Seneca
Sign up

Factors Contributing to Globalisation

Business: BTEC Level 3 National Extended Diploma, topic 4.3.2

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

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

  • 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

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

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

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

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

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!

Test yourself on Factors Contributing to Globalisation

  • Which cause of globalisation has made the use of huge tanker ships more cost effective?

  • Which cause of globalisation is due to countries collaborating to promote international business?

  • Which of the following are causes of globalisation?

  • Which of the following is not a member of BRICS?

Practise this topic for free