Globalisation

Globalisation

1. key dimensions (definition)

   • goods and services
     • promotes (freer) trade
       • economic integration (preferential treatment arrangement)
         • Free Trade Area
           • trade barriers removed for members, free to set own barriers with non-members
         • customs union
           • Free Trade Area + adoption of common external barriers
         • common market
           • customs union + free movement of FOP between members
         • economic union
           • customs union + common currency + may adopt common economic policies
         • effects
           • trade creation
             • consumption shifts from high-cost to low-cost producer
             • improves net welfare
           • trade diversion
             • consumption shifts from lower-cost producer in union to higher-cost producer outside union
     • benefits
       • wider variety of goods @ lower prices
         • countries could specialize in the good that they have CA
       • increase in quality of products
       • rise in income
         • expand global market
           • sell more X
       • reduction in poverty, rise in SOL in LICs
     • costs
       • income inequality between countries
       • decline in domestic industries
         • due to competition with cheaper imports
       • exposure to medical and economic risks
       • increased environmental degradation + allocative ineffiency
   • labour
     • increase in foreign labour
     • benefits
       • increase labour force
       • improve export competitiveness
         • due to lower COP
     • costs
       • social tension
       • brain drain
   • technology and ideas ("space-shrinking")
     • transportation
     • communication
     • benefits
       • improve production efficiency
     • costs
       • technological progress replaced low-skilled jobs
   • finance and capital
     • physical (machines, setting up of factories)
     • financial (hot money, portfolio investments)
     • benefits
       • increase domestic employment
       • increase outward investment
         • increase GNP
     • costs
       • income inequality gap widens
       • will tend to out-source or off-shore production
         • increase unN

2. causes

   • improvements in transport, communication + growth of global media
     • increases flow of g/s + info
   • costs of travel reduces
     • increase inter-connectedness
   • growth of MNCs
   • growth of global trading blocs
     • reduced barrier
       • intl movement of g/s + FOPs