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Globalisation

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Economics

Did you know that people in almost every country in the world watch Netflix? Netflix is available in over 190 countries, although you can't access it in China, Crimea, North Korea, or Syria. Netflix, just like many other things today, has spread across the world as a result of globalisation.

Globalisation is a process of growing integration of the world’s economies, populations, and cultures. It implies the interaction among people, companies, and governments worldwide. Through globalisation, the world is becoming more and more interconnected.

There are three types of globalisation:

  • Economic globalisation: the integration of world economies and their increasing interdependence.

  • Political globalisation: the increasing amount of political cooperation that exists between different countries.

  • Cultural globalisation: the standardisation of cultural expressions, ideas, meanings, and values among people from all around the world.

In this explanation, we will mainly focus on economic globalisation.

Characteristics of globalisation

Globalisation is a process with specific features and activities. These features also pertain to the cause of globalisation in itself.

  • Greater international mobility of capital.
  • Growth of international trade.
  • Reduction of trade barriers and trade liberalisation (thanks to the World Trade Organization).
  • Increased power of multinational corporations (MNCs).
  • Greater international mobility of labour.
  • Deindustrialisation of past industrial regions.
  • Decreased power of governments.
  • Reduced distance between countries (technology development).
  • Lower transportation costs (transport development).

The World Trade Organization is an international organisation that encourages countries to trade with one another by promoting free trade. Free trade refers to reducing or completely removing import tariffs and any other trade barriers.

To learn more about trade check out our explanation on the Free Trade.

Advantages and disadvantages of globalisation

Globalisation has had many impacts not only on the economy but also on the politics and culture of the world we live in today. Although there are both advantages and disadvantages, many aspects of globalisation can be either positive or negative, depending on the point of view.

Advantages

  • Creates new job opportunities that lead to the reduction of poverty and the increased output and productivity of an economy.

  • Makes it possible for immigrants to fill labour and staff shortages. This prevents a country’s economy from being stagnant.

  • Increases migration of highly qualified labour that shares new skills and technologies. These help to increase productivity and efficiency.

  • Promotes transport development that leads to the growth of the tourism industry.

  • Supports competitiveness between companies. This leads to more choices and better quality of goods and services. It also reduces the scale of monopoly profits.

  • Promotes an economy with low tariff and non-tariff barriers which is beneficial for imports and exports.

  • Global supply chains and retail markets enable companies to expand and develop.

  • Encourages international cooperation between countries and governments, including fighting issues related to the environment.

  • Promotes sharing of cultures and languages around the world, which creates a vibrant cultural diversity.

  • Increases awareness of global issues such as global warming and natural disasters.

Disadvantages

  • Maintains inequalities between countries caused by the domination of wealthy and high developed countries.

  • Causes trade imbalances, which lead to protectionist tensions.

  • Allows the growing power of multinational corporations (MNCs) which drive local companies out of business.

  • Increases foreign direct investment (FDI) and acquisitions across the borders.

  • Creates standardisation. This causes the disappearance of the world’s cultural diversity such as unique traditions and languages.

  • Enlarges social tensions and conflict of ideologies caused by migrations.

  • Promotes progressing climate change including damage of ecosystems, deforestation, and shortage of water.

Multinational corporations and globalisation

Multinational corporations (MNCs) are companies that operate in at least one country other than their home country.

Causes behind the growth of MNCs

In the last decade, multinational corporations started to play a crucial role in the international economy. Before the twentieth century, countries were the main traders. This has changed now as companies have become the key players in the market.

One of the reasons for that change is the ease of moving a company’s operations abroad. Due to technological developments, entrepreneurs can easily communicate with businesses in foreign countries. Moreover, owing to transport developments, travelling between countries has become easier and cheaper.

Another important reason for corporations becoming the key players in the market is the financial profits they can gain from moving their operations abroad. When a firm enters more markets, it gains new customers and its revenue increases.

Additionally, companies can take advantage of cheaper labour and lower land costs of production. In many countries such as China, it is cheaper to build and run a manufacturing factory compared to the UK, for example.

Advantages and disadvantages of MNCs

AdvantagesDisadvantages
Creating more jobs.The exploitation of labour.
Availability of various goods and services.Driving local companies out of business.
Reduced government dependency.Encouraging political corruption.
Capital inflow.Repatriating profits.
Economy diversification.Monopoly creation.
Innovation, technology, and infrastructure development.Environmental pollution.

The impact of globalisation

Globalisation might have different consequences depending on the country and its government. The advantages for some can be disadvantages for others or the environment.

Developing countries

Developing countries are countries with a low level of economic development, low income per person, and low living standards. Their economy is typically dependent on export.

The consequences of globalisation on developing countries are:

  • Destruction of local and national products.
  • Low-paid jobs in sweatshops.
  • Forcing farmers to grow genetically modified crops.
  • Privatisation of state-owned industries.
  • The growing dominance of American corporate culture.

Developed countries

Developed countries are countries with a high level of economic development, high average income per person, and high living standards. Their economy is typically dominated by service industries.

Some consequences of globalisation on developed countries are:

  • Closing factories and moving them to less developed countries.
  • Increasing social inequalities.
  • Increased immigration.
  • Market dominated by multinational corporations.
  • Increased business competitiveness.

Environment

The environment is an important topic when it comes to globalisation.

The key factors negatively affecting the environment are the growth of multinational corporations and transport development. Typically MNCs own huge production facilities which require a lot of energy. Since the factories tend to be located in developing countries where energy sources are thermal power stations, they highly contribute to air pollution. Moreover, manufacturing any kind of product is associated with producing a lot of waste, which additionally pollutes the environment.

Regarding transport development, globalisation has made it cheaper to travel and to use means of transportation that used to be a luxury. Therefore, nowadays people travel more often than in the past. Frequent travels by plane, bus, or car imply higher use of fossil fuels, which produces emissions that go into the atmosphere.

However, globalisation also has some positive effects on the environment. Thanks to it, environmental awareness has increased among people all around the world. Not only has the information flow improved, but also the cooperation between countries. Currently, more people around the world try to live more ecologically than in the past: for example, they recycle and consume less meat. Additionally, many institutions such as the European Union work on projects aiming to reduce environmental pollution. For example, they promote the use of more ecological energy sources such as hydro and nuclear power stations.

Globalisation - Key takeaways

  • Globalisation is a process of growing integration of the world's economies, populations, and cultures.
  • Due to globalisation, the world is becoming more and more interconnected.
  • The World Trade Organization is an international organisation that encourages countries to trade with one another by promoting free trade.
  • Globalisation led to the emergence of multinational corporations: companies that operate in at least one country other than their home country.
  • Globalisation has both positive and negative impacts.

Globalisation

Globalisation is a process of growing integration of the world's economies, populations, and cultures. It is an interaction and integration among people, companies, and governments worldwide. Through globalisation, the world is becoming more and more interconnected.

Through globalisation the world is becoming more and more interconnected.

Multinational corporations (MNCs) are companies that operate in at least one country other than their home country.

WTO stands for World Trade Organisation. It is an international organisation that encourages countries to trade with one another by promoting free trade.

Free trade refers to reducing or completely removing import tariffs and any other trade barriers.

Final Globalisation Quiz

Question

What is globalisation?

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Answer

Globalisation is a process of growing integration of the world's economies, populations, and cultures. 

Show question

Question

Give three characteristics of globalisation.

Show answer

Answer

Any three of:

  • Greater international mobility of capital
  • Growth of international trade 
  • Reduction of trade barriers and trade liberalisation (WTO)
  • Increased power of multinational corporations (MNCs)
  • Greater international mobility of labour
  • Deindustrialisation of previously industrial regions
  • Decreased power of governments
  • Reduced distance between countries (technology development)
  • Lower transportation costs (transport development)

Show question

Question

What are MNCs?


Show answer

Answer

Multinational corporations (MNCs) are companies that operate in at least one country other than their home country.

Show question

Question

What is WTO?


Show answer

Answer

WTO stands for World Trade Organization. It is an international organisation that encourages countries to trade with one another by promoting free trade.

Show question

Question

What is free trade?


Show answer

Answer

Free trade refers to reducing or completely removing import tariffs and any other trade barriers.

Show question

Question

What are two advantages of globalisation regarding labour and jobs?


Show answer

Answer

Any two of:

  • New job opportunities leading to the reduction of poverty and the increased output and productivity of an economy. 
  • Filling labour and staff shortages by immigrants preventing an economy from being stagnant.
  • Increase in migration of highly qualified labour sharing new skills and technologies.

Show question

Question

How does globalisation influence politics?


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Answer

It encourages international cooperation between countries and governments.

Show question

Question

What is FDI?

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Answer

Foreign direct investment

Show question

Question

What encourages companies to expand internationally?


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Answer

Technology development, transport development, new customers, revenue increase, cheaper labour, and lower land costs.

Show question

Question

What are three disadvantages of multinational corporations?


Show answer

Answer

Any three of:

  • Environmental pollution
  • Driving local companies out of business
  • Encouraging political corruption
  • Monopoly creation
  • Labour overuse
  • Repatriating profits 

Show question

Question

Provide a definition of developing countries.


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Answer

Developing countries are countries with a low level of economic development, low income per person, and low living standards. Their economy is typically dependent on export.

Show question

Question

What is the dominant industry in developed countries?


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Answer

The service industry.

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Question

What are the consequences of globalisation on developed countries?


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Answer

  • Closing factories and moving them to less developed countries
  • Increasing social inequalities
  • Higher number of immigrants
  • Market dominated by multinational corporations
  • Increased business competitiveness

Show question

Question

What are the three main ways in which globalisation affects the environment?


Show answer

Answer

Growth of multinational corporations, transport development, and environmental awareness.

Show question

Question

What are the three types of globalisation?

Show answer

Answer

Economic, political, and cultural globalisation

Show question

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