4.2.6- The International Economy
4.2.6.1- Globalisation
• A dynamic process in which national economies have become increasingly integrated and inter-
dependent
CAUSES OF GLOBALISATION
Domestic market liberalisation (more countries receptive and open to FDI and trade)
Capital market deregulation (freer flow of resources across boundaries)
Transport costs reduction (e.g. through containerisation)
Information and technology improvements
Living standards increase
Trade liberalisation (reduction of barriers)
MAIN CHARACTERISTICS OF GLOBALISATION
1) Greater trade in goods and services
2) Greater FDI
3) Greater specialisation in production, including outsourcing and offshoring
4) Greater labour migration
5) Development of global brands
6) Deindustrialisation of older industrial regions and countries
7) Decrease in individual governmental power
POSITIVE CONSEQUENCES OF GLOBALISATION (as revision, set up some chains of analysis)
Competitive markets
Access to wider range of goods and services
Global awareness
Efficiency gains
Manufacturing cheaper
Economies of scale
Export-led growth
Technology transfer
Specialisation and division of labour
,NEGATIVE CONSEQUENCES OF GLOBALISATION
Macroeconomic fragility
Unemployment
Global brand dominance
Global MNC's exploiting
Environmental damage
Dependency theory
Diversity lost
Income inequality rises
FDI downsides
Trade imbalances
THE ROLE OF MULTINATIONAL CORPORATIONS IN GLOBALISATION
• MNC's - enterprises operating in several countries but with their headquarters in one country
, Trade Rehearsals Notes
Benefits of International Trade
BASIC DEFINITIONS
International Free Trade- The exchange of goods and services across international boundaries between
countries without the introduction of artificial barriers
Absolute Advantage- When one country can produce a product using fewer factors of production than
another country- is more efficient, therefore at a lower cost
Comparative Advantage-When one country produces a good or service at a lower opportunity cost than
another country, in theory meaning the country should specialise and benefit from
international trade.
FOR THEORY OF COMPARATIVE ADVANTAGE LOOK AT TRADE BOOKLET
Trade Diagram Showing Economic Benefits of Trade
• Initially if there is no Trade Consumers pay a price P1 and output is Q1.
• By engaging in trade, the firms can purchase raw materials / consumers can purchase finished goods at
a lower price of P2. (Domestic) Demand extends from Q1 to Q2, (Domestic) supply contracts from Q1 to Q3
• The distance Q2-Q3 represents the quantity of imports
• Consumer surplus has therefore increased by areas A+B+C as a result of trade
• (Domestic) Producer Surplus has reduced by the area A.
• Society has therefore experienced a net welfare gain equal to areas B+C
4.2.6.1- Globalisation
• A dynamic process in which national economies have become increasingly integrated and inter-
dependent
CAUSES OF GLOBALISATION
Domestic market liberalisation (more countries receptive and open to FDI and trade)
Capital market deregulation (freer flow of resources across boundaries)
Transport costs reduction (e.g. through containerisation)
Information and technology improvements
Living standards increase
Trade liberalisation (reduction of barriers)
MAIN CHARACTERISTICS OF GLOBALISATION
1) Greater trade in goods and services
2) Greater FDI
3) Greater specialisation in production, including outsourcing and offshoring
4) Greater labour migration
5) Development of global brands
6) Deindustrialisation of older industrial regions and countries
7) Decrease in individual governmental power
POSITIVE CONSEQUENCES OF GLOBALISATION (as revision, set up some chains of analysis)
Competitive markets
Access to wider range of goods and services
Global awareness
Efficiency gains
Manufacturing cheaper
Economies of scale
Export-led growth
Technology transfer
Specialisation and division of labour
,NEGATIVE CONSEQUENCES OF GLOBALISATION
Macroeconomic fragility
Unemployment
Global brand dominance
Global MNC's exploiting
Environmental damage
Dependency theory
Diversity lost
Income inequality rises
FDI downsides
Trade imbalances
THE ROLE OF MULTINATIONAL CORPORATIONS IN GLOBALISATION
• MNC's - enterprises operating in several countries but with their headquarters in one country
, Trade Rehearsals Notes
Benefits of International Trade
BASIC DEFINITIONS
International Free Trade- The exchange of goods and services across international boundaries between
countries without the introduction of artificial barriers
Absolute Advantage- When one country can produce a product using fewer factors of production than
another country- is more efficient, therefore at a lower cost
Comparative Advantage-When one country produces a good or service at a lower opportunity cost than
another country, in theory meaning the country should specialise and benefit from
international trade.
FOR THEORY OF COMPARATIVE ADVANTAGE LOOK AT TRADE BOOKLET
Trade Diagram Showing Economic Benefits of Trade
• Initially if there is no Trade Consumers pay a price P1 and output is Q1.
• By engaging in trade, the firms can purchase raw materials / consumers can purchase finished goods at
a lower price of P2. (Domestic) Demand extends from Q1 to Q2, (Domestic) supply contracts from Q1 to Q3
• The distance Q2-Q3 represents the quantity of imports
• Consumer surplus has therefore increased by areas A+B+C as a result of trade
• (Domestic) Producer Surplus has reduced by the area A.
• Society has therefore experienced a net welfare gain equal to areas B+C
