What do you understand by the term globalisation? (20)
Globalisation is the process by which the world is becoming increasingly interconnected as a result of massively increased trade and cultural exchange. Globalisation has increased the production of goods and services. The biggest companies are no longer national firms but multinational corporations with subsidiaries in many countries.
Globalisation has been taking place for hundreds of years, but has speeded up enormously over the last half-century.
Globalisation has resulted in: increased international trade a company operating in more than one country greater dependence on the global economy freer movement of capital, goods, and services recognition of companies such as McDonalds and Starbucks in less economically developed countries
Globalisation can be divided into:
Economic -countries that trade with many others and have few trade barriers are economically globalised
Social -a measure of how easily information and ideas pass between people in their own country and between different countries
Political -the amount of political co-operation there is between countries Explain the main causes of globalisation in the last twenty years. (40)
Historically, there were 3 waves of globalisation:
1870-1914
Europe and North America were strongly affected by internationalisation, the flow of goods accelerated, capital moved relatively freely between countries
Large change in Europe, Germany creates itself into a powerful nation, opening of America, big shifts, increase in trade of commodities, openness of economies
Drivers: new technology of the era that could bridge long geographical distances and the fact that many countries began to embrace liberal trade policy after years of protectionism
1950-1980
Decrease of globalisation after 1914 due to WWI, EU countries were borrowing money from USA, USA was now the leading economy in the world and the dollar became the monetary basis of the financial system
International regulations and organisations to support economic integration at the global level were created after WWII
Overall there was an expansion of world trade, GDP growth, increase in trade
1980-2014
The more populous countries in the developing world, particularly China and India, have opened their doors to the world, European cooperation has widened and deepened, the fall of the Berlin Wall in 1989 can be seen as start of the third wave of globalisation
Political trade barriers have been relaxed in many ways, the World Trade Organization (WTO) was established in 1995 and capital has again become more elastic
In the last few decades, international trade has grown significantly faster than total production, foreign direct investment has increased twice as fast as trade, an even more rapid increase has been seen in foreign securities
Overall reasons for globalisation:
Improved transport, making global travel easier- ex: growth in air-travel, enabling greater movement of people and goods across the globe.
Rapid adoption of the steel transport container- reduced the costs of inter-modal transport making trade cheaper and more efficient improved technology-easier to communicate and share information around the world
Growth of multinational companies
Growth of global trading blocks- reduced national barriers. (e.g. EU, NAFTA, ASEAN)
Reduced tariff barriers- has occurred through the support of the WTO, encourages trade
Economies of scale- firms exploiting gains from economies of scale to gain increased specialisation
Growth of global media.
Financial system more global- when US banks suffered losses due to sub-prime mortgage crisis, it affected all major banks in other countries who had bought financial derivatives from US banks and mortgage companies
Improved mobility of capital- reduction in capital barriers, making it easier for capital to flow between different economies
Discuss whether globalisation has been a force for good or