The world's economies have become deeply interconnected over the last half-century. This sub-theme sets the scene for the whole unit: what globalisation is, what…
The world's economies have become deeply interconnected over the last half-century. This sub-theme sets the scene for the whole unit: what globalisation is, what drove it, and who wins and loses from it.
🎯 Learning objectives — by the end of 4.1 you can…
- describe the characteristics and causes of globalisation; - explain FDI by transnational companies and its impact on host countries; - evaluate the benefits and costs of globalisation.
4.1.1 Characteristics & causes
Spec: 4.1.1
Globalisation is the increasing integration and interdependence of the world's economies — the freer movement of goods, services, capital and labour across borders. Its main characteristics are a rising share of trade as a proportion of GDP, the growing importance of transnational companies (TNCs) and FDI, and increased migration.
Key terms
Causes of globalisation over the last 50 years
- Trade liberalisation — falling tariffs and the work of the WTO; - more and larger trading blocs; - political change — the breakdown of the Soviet system and the opening up of China; - lower transport and communication costs — containerisation and the internet; - the rising significance of TNCs.
4.1.2 TNCs & foreign direct investment
Spec: 4.1.2
A transnational company (TNC) operates in more than one country. Foreign direct investment (FDI) is long-term investment by a firm into productive capacity abroad (a factory, an acquisition). Firms undertake FDI to access new markets, lower their costs (cheaper labour or resources), jump trade barriers, or secure raw materials.
| FDI — benefits to the host country | FDI — costs to the host country |
|---|---|
| Jobs, investment and economic growth | Profits repatriated back to the home country |
| Transfer of technology and skills | Possible exploitation of workers and the environment |
| More tax revenue | Transfer pricing reduces the tax actually paid |
| Access to global supply chains | TNC influence over domestic policy |
4.1.3 Effects of globalisation
Spec: 4.1.3
| Benefits | Costs |
|---|---|
| Higher economic growth | Displaced workers (structural unemployment) |
| More tax revenue | Exploitation of workers |
| Economies of scale | Environmental damage from more trade |
| Lower prices, higher consumer surplus & more choice | Lost tax revenue from transfer pricing |
| Higher living standards | Greater income inequality within countries; TNC influence on policy |
Evaluation — winners and losers
Globalisation creates clear winners (consumers, exporters, emerging economies) and losers (displaced workers in declining industries). Whether it is "good" depends on how the gains are distributed and whether governments support those who lose out — a theme that runs right through to 4.4 (inequality) and 4.5 (the role of the state).
4.1 Recap — nail these
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