Globalisation

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Globalisation

Globalisation is defined in terms of the free movement of goods and services, factors of production (capital, labour), financial flows (FDI, hot money) and economies becoming increasingly interdependent.

Measuring globalisation

Variables to consider when measuring globalisation include:
- Difference between GNP and GDP of a country.
- Remittances as a % of GDP.
- Number of multinational corporations (MNCs) in foreign countries.
- Technology advancements (e.g. number of Internet users).
- Level of protectionism (e.g. tariffs / quotas).
- Membership of free trade agreements (e.g. WTO) / trading blocs (e.g. NAFTA).

Measuring globalisation cont.

More variables to consider when measuring globalisation include:
- Level of FDI flows as a % of GDP.
- Amount of X+M (exports + imports) as a % of GDP.
- Migration/immigration flows.
- Tourism as a % of GDP.
- Foreign aid a % of GDP.

Causes of Globalisation

There are numerous causes of globalisation. All of these causes have played different roles at different times in history to further promote globalisation.

Technological advancements

Mobile phones and the Internet have promoted globalisation.
The Internet has removed physical barriers to trade.
This has had two different effects:
- It has allowed firms in a country to access a much larger market - leading to economies of scale advantages, price falls and consumer surplus rises.
- It has also allowed consumers to have more choice. Now, consumers can buy from more firms in more countries. So there is more competition and prices have fallen.
Travel between countries is also now easier thanks to technological advancements.

Containerisation

Containerisation and huge tanker ships has seen firms exploit volume economies of scale.
This has promoted the international trade of goods by making shipping cheaper.

Growth in WTO membership

The role of the World Trade Organisation (WTO) is to liberalise free trade, to provide a forum to resolve trade disputes, and to lower tariff barriers.
The GATT (General Agreement for Tariffs and Trade) was formed in 1948.
As a result of the Uruguay Round in 1995, the WTO was formed.
The Most Favoured Nation Principle (MFN) says that any tariff reduction offered to one country must be offered to all (against trade discrimination).
The WTO began with 23 members, and now has 163 members.

Causes of Globalisation (Cont.)

There are numerous causes of globalisation. All of these causes have played different roles at different times in history to further promote globalisation.

Growth of free trade blocs

Free trade blocs are typically groups of countries that do not have any trade restrictions (e.g. tariffs, quotas) between them.
The European Union is a Customs Union – this means it has a Common External Tariff (CET). There are no tariffs between countries, but a CET for countries outside the union.

Deregulation

Financial markets de-regulated in the 1980s/90s.
Former communist economies liberalised in late 1980s/90s.
Deregulation allows huge flows of hot money and foreign direct investment (FDI) internationally.
Growth of cross-border FDI (vertical, horizontal, conglomerate integrations/mergers).

Growth of BRICS

The 'BRICs' economies are Brazil, Russia, India, China and South Africa.
These emerging economies have, for the most part, become increasingly integrated into the world economy.
China, in particular, has opened up to trade.

Growth of sovereign wealth funds

A sovereign wealth fund (SWF) is a state-owned investment fund composed of financial assets such as stocks, bonds and other such property which invest huge sums globally.
SWFs are typically created when governments have budgetary surpluses.
SWFs are driven (though not exclusively) by commodity-rich countries such as Qatar, which 'owns' Canary Wharf, The Shard and Harrods!