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  1. 1. 3.10.2 Globalization of economic activity Integration of world economic activity Understand that world economic activity is increasingly integrated because of growing international trade, the growth of transnational corporations (TNCs), international economic agreements, trading blocs and global movements of capital. Be familiar with the evidence of the growth of each of these global economic integration factors.
  2. 2. <ul><li>1980 Brandt report </li></ul><ul><li>1950 and 1980 the North accounted for almost 80% of global GDP but contained only 20% of the world’s population whereas the South accounted for 80% of the population but generated 20% of global income </li></ul>
  3. 3. Today – world’s economies fall into 4 groups <ul><li>Group 1 – affluent countries (USA, most of Europe, Japan) They have dominated the global economy over past 50 years </li></ul><ul><li>Group 2 – emerging economies. Around 30 countries whose percapita GDP growth rates are >3.5%. Has a total population of >3 billion (approx 50% of world’s pop) China and India. These may become the engines of global economy </li></ul><ul><li>Group 3 – more than 50 countries and contains >1 billion people. Have many natural resources – oil. To date they have not been able to translate the wealth obtained from their natural resources into sustained economic growth </li></ul><ul><li>Group 4 The world’s poorest economies. Home to 1 billion people. Continue to stagnate or decline economically, being isolated from the global economy and facing crucial development challenges – many countries in sub-Saharan Africa . </li></ul>
  4. 4. <ul><li>Many countries of the South tried to achieve economic improvement relative to the North by </li></ul><ul><ul><li>Increasing their ability to pursue autonomous industrial policies </li></ul></ul><ul><ul><li>Change trade rules </li></ul></ul><ul><ul><li>Secure higher levels of development assistance </li></ul></ul><ul><ul><li>Encourage a transworld movement that makes the global economy more equitable </li></ul></ul>
  5. 5. Trade blocs <ul><li>As countries sought to further their economic development they looked for alliances that would stimulate trade between countries (trade blocs) and provide other economic benefits. </li></ul><ul><li>Free trade areas – countries agree to abolish tariffs and quotas on trade between themselves but maintain restrictions on goods coming from outside the area. (NAFTA, EFTA) </li></ul><ul><li>Customs unions – member countries operate a tariff on imports from outside the group. E.g. The South American Regional Trade Agreement </li></ul><ul><li>Common markets – these are like customs unions but also allow the free movement of labour and capital. The European Union started out as a common market </li></ul><ul><li>Economic union – members are required to do all the above and to adopt common policies in such areas as agriculture, transport, pollution, industry, energy and regional develeopment. </li></ul>
  6. 6. Major trade blocs <ul><li>European Union </li></ul><ul><li>North American Free Trade Agreement (NAFTA) </li></ul><ul><li>Association of Southeast Asian Nations (ASEAN) – Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam </li></ul><ul><li>European Free Trade Association (EFTA) was larger, now only Iceland, Norway, Switzerland and Liechtenstein </li></ul><ul><li>Southern Africa Development Community (SADC) consists of Angola, Botswana, Congo, Lesotho, Madagascar, Malawi, Mozambique, Mauritius, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia, Zimbabwe </li></ul><ul><li>Mercosur (Mercado Comun del Sur) - several South American countries includign Argentina, Brazil, Paraguay, Uruguay </li></ul><ul><li>Andean Community – Bolivia, Colombia, Ecuador, Peru </li></ul><ul><li>Caribbean Community (CARICOM) – organisation of Caribbean nations and dependencies </li></ul>
  7. 7. Source: http://www.lawpundit.com/blog/eulegaleumap.png
  8. 8. Benefits of international groupings: <ul><li>Greater change of peace with international understanding </li></ul><ul><li>Increased trade as barriers are removed which improves the economy leading to better living standards </li></ul><ul><li>A greater overall democratic function </li></ul><ul><li>Particular sectors of a national economy can be supported (e.g. CAP) </li></ul><ul><li>Remote regions within countries receive support from the larger organisation (e.g. EU regional Fund supports Mezzogiorno and W Ireland. Support for declining industrial regions. </li></ul><ul><li>Possibility of developing a common currency to prevent large currency fluctuations and simplify transactions </li></ul><ul><li>People seeking work can move between countries more easily </li></ul>
  9. 9. Negative effects <ul><li>A loss of sovereignty </li></ul><ul><li>Some loss of financial controls to a central authority such as a bank (e.g. European Central Bank oversees monetary policy) </li></ul><ul><li>Pressure to adopt central legislation </li></ul><ul><li>Certain economic sectors are damaged by having to share resources (e.g. UK sharing its traditional fishing grounds with other EU nations </li></ul><ul><li>Elites within the system can hold a disproportionate amount of power through voting systems </li></ul><ul><li>The drive towards federalism from some countries is opposed by others </li></ul><ul><li>Smaller regions within large countries demand a greater voice which has led to separatist movements. </li></ul>Fishermen braced for EU cod cuts
  10. 10. North American Free Trade Agreement <ul><li>Signed by USA, Canada and Mexico in 1994 </li></ul><ul><li>Immediate objective was to gradually phase out tariffs between the member countries by 2010 </li></ul><ul><li>Main driver for agreement was the challenge presented by trade blocs from other parts of the world – especially Europe </li></ul><ul><li>Mexico had got into debt in 1970s and 1980s and hoped that economic growth and higher employment would result from joining NAFTA </li></ul><ul><li>Main aims: </li></ul><ul><li>Gradual elimination of all trade barriers </li></ul><ul><li>Promotion of economic competition between members </li></ul><ul><li>Increased investment opportunities </li></ul><ul><li>Generally improved cooperation between the three member states </li></ul>
  11. 12. NAFTA <ul><li>Positives </li></ul><ul><li>Trade between member countries tripled between 1993 and 2007 ($306 billion to $930 billion) </li></ul><ul><li>Manufacturing grew in the USA with increased employment </li></ul><ul><li>Mexico received increased foreign investment (as foreign companies established plants in the country in order to gain access to Mexico’s NAFTA trading partners’ markets,) higher wages for Mexican workers and increased sales from the agricultural sector </li></ul><ul><li>Negatives </li></ul><ul><li>Some Canadian companies have closed because of competition from lower cost US firms </li></ul><ul><li>Some US firms have moved to Mexico and American jobs have been lost </li></ul><ul><li>Food surpluses from the USA and Canada could be dumped in Mexico affecting the peasant agricultural economy </li></ul><ul><li>The growth of US owned, labour intensive export orientated companies on the Mexican border keeps wage rates down (Maquiladoras) </li></ul><ul><li>Mexico could be exploited because of its less stringent pollution laws </li></ul>
  12. 13. Growth of the European Union <ul><li>1957 signing of Treaty of Rome created the European Economic Community </li></ul><ul><li>6 member states France, Italy, West Germany, Belgium, Netherlands, Luxembourg </li></ul><ul><li>1973 UK, Ireland and Denmark joined </li></ul><ul><li>2008 27 member states </li></ul><ul><li>Change of name EEC > EU </li></ul>
  13. 14. EU <ul><li>1957 treaty established to develop closer economic ties between the member nations. Aims of economic integration have been promoted through the years by… </li></ul><ul><li>Reducing tariffs and other barriers to trade between members </li></ul><ul><li>Establishing a common external tariff on imports from outside the union </li></ul><ul><li>Allowing free movement of labour capital and other factors of production </li></ul><ul><li>Establishing common policies on agriculture fishing, industry, energy and transport </li></ul>
  14. 15. Benefits <ul><li>Countries have developed greater interdependence </li></ul><ul><li>economies have become more integrated </li></ul><ul><li>Standards of living have risen </li></ul><ul><li>Trade has encouraged competion and promoted a greaterefficiency through economies of scale </li></ul><ul><li>Treaty of Maastricht 1992 paved way for monetary union in 2002 and common Euro currency (except for UK, Denmakr and Sweden) </li></ul>
  15. 16. <ul><li>As more countries push for closer integration, the focus has been on the establishment of a constitution </li></ul><ul><li>Aims: </li></ul><ul><li>To repalce the exisitng overlapping treaties that have grown up through the life of EEC, EC, EU </li></ul><ul><li>Codify human rights legislation </li></ul><ul><li>Streamline decision making processes </li></ul>
  16. 17. Treaty of Lisbon Dec 2007 <ul><li>Created European president </li></ul><ul><li>Created a common foreign policy to increase the EU’s profile </li></ul><ul><li>Reduce the number of commissioners from 27 – 18 </li></ul><ul><li>National vetoes removed in about 50 policy areas </li></ul><ul><li>Voting weights redistributed between member states </li></ul>
  17. 18. According to the McDonald's Corporation website (as of January 30, 2007), McDonald's has, &quot;More than 30,000 local restaurants serving nearly 50 million people in more than 119 countries each day.&quot;
  18. 19. Mcdonalds Restaurants According to the McDonald's Corporation website (as of January 30, 2007), McDonald's has, &quot;More than 30,000 local restaurants serving nearly 50 million people in more than 119 countries each day.&quot;
  19. 21. May 07 <ul><li>i) Describe the changes in the number of McDonald’s restaurants shown on the graph. [2 marks] </li></ul><ul><li>(ii) Explain the current distribution of McDonald’s restaurants. [3 marks] </li></ul><ul><li>(iii) Examine the reasons for the global spread of transnational corporations. [5 marks] </li></ul><ul><li>(iv) To what extent do transnational corporations benefit LEDCs? [10 marks] </li></ul>
  20. 22. <ul><li>The graph shows an exponential increase in the number of restaurants [1 mark] . Award [1 mark] for quantification. </li></ul><ul><li>Explain the current distribution of McDonald’s restaurants. [3 marks] </li></ul><ul><li>The pattern is closely linked to levels of population concentration and affluence with MEDCs dominant and the poorest regions such as the majority of Africa excluded [2 marks] . A further [1 mark] should be awarded for further expansion or any other valid point. </li></ul>
  21. 23. Examine the reasons for the global spread of transnational corporations. <ul><li>The reasons include technological advances in transport (containerization, bulk carriers and air freight) and developments in satellite communication and the Internet. All of these facilitate business transactions and the flow of investment, information, goods and people. The New International Division of Labour, access to new resources and growing markets are other incentives for TNCs to distribute their operations globally and maximize profits. For a maximum of [5 marks] five developed reasons could be given, or fewer reasons in greater depth. </li></ul>
  22. 24. To what extent do transnational corporations benefit LEDCs? <ul><li>The benefits include employment opportunities, improved technology, improved business expertise and linguistic skills, infrastructural development, financial support and taxes, inward investment, improved national balance of payments and local economic growth through the multiplier effect. </li></ul><ul><li>The drawbacks include: exploitation of the local labour force, foreign instead of local decision-making, leakage of profits back to the country of origin, redirection of local funds and grants towards TNCs, poor health and safety standards, competition with local industries, increased urbanization leading to overcrowding, and undesirable changes in culture and consumption levels. Responses may also recognize that TNCs can originate in LEDCs. </li></ul><ul><li>A very good response would address the benefits and drawbacks covering several of the points given, but the treatment of one may be more detailed than the other. A balanced argument is likely to be credited at band D or above. </li></ul>
  23. 25. Nov 05 <ul><li>Explain how world economic activity has become increasingly integrated. Refer to examples in your answer. </li></ul>
  24. 26. <ul><li>The essay needs to focus on economic activity on a global scale and the nature of integration. The broad interpretation of ‘how’ should include a description of the means by which it has been occurring. A clear understanding of the terms ‘economic activity’ and ‘integrated’ should be shown and accompanied by valid examples. The features of economic integration include the free flow of people, goods and capital between nations. This is dominated by the integrated global production systems of TNCs, </li></ul><ul><li>global markets and global finance. International organizations such as the IMF, World Bank and World Trade Organization contribute to the integration of economies by encouraging the liberalization of trade and the free movement of capital. The process of integration has also been facilitated by development of trading blocs, international trade agreements and the technological improvements in transport and communications. Good responses achieving band F and above should be able to explain the majority of these features citing specific cases of types of economic activity involved. Essays lacking examples and case studies should not move beyond band E. </li></ul>