Globalisation for MEDCs
Economics: Edexcel A A Level, topic 7.1.3
Positives of Globalisation for More Developed Economies
As with LDCs, more-developed countries (MDCs) have undergone changes as globalisation continues.
Export-led growth
- Globalisation allows countries to develop further through export-led growth and an export-led positive multiplier.
- For example, South Korea developed over many years via an export-led growth model.
Increased competition and choice
- More contestability (lowering barriers to entry and exit) such as deregulation allows for:
- More access to foreign goods and services.
- More competition.
- Lowering price further.
- Globalisation means increased choice for consumers (e.g. plasma TV from Japan and BMW from Germany).
Better supply of labour
- Free flows of labour mean that labour shortages can be filled and wage inflation can be suppressed by creating a greater pool of labour for firms to choose from.
- MDCs are usually the beneficiaries of 'brain drain' from LDCs.
Negatives of Globalisation for More Developed Countries
As with LDCs, more-developed countries (MDCs) have undergone changes as globalisation continues.
Structural/regional unemployment
- Domestic firms could be out-competed by competitors in LDCs with lower costs and close down. Because labour is a derived demand, this could lead to regional unemployment.
- E.g. the 'Rust Belt' in the USA suffered from losing its main industry of car manufacturing.
Vulnerability to shocks
- By becoming more interdependent, the risk of contagion (an external event somewhere else in the world coming back to affect you) rises.
- Contagion makes a country more vulnerable to economic problems elsewhere.
- E.g. economic problems spreading through the Eurozone countries after the events of the financial crisis in 2008.
Exchange rate volatility
- Volatile speculative flows of hot money are a feature of globalisation. Changes in interest rates can cause investors to take their money out of a currency in seconds.
- Frequent changes in exchange rates are hard to manage as an importer and an exporter.
- In 2011, the Swiss Franc changed in value vs the Euro by 30% in one day.
- Between 2014 and 2016, the Brazilian Real fell 50% vs Sterling.
- Exchange rate volatility can make it difficult for MNCs to plan.
Test yourself on Globalisation for MEDCs
Which of the following are benefits of globalisation for MDCs?
Which of the following are the results of increased contestability from globalisation?
Which of the following are potential consequences of globalisation for MDCs?