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Study notes

Benefits and Costs of Globalisation

  • Levels: A Level
  • Exam boards: AQA, Edexcel, OCR, IB

What are some of the main benefits and costs from globalisation?

Gains from Globalisation - revision video

Benefits from Globalisation

  1. Trade enhances division of labour as businesses and countries specialise in areas of comparative advantage
  2. Deeper relationships between markets across borders enable and encourage producers and consumers to reap the benefits of economies of scale
  3. Competitive markets reduce monopoly profits and incentivize businesses to seek cost-reducing innovations and improvements in what they sell – this leads to an improvement in dynamic efficiency
  4. Gains in efficiency should bring about an improvement in economic growth and higher per capita incomes. The OECD Growth Project found that a 10 percentage-point increase in trade exposure for a country was associated with a 4% rise in income per capita over time
  5. Globalisation has helped many of the world's poorest countries to achieve higher rates of economic growth and reduce the number living in extreme poverty – for example, significant progress has been made in China and India and notable in a number of sub-Saharan African countries whose annual growth of real GDP has often exceeded 10%.

Costs of Globalisation

  1. Inequality: Globalisation has been linked to rising inequalities in income and wealth. Evidence for this is a rise in the Gini-coefficient and a growing rural–urban divide in countries such as China, India and Brazil. This leads to political and social tensions and instability as a backlash.
  2. Inflation: Strong demand for food and energy has caused a steep rise in commodity prices. Food price inflation (known as agflation) has placed millions of the world's poorest people at great risk.
  3. Macroeconomic Instability: A decade or more of strong growth, low interest rates, easy credit in developed countries created a boom in share prices and property valuations. The bursting of speculative bubbles prompted the credit crunch and the contagion from that across the world in from 2008 onwards. This had negative effects on poorer & vulnerable nations.
  4. Threats to the Global Commons: A major long-term threat is the impact that rapid growth and development is having on the environment. Threats of irreversible damage to ecosystems, land degradation, deforestation, loss of bio-diversity and the fears of a permanent shortage of water are afflicting millions of the most vulnerable people
  5. Trade Imbalances: Global trade has grown but so too have trade imbalances. Some countries are running enormous trade surpluses and these imbalances are creating tensions and pressures to introduce protectionist policies such as new forms of import control.
  6. Unemployment: Concern has been expressed by some that capital investment and jobs in advanced economies will drain away to developing countries as firms switch their production to countries with lower unit labour costs. This can lead to higher levels of structural unemployment.
  7. Standardization: Some critics of globalisation point to a loss of economic and cultural diversity as giant firms and global brands dominate domestic markets in many countries.
  8. Dominant Global Brands – globalisation might actually stifle competition if global businesses with dominant brands and superior technologies take charge of key international markets be it telecommunications, motor vehicles, heavy industrial equipment or digital cameras.
Costs of Globalisation - Revision Video
Globalisation in reverse (Financial Times)

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