Free trade
AQA also says:
Spec content: The meaning of globalisation; Causes and consequences; Impact on consumers, producers, workers and governments.
Students should be able to understand: the meaning of globalisation; the causes and consequences; the impact on consumers, producers, workers and governments.
What is Globalisation?
Globalisation is the process by which national economies, cultures, and societies become increasingly integrated and interdependent through the growing flow of goods, services, capital, labour, information, and ideas across borders. It represents a shrinking of effective economic distance between countries — a business in Manchester can source components from Vietnam, sell to customers in Brazil, and employ developers in India.
Causes of globalisation:
- Falling transport costs — containerisation, cheaper air freight, and more efficient shipping have dramatically reduced the cost of moving goods globally.
- Advances in communications technology — the internet and digital communications allow instant global coordination, enabling multinational production and global supply chains.
- Trade liberalisation — reduction of tariffs and trade barriers through the World Trade Organisation (WTO), bilateral and multilateral trade agreements, and regional trade blocs (EU, USMCA) have opened markets.
- Financial deregulation — removal of capital controls has allowed investment to flow freely between countries.
- Multinational corporations (MNCs) — large companies operating across many countries drive globalisation by integrating global supply chains and spreading products, brands, and practices worldwide.
Consequences of Globalisation
For consumers: greater variety of goods at lower prices; access to products from all over the world; global brands and entertainment.
For producers: access to global markets (larger potential customer base); access to cheaper inputs from lower-cost countries; increased competition from foreign firms; easier to relocate production to lower-cost locations.
For workers:
- In developing countries: globalisation has created millions of manufacturing jobs, raising wages and living standards (e.g. China's economic transformation).
- In developed countries: offshoring of manufacturing has destroyed jobs in industries unable to compete with lower-wage producers; some workers face downward wage pressure.
- Skilled workers globally benefit from being able to work for international firms.
For governments: increased tax revenue from MNC activity and growing trade; reduced ability to tax and regulate independently (firms threaten to relocate); pressure to compete on regulatory standards and corporation tax rates ("race to the bottom"); challenges managing domestic industries facing global competition.
Key Takeaways
- Globalisation: integration of national economies through flows of goods, services, capital, labour and ideas.
- Causes: falling transport/communication costs, trade liberalisation, financial deregulation, MNCs.
- Benefits: lower prices, greater variety, growth opportunities, development in poorer countries.
- Costs: job losses in uncompetitive domestic industries, regulatory challenges, inequality between and within countries.