What are the causes and effects of

globalisation?
What is Globalisation?

Globalisation: growing cultural, political and economic integration and interdependence worldwide.

Characteristics:

 An increase in trade as a proportion of world GDP.

 Increased movements of financial capital between countries.
 Increased international specialisation and division of labour.
 Growing importance of TNCs and FDI.

Causes of Globalisation

Trade Liberalisation:

 Trade liberalisation refers to a reduction of trade barriers – this will open up worldwide markets.
 Trade barriers have fallen since the Second World War.
 New organisations were formed to increase integration – GATT (General Agreement on Tariffs and Trade,
WTO from 1995).
 WTO has been responsible for negotiating reductions in tariffs and other barriers to trade – most recently
with the DOHA round:
- DOHA round began in 2001.
- Objective was to reduce trade barriers around the world.
- Still haven’t been any agreements – disputes over the issue of American agricultural subsidies, which are
seen as trade barriers.
- Recent push to start negotiations again.
 Some countries are reluctant to reduce trade barriers still, particularly after the global economic crisis.

Improvements in technology:

 Technological improvements have helped to speed up improvements in communications and transport.

 Most important development in recent years – the internet:
- The Internet has been growing since the 1960s, and was opened up for commercial use by the US
government in 1995.
- Post 1995 – Internet began to experience rapid growth as businesses and consumers began to connect
to the World Wide Web.
- The internet has contributed to the ‘death of distance’ – much easier for people who are far away from
each other to communicate.
- Transaction speeds have increased.
- Firms’ costs have been reduced – led to the development of online businesses such as amazon and eBay
– reduces land and labour costs – means that they can operate on a global scale.

Reduced cost/improvement of communications and transportation:

 Fall in the real cost of transporting goods has significantly decreased – allowed for the cheaper importation
and exportation of goods.
 Decline in the cost of communications has also helped this.
 Improvements in transportation have also allowed firms to split up the production process to cash in on
varying cost conditions in different parts of the world.
 This has helped to facilitate the growth of TNCs.
  Communications technology has developed rapidly with the growth of the internet and e-commerce – firms
can compete more easily in global markets.

Increased significance of TNCs (transnational corporations):

 TNCs are large companies with production based in several different countries, e.g. General Motors and
Exxon (Esso).
 After the Second World War more economic power was shifted to corporations – accelerated growth.
 TNCs have grown even further due to favourable corporation tax rates in many countries and tax breaks, as
TNCs supposedly bring in more jobs.
 In 2007, the annual revenue of Wal-Mart Stores was greater than the GDP of Sweden.
 There were about 78,000 TNCs in 2006 – TNCs now control most of the world’s investment capital,
technology, and access to international markets.
 TNCs partake in foreign direct investment, which increases the integration of economies.
 Many TNCs want to gain entry to, for example, the EU due to its single market, and China due to its large and
growing market.
 However, the majority of large TNCs are based in developed countries – not all-encompassing.
 Nokia:
- Originated in Finland.
- Now manufactures 37 out of every 100 phones sold worldwide.
- Nokia products connect one billion people worldwide.

Collapse of Communism:

 Before the collapse – centrally planned economies, little trade and FDI.
 1989 onwards the USSR began to decline – dissolved by 1991.
 Led to rapid globalisation – rise in free market economies and Capitalism in Eastern Europe.
 New markets opened up – FDI and exports allowed capital to flow into the previously Communist countries –
slow process due to the economic isolation of the USSR.
 Also led to an increase in labour mobility – today hundreds of thousands of Eastern Europeans work in the
UK.
 Led to an increase in the movement of commodities – Russia is now the worlds largest exporter of oil,
producing almost 10m barrels per day.
 The opening up of the Chinese economy since the 1970s has also had an impact on globalisation – China is
now the largest exporter and second-largest importer worldwide.

Increased international labour mobility:

 Labour mobility – how willing or able a worker (or group of workers) is to take up a new job in a different
country.
 Labour mobility has increased significantly since WW2 – collapse of Communism, improvements in
communication, EU (allows for free movement of labour in Europe).
 Foreign workers in the UK – 2.3m in 2009 (up from around 1.6m in 2006).
 Increased labour mobility has helped with the integration of cultures and the spread of knowledge and skills
worldwide.
 However – recently after recession those in the West have become more Xenophobic – only allow
immigrants in with select skills.

Deregulation of financial markets:

 Financial markets – markets which allow the trade of financial securities, commodities and other fungible
items.
 There have been moves towards removing restrictions on the movement of financial capital between
countries.
 Many countries have removed capital controls – made it easier for firms to operate globally.
 Reinforced by developments in technology that enable financial transactions to be undertaken more quickly
and efficiently – i.e. the Internet.
  Financial markets have increased globalisation due to their being set up in various contries.
 They allow for more interface and communication between different parts of the world over the trade of
financial assets.

Effects of Globalisation

Advantages (mainly due to comparative Disadvantages

advantage)

Cheaper goods for consumers: increased global Increased commodity prices: resource costs will increase as the
competitiveness leads to cheaper goods and an demand for oil, coal, natural gas etc. increase – cost push inflation.
increase in consumer surplus. Increases in food prices may have a disproportionate effect on the
Increased competitiveness may also lead to poor.
improvements in quality and choice of goods.

Increase in skilled workers in MEDCs: increased Decrease in skilled workers in LEDCs: There has been a ‘Brain Drain’
international labour mobility has led to an increase in in some countries, as skilled workers and graduates are attracted to
skilled workers in the West. more developed countries.
For example, India experiences a large outflow of intellectuals. It has
been estimated that the emigration of computer experts to the US
means that India loses $2bn a year.

Environment: It has been argued that an increase in Environment: On the other hand, a study by DEFRA showed that
globalisation and thus trade may be having a negative importing tomatoes from Spain into the UK (particularly by sea)
effect on the environment. This is due to the fact that causes less environmental damage than growing them at home,
increased trade means increased emissions of because the climate of Spain means that tomatoes can be grown in
greenhouse gases because of the need to transport a more environmentally friendly manner (in Spain no head is
goods over long distances. required to encourage growth and ripening).
For example, a large proportion of the fruit and
vegetables in the UK are imported from abroad, even
if they can be produced in the UK.

Lower production costs: as firms can source cheaper Exploitation of cheap labour: increased labour mobility and the
materials from overseas – this will lead to increased growth of TNCs may lead to exploitation of cheap labour by firms.
profits for firms and therefore increased tax revenues. For example, Nike has been criticised for contracting with factories
which violate minimum wage and overtime laws in various
countries, such as Vietnam, in the 1990s. In the same decade Nike
was exposed as having used child labour in Cambodia and Pakistan
to manufacture footballs.

Improvements in education: increased globalisation Spread of diseases: as migration increases the spread of disease
and the spread of the internet has helped to improve also increases.
education. For example, many universities now have
virtual lectures online.

Cultural diversity: increased movement of labour Loss of cultural identity and segregation: immigrants may lose their
leads to an increase in the spread of different cultural sense of cultural identity, or immigrant communities may develop,
ideas. which means that a spread in cultural diversity is limited.

Poverty reduction: globalisation has led to increases Dumping: this is when markets become flooded with
in GDP and GDP per capita. For example, in China in cheap/substandard goods.
1990 60% of people lived on under $1.25 a day, but For example, US subsidies of around $3bn to American cotton
now only 15% do. producers means that producers dump US cotton onto global
markets, which have negative effects for cotton producers in other
countries, such as Brazil, Mali and Burkina Faso.

Difficult for domestic firms to establish themselves:

competitiveness of global firms and

Increased relative poverty: globalisation leads to the middle classes

becoming richer, but the poorest don’t benefit as much.
 e.g. burgeoning middle classes in China and India.

Increased inequality: improvements in technology which have

facilitated globalisation cannot be shared by all countries – poorer
countries won’t have sufficient access to the internet, for example,
which will hinder their development.
In addition, protectionist measures adopted by developed countries
act as a barrier to firms in developing countries (although there are
currently higher tariffs in developing countries than developed
countries).

Increased vulnerability and instability: globalisation and the

liberalisation of financial markets has led to an increase in
instability, for example the financial crises in Asia at the end of the
1990s and the global credit crunch in the 2000s, following the
collapse in confidence in the banking system.

Deglobalisation:

 Global financial crisis of 2008 has led to a trend referred to as ‘deglobalisation’, or ‘glocalisation’.
 Countries are increasingly adopting protectionist policies in an attempt to protect domestic employment.
 This has led to a decline in specialisation and trade.
 For example, in 2009 the US gave subsidies to the car industry.
 Since 2008, Russia has imposed tariffs on imported cars.
 The EU has raised duties on imported Vietnamese shoes.