A = rise in trading blocs —> reduction in trade barriers —> rise in trade liberalisation —> countries specialising
in their comparative advantage —> increase in trade between countries —> rise in globalisation
A = average tariff rate in developed countries (1960s) = 10% now = 2% which shows the rise in trade
K = reduction communication costs
A = improvements in IT —> reduction in communication costs —> easier for firms to FDI —> increase in foreign
direct investment —> increase in globalisation
A = development of the internet like email, websites PayPal ect.
2
,Consequences of Globalisation to developing economies
Definition
• Globalisation - increased economic independence between countries
• developing economy: country with a less developed industrial base and a low Human Development
Index (HDI) relative to other countries e.g BRICS
K = increase HDI
A = FDI —> rise in employment and real GDP —> rise in firms profits —> increase in corporation tax and
income tax revenue —> gov will be able to increase expenditure on health education and welfare —> high SOL
and development —> reduce poverty/inequality —> increase life expectancy —> more economic
opportunities reflected in HDI
A = India’s HDI rose from 0.47 in 2008 to 0.6 in 2018
E = developing countries are more likely to benefit from globalisation if there is investment in human capital in
order to ensure people benefit from EG and income inequalities do not rise
K = will improve the balance of payments
A = FDI —> higher AD/AS —> raise real GDP —> rise in EG —> rise in employment —> improving BOP current
account —> increase ability to sustain current account deficit without experiencing currency deprecation —>
improve BOP financial account
A = 2019 India's current account gap narrowed in fiscal Q4 on improved trade balance
E = developing economies/governments which manage globalisation are more likely to experience benefits
than those who do not e.g China
= depends on comparative advantage
K = increase GDP
A = trade allows developing economy to specialise according to its CA —> improve resources allocation —> can
consumer outside PPC —> Shift AS right —> rise in capital goods imported —> rise in GDP
A = April-September 2019, the Indian economy grew 4.8 per cent
E = less developed countries: unlikely to benefit as economy is dominated by primary sector production
E = developing economies that have a comparative advantage in the manufacturing sect are more likely to
benefit from globalisation
3
, SPECIALISATION AND TRADE
Using the theory of C/A analyse how an economy can benefit from trade
Definitions
• K = comparative advantage: is when two countries specialise a d trade in products when're they have
the lowest relative opportunity costs
• K = opportunity cost: a country has a c/a when the sacrifice in production of one good required to
raise the output of another good is less than that in other countries
DIAGRAM
A = by trading at mutually beneficial terms of trade (between the two OC) C/A allows an economy to consume
beyond its PPF —> increase in economic welfare —> country can consume goods at a lower opportunity costs
than if they were to produce them itself as seen below
Ev = high transport costs make trade not worthwhile
= there could be high barriers and tariffs
= factors of production may not always be perfectly mobile making trade difficult
4
