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ever increasing integration of the worlds local, regional and national economies into a
single, international market
CHARACTERISTICS:
- free trade of goods and services
- free movement of capital and labour
- free interchange of technology and intellectual capital
With the spread of globalization:
More trade between nations more countries participate in global trade, such as
China and India
More transfers of capital including FDI (Foreign Direct Investment) higher levels of
investment
Brands developed globally
More migration labour has been divided between several countries
Countries have become more interdependent performance of their own country
depends on the performance of other countries (could be seen in 2008 and
2009, when the effects of the global credit crunch spread across the
globe)
2. Trade in services
For example, trade of tourism, call centre services, and software
production (particularly from India) has increased from developing
countries to developed countries
3. Trade liberalization
Growing strength and influence of organizations such as WTO, which
advocates free trade, has contributed to the decline in trade barriers
6. Communications and IT
Spread of IT makes it easier and cheaper to communicate, so world
becomes more interconnected
Better transport links and easier transfer of information
- Globalisation leads to increase in world GDP -> increases consumer living standards
and helps lifts people out of absolute poverty. (however, hard to calculate proportion of
growth which was due to globalization)
- Rise in average consumer incomes -> increased demand of commodities -> increase
price of raw materials
- Wider range of goods and services -> increase availability (services might become
homogenized like hotels)
COSTS OF GLOBALISATION:
1. Free Trade can Harm Developing Economies
- developing countries often struggle to compete with developed countries
- free trade benefits developed countries more
- Industries in developing countries need protection from free trade in order to develop
- Developing countries are often harmed by tariff protection Western economies have on
agriculture
2. Environmental Costs
- Increase the use of non-renewable resources
- Increase pollution and global warming
3. Labour Drain
- Globalisation allows workers to move freely
- Higher wages elsewhere attracts workers -> countries cant hold onto their best skilled
workers
4. Tax Competition and Tax Avoidance
- MNC like Amazon and Google can set up offices in countries like Bermuda and
Luxembourg (very low rate of corporation tax) -> then funnel their profits through these
subsidiaries (they pay very little tax in countries where they do most of their business)
- Govt will have to increase taxes on VAT and income tax (unfair for domestic firms who
dont use the same tax avoidance measures)
- Greater mobility of capital -> countries encourages inward investment by offering low
corporation tax -> leads to higher forms of other tax