In this revision video we range far and wide on many of the important aspects of globalisation including: Explain what is meant by globalisation Explain the characteristics of globalisation Explain the causes of globalisation / factors contributing to globalisation Evaluate the impact of globalisation and global companies on individual countries, governments, producers and consumers, workers and the environment Evaluate the impact of the performance of emerging economies on other economies. Explain how the pattern of global trade has changed over time Evaluate comparative advantage as an explanation of global trade patterns Explain how countries achieve international competitiveness

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Explain what is meant by globalisation
Explain the characteristics of globalisation
Explain the causes of globalisation / factors contributing to globalisation
Evaluate the impact of globalisation and global companies on individual
countries, governments, producers and consumers, workers and the
environment
Evaluate the impact of the performance of emerging economies on other
economies.
Explain how the pattern of global trade has changed over time
Evaluate comparative advantage as an explanation of global trade patterns
Explain how countries achieve international competitiveness

3. WHAT IS MEANT BY GLOBALISATION?
What is globalisation?
Globalisation is a process by which economies and cultures
have been drawn deeper together and have become more
inter-connected through global networks of trade, capital
flows, and spread of technology and global media.
What is the key benefit of globalisation?
Globalisation allows businesses and countries to specialise
in producing goods and services where they have a
comparative advantage. Specialisation and trade enables a
gain in economic welfare, for example through lower prices
for consumers which then increases their real incomes.
THE GLOBAL CONTEXT

4. THE GLOBAL CONTEXT
WHAT ARE THE KEY CHARACTERISTICS OF GLOBALISATION?
Trade to GDP ratios are
increasing for many
countries
Expansion of financial
capital flows across
international borders
Increasing foreign direct
investment and cross
border acquisitions
Global brands – including
a rising number from
emerging countries
Deeper specialization of
labour e.g. in making
specific component parts
Global supply chains &
new trade and
investment routes
Higher levels of cross-
border labour migration
Increasing connectivity
of people and businesses
through networks

5. WORLD GDP – SHARE BY COUNTRY
17.65%
15.71%
7.31%
4.15%
3.33% 3.12% 2.62% 2.33% 2.29%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
China USA India Japan Germany Russia Brazil United
Kingdom
France
ShareinglobalGDP
Percentage share of the main industrialized and emerging
countries in global gross domestic product (adjusted for
purchasing power) in 2016, Source: IMF World Outlook
Note:
“Adjusted for purchasing power” means that the US
dollar value of each country’s annual GDP has been
altered to take account of differences in the
estimated cost of living in different nations.
THE GLOBAL CONTEXT

6. 58.71%
41.29%
16.47%
7.66% 7.58% 6.69%
3%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
Emerging
market and
developing
economies
Advanced
economies
EU Latin
America /
Caribbean
Middle East,
North
Africa,
Afghanistan,
and Pakistan
Middle East
and North
Africa
Africa Sub-
Sahara
ShareinglobalGDP
WORLD GDP in 2017 – SHARE BY REGION (adjusted for PPP)
Share of global regions in world gross domestic
product (adjusted for purchasing power) in
2017. Source: IMF
THE GLOBAL CONTEXT

7. WHAT ARE THE KEY FACTORS DRIVING GLOBALISATION?
Containerisation Lower trade barriers
Business demands Technological advances
THE GLOBAL CONTEXT

8. WHAT ARE THE KEY FACTORS DRIVING GLOBALISATION?
Containerisation – the real prices/costs of ocean and air shipping
have come down due to containerization, bulk shipping, and other
efficiencies. This reduces the cost of transporting products.
Technological advances – reducing the cost of transmitting and
communicating information – this is a key factor behind trade in
knowledge-intensive products using the latest digital technology.
Economies of scale - Many economists believe that there has been
an increase in the minimum efficient scale in some industries
Differences in tax systems - Some countries have adjusted their
corporate tax systems to attract foreign direct investment (FDI)
Less protectionism – overall, average import tariffs have fallen –
but in the last few years there has been a rise in non-tariff barriers
such as quotas, domestic subsidies and tough regulations.
THE GLOBAL CONTEXT

9. ECONOMIC GROWTH IN ADVANCED & EMERGING NATIONS
THE GLOBAL CONTEXT
0
2
4
6
8
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
World Advanced economies EMDEs
Percent
EMDEs = emerging market and
developing economies
World Bank Forecast

10. LEADING EXPORT COUNTRIES IN THE WORLD ECONOMY
THE GLOBAL CONTEXT
2098
1455
1340
645
570
517
501
495
462
409
396
390
374
330
0 500 1000 1500 2000 2500
China
United States of America
Germany
Japan
Netherlands
Hong Kong, China
France
Korea, Republic of
Italy
United Kingdom
Belgium
Canada
Mexico
Singapore
Leading exporters in merchandise trade, 2016, Annual value of
exports, US$ billion, Source: WTO World Trade Report, 2017
Value, US$
billion
Share of global
trade
Hong Kong, China 517 3.2
domestic exports 26 0.2
re-exports 491 3.1
Value, US$
billion
Share of global
trade
Singapore 330 2.1
domestic exports 154 1.0
re-exports 176 1.1

11. TRANSNATIONAL BUSINESSES
Total number of Nike retail stores worldwide from 2009 to 2017
674 689
756
826
753
858
931
1,045
1,142
0
200
400
600
800
1000
1200
2009 2010 2011 2012 2013 2014 2015 2016 2017
Totalnumberofretailstores
THE GLOBAL CONTEXT

12. TRANSNATIONAL BUSINESSES
Transnational businesses (TNCs) base their manufacturing, assembly,
research and retail operations in a number of countries.
Many TNCs have become synonymous with globalisation such as Nike,
Apple, Wal-Mart, Uber, Amazon, Google and Samsung.
For example, Google has offices in more than 60 countries
The biggest 500 TNCs together account for nearly 70% of world trade.
TNCs are a key driver of globalisation because they have been re-
locating manufacturing to countries with relatively lower unit labour
costs in order to increase their profits and returns for shareholders.
For example, Volkswagen, Toyota, Nissan and General Motors all have
plants in Mexico which has helped this country to build a comparative
advantage in manufacturing and then exporting vehicles within the
NAFTA free trade area (involving Mexico, the USA and Canada)
THE GLOBAL CONTEXT

13. TRANSNATIONALS IN EMERGING COUNTRIES
China Mobile Alibaba Tata Group
Infosys Geely Auto Huawei
THE GLOBAL CONTEXT

14. TRANSNATIONALS IN EMERGING COUNTRIES
There are many TNCs from emerging/developing countries.
China Mobile is in the top ten consumer brands in the world
Alibaba has expanded to be the biggest global online retailer. It is
known as the Amazon of China!
The Tata Group conglomerate from India has made significant
investments in Western economies e.g. Jaguar Land Rover
Infosys from India is one of the world’s biggest information system
businesses employing over 160,000 people worldwide
Chinese car-maker Geely bought Swedish firm Volvo in 2010 for
$1.8bn and took a 49.5% stake in Malaysian car-maker Proton
(including the Lotus brand) in 2017
China’s Huawei Technologies is a competitor to Samsung & Apple
THE GLOBAL CONTEXT

15. WHAT ARE THE MAIN ADVANTAGES OF GLOBALISATION?
Cheaper goods and
services for consumers
More competition in
consumer markets
Reduction in extreme
poverty rates
Gains from specialisation
of factors of production
Transfer of ideas
stimulates innovation
Gains from improved
labour mobility
THE GLOBAL CONTEXT

16. WHAT ARE THE MAIN ADVANTAGES OF GLOBALISATION?
1. Encourages both producers and consumers to reap the benefits from deeper
division of labour and economies of scale – leading to gains in welfare
2. Competitive markets reduce monopoly supernormal profits and incentivize
businesses to seek cost-reducing innovations
3. Enhanced growth has led to higher per capita incomes – and helped many of
the poorest countries to achieve higher growth and reduce extreme poverty
4. Advantages from the freer movement of labour between countries
5. Dynamic efficiency gains flowing from the sharing/diffusion of ideas, skills and
technologies across national borders
6. Opening up of capital markets increases the opportunities for developing
countries to borrow money to help overcome a domestic savings gap
7. Increased awareness among people around the world of the systemic
challenges from climate change and wealth/income inequality
8. Competitive pressures of globalisation may prompt improved governance and
better labour protection through improved business standards
THE GLOBAL CONTEXT

17. GAINS FROM TRADE – ECONOMIC WELFARE
Price of
coal
Output of coal
EU Demand
EU Supply
EU price
Q (EU)
Non EU SupplyGlobal
price
Q1 Q2
A
BC
DE
F
G
The EU price is the
equilibrium price if the only
coal available is coal supplied
from EU coal producers
We assume non-EU countries can
export coal into the EU at a lower
world price. This causes EU demand
to expand and EU domestic supply
to contract. Quantity Q1Q2 will be
imported into the EU market
THE GLOBAL CONTEXT

18. GAINS FROM TRADE – ECONOMIC WELFARE
EU Demand
EU Supply
Q (EU)
Non EU Supply
Global
price
Q1 Q2
A
BC
DE
• Producer surplus before trade = EFD
• Producer surplus after trade = CFG
• There is a net loss of producer surplus
F
G
• Consumer surplus before trade = AED
• Consumer surplus after trade = ACB
• There is a net gain in consumer welfare
EU price
Output of coal
Price of
coal
THE GLOBAL CONTEXT

19. WHY IS TRADE IMPORTANT FOR DEVELOPMENT?
Generates foreign
currency reserves
Creates jobs and raises
per capita incomes
Funds imports of key
technologies / materials
Trade stimulates market
competition
THE GLOBAL CONTEXT

20. KEY POINTS: IMPORTANCE OF TRADE FOR DEVELOPMENT
Successful trade provides for developing/emerging nations:
1. A source of foreign currency to help a nation’s balance of
payments (trade surplus countries build up US$ reserves)
2. An important way of financing imports of essential imports of
capital equipment / technologies and energy supplies
3. An injection of demand into the circular flow of income and
spending + creating positive export multiplier effects
4. Increased employment in export industries and related
industries which can lead to rising per capita incomes and
also stronger Human Development Index scores
5. Falling prices for consumers helps to increase real incomes
e.g. by opening up markets to new competition
THE GLOBAL CONTEXT

21. ADVANTAGES OF FOREIGN DIRECT INVESTMENT FROM TNCs
Infrastructure accelerator effects – a rise in investment/GDP
Higher capital intensity / capital deepening i.e. more capital per worker
Better training for local workers – improved human capital
Grows a country’s export capacity (e.g. via special economic zones)
Technology & know-how transfer / diversification of the economy
More competition in markets which then lowers consumer prices
Creates new jobs – higher incomes and household savings
Lift in level of labour productivity which then increases GNI per capita
THE GLOBAL CONTEXT

22. WHAT ARE THE MAIN DISADVANTAGES OF GLOBALISATION?
Trade imbalances Dominant TNCs
Environmental risks
Growing relative
poverty
THE GLOBAL CONTEXT

23. WHAT ARE THE MAIN DISADVANTAGES OF GLOBALISATION?
1. Rising inequality / relative poverty – gains from globalisation will be unequal
leading to growing political and social tensions if inequality increases
2. Threats to the global commons e.g. irreversible damage to ecosystems, land
degradation, deforestation, loss of bio-diversity and severe water scarcity
3. Globalisation and pollution – can lead to greater exploitation of the
environment, e.g. greater production of raw materials, trading toxic waste to
countries with weaker environmental laws
4. Macroeconomic fragility – in an inter-connected world economy, external
shocks in region can rapidly spread to other centres (known as systemic risk)
5. Trade imbalances - Increasing trade imbalances lead to protectionist tensions
and a move towards managed exchange rates
6. Higher structural unemployment in countries where production has shifted to
lower labour cost centres – domestic firms face competition
7. Dominant global brands – businesses with dominant brands and superior
technologies may squeeze out local producers
THE GLOBAL CONTEXT

24. RISKS FROM INWARD FOREIGN DIRECT INVESTMENT
Inequality – profits from
FDI are flow
disproportionately to
powerful elites
Land grabs / extractive FDI
which generates little
extra tax revenues
Ethical standards from
TNCs may be poor –
especially in mining,
farming and textiles
Volatile / footloose FDI flows
– e.g. FDI is more volatile
than remittance flows
Limited job creation
effects / small spillover for
local content suppliers
Monopsony power of
TNCs who are able to
negotiate highly
favourable prices
THE GLOBAL CONTEXT

25. GLOBAL TRADE IMBALANCES
Current account surplus
(% of GDP)
2017
Macao SAR 33.0
Singapore 19.6
Papua New Guinea 18.6
Taiwan 13.8
Thailand 10.1
Netherlands 10.0
Switzerland 9.9
Malta 8.9
Germany 8.1
Denmark 7.3
Iceland 6.2
Korea 5.6
Norway 5.5
Current account deficit
(% of GDP)
2017
Bhutan -29.4
Mozambique -25.6
Sierra Leone -21.1
The Bahamas -17.8
Turkmenistan -15.4
Rwanda -10.2
Malawi -9.1
Cambodia -8.6
Ethiopia -8.3
Kenya -6.1
Egypt -5.9
THE GLOBAL CONTEXT

26. WHAT IS MEANT BY DE-GLOBALISATION?
50
60
70
80
90
100
110
120
130
140
150
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Pre-crisis trend
Index = 100 in 2008 Index of Volume of World Trade since 2000
Globalisation is not inevitable – since the Great Recession of
2008-09 there has been a slower annual growth of world
trade. It remains well below the pre-crisis trend.
THE GLOBAL CONTEXT

27. WHAT IS MEANT BY DE-GLOBALISATION?
Why is world trade growing more slowly?
Weak growth in many of the world’s richest countries. Some economists
believe that Western nations are suffering from secular stagnation
Slowing pace of trade liberalization. The big gains to trade from cutting
import tariffs may have already happened.
Non-tariff barriers (NTBs)) have grown and regional trade blocs such as
ASEAN have become more common
Rising prosperity itself. As people become richer they spend a higher
proportion of their income on services, such as education, leisure and
health. Trade in services is lower as a share of GDP than manufactured
products in part because there are more trade barriers in services.
Technological change – e.g. 3D printers are being used to manufacture a
set of orders e.g. for aircraft equipment or artificial joints used in
medicine – they no longer always have to be shipped around the world
THE GLOBAL CONTEXT

28. KEY EFFECTS OF GLOBALISATION ON UK ECONOMY
Inflation Jobs
Market
competition
Labour
migration
Innovation /
dynamic
efficiency
Inward
investment
UK
transnational
businesses
Real wages in
the labour
market
Wealth &
income
inequality
THE GLOBAL CONTEXT

29. KEY EFFECTS OF GLOBALISATION ON UK ECONOMY
Has globalisation been of benefit to the UK economy?
Many micro & macro aspects can be considered:
1. Expanded choice and higher consumer surplus
2. Effects on retail prices and the rate of inflation
3. Impact of growing volumes of imports on domestic jobs
4. Impact of UK firms relocating to low wage economies
5. Impact of net inward migration on real wage rates and
on government spending / tax revenues
6. Impact of inward investment into FDI on employment
7. Impact on share prices and profits of UK companies
THE GLOBAL CONTEXT

30. GLOBALISATION AND EXTERNAL SHOCKS
Global Financial
Crisis 2007-2009
Euro Zone
Economic Crisis
Volatile World
Commodity Prices
Slowdowns in
emerging nations
International &
Regional Trade &
Investment Deals
Currency volatility
and policy changes
e.g. devaluation
Extreme weather
events (drought,
flooding etc.)
Geo-political
uncertainty & risk
of terrorism
THE GLOBAL CONTEXT

31. GLOBALISATION AND EXTERNAL SHOCKS
What are external shocks?
External shocks are events that come from outside the
domestic economic system
The biggest external shock in recent times was the Global
Financial Crisis (GFC) from 2007 onwards
Negative external shocks create instability and can lead to
persistent periods of weaker economic growth, higher
unemployment, falling real incomes and rising poverty.
External shocks can also be positive e.g. the emergence of
and widespread adoption of general purpose technologies
used by businesses and households in many countries.
THE GLOBAL CONTEXT

32. TRADE BALANCE OF LEAST DEVELOPED COUNTRIES
THE GLOBAL CONTEXT
-100.0
-80.0
-60.0
-40.0
-20.0
0.0
20.0
40.0
60.0
80.0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Trade balance of least-developed countries (LDC), 2006-2016, US$ Billion
LDC exporters of agriculture LDC exporters of manufactures
LDC oil exporters LDC exporters of non-fuel minerals

33. LEAST DEVELOPED COUNTRIES – MERCHANDISE EXPORTS
THE GLOBAL CONTEXT
0.0
50.0
100.0
150.0
200.0
250.0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Merchandise exports of least developed countries, 2006-2016 (US$bn)
LDC exporters of agriculture LDC exporters of manufactures
LDC oil exporters LDC exporters of non-fuel minerals

34. COMMODITY PATTERN OF TRADE FOR BANGLADESH (2016)
THE GLOBAL CONTEXT

35. COMMODITY PATTERN OF TRADE FOR KENYA (2016)
THE GLOBAL CONTEXT

36. CASHEW EXPORTS - 2016
THE GLOBAL CONTEXT
Source: Observatory of Economic Complexity

37. COMMODITY PATTERN OF TRADE FOR CHINA (2016)
THE GLOBAL CONTEXT

38. IS TOURISM A DEVELOPMENT DRIVER FOR LDC’S?
THE GLOBAL CONTEXT
0
5
10
15
20
25
30
0
2
4
6
8
10
12
14
16
18
20
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
LDCs' Travel exports and international tourist arrivals
Travel exports US$ billion (LHS) International tourist arrivals (million, (RHS)

39. HAS GLOBALISATION IMPROVED HUMAN DEVELOPMENT?
HDI rankingCountry
Human
Development
Index (HDI)
Life
expectancy
at birth
Expected years
of schooling
Mean years
of schooling
Gross national
income (GNI)
per capita
188 Central African Republic 0.352 51.5 7.1 4.2 587
187 Niger 0.353 61.9 5.4 1.7 889
186 Chad 0.396 51.9 7.3 2.3 1,991
185 Burkina Faso 0.402 59.0 7.7 1.4 1,537
184 Burundi 0.404 57.1 10.6 3.0 691
183 Guinea 0.414 59.2 8.8 2.6 1,058
HDI rankingCountry
Human
Development
Index (HDI)
Life
expectancy
at birth
Expected years
of schooling
Mean years
of schooling
Gross national
income (GNI)
per capita
1 Norway 0.949 81.7 17.7 12.7 67,614
2 Switzerland 0.939 83.1 16.0 13.4 56,364
2 Australia 0.939 82.5 20.4 13.2 42,822
4 Germany 0.926 81.1 17.1 13.2 45,000
5 Singapore 0.925 83.2 15.4 11.6 78,162
5 Denmark 0.925 80.4 19.2 12.7 44,519
THE GLOBAL CONTEXT

40. ABSOLUTE AND RELATIVE POVERTY
Absolute poverty Relative Poverty
The World Bank has a key aim of
fostering the growth in the income or
the consumption spending of the
poorest 40 percent of the population
in each country.
According to the World Bank, in 2013,
10.7 percent of the world’s population
lived on less than US$1.90 a day (PPP)
compared to 12.4 percent in 2012.
That’s down from 35 percent in 1990.
THE GLOBAL CONTEXT

41. EXTENT OF PROGRESS IN CUTTING EXTREME POVERTY
THE GLOBAL CONTEXT
Source: World Bank, 2018

42. CHANGES IN GLOBAL INEQUALITY
THE GLOBAL CONTEXT

43. COUNTRIES WITH HIGHEST INEQUALITY
Income inequality
(Source World Bank, data for 2015)
Quintile ratio: Income of
80th/ Income of 20th
Palma ratio
Top10%/Bottom 40%
Gini coefficient
(Max figure = 100)
Seychelles 18.8 6.4 65.8
South Africa 28.5 8.0 65.0
Namibia 19.6 5.8 61.3
Botswana 22.9 5.8 60.5
Haiti 26.6 5.5 59.2
Zambia 17.4 4.8 57.5
Honduras 23.5 5.0 57.4
Central African Republic 18.0 4.5 56.3
Colombia 17.5 4.0 53.5
Brazil 16.9 3.8 52.7
Chile 12.6 3.3 50.8
Rwanda 11.0 3.2 50.8
Costa Rica 12.8 2.9 48.6
Mexico 11.1 2.8 48.1
Paraguay 13.0 2.9 48.0
Kenya 11.0 2.8 47.7
Malawi 9.7 2.6 46.2
THE GLOBAL CONTEXT

44. GLOBALISATION AND GLOBAL INEQUALITY
THE GLOBAL CONTEXT
20 24 26 28 30 35
80 76 74 72 70
65
30
40
50
60
70
80
0.0
0.2
0.4
0.6
0.8
1.0
1988 1993 1998 2003 2008 2013
Within-country Between-country
Gini index (RHS)
Mean log deviation Gini Index
Source: World Bank Global Economic Prospects, January 2018

45. FACTORS AFFECTING COMPARATIVE ADVANTAGE
Natural Resources Unit Wage Costs Infrastructure
Non-Price Factors Import Controls Exchange Rate
THE GLOBAL CONTEXT

46. FACTORS AFFECTING COMPARATIVE ADVANTAGE
Comparative advantage is a dynamic concept it changes over time:
1. The quantity and quality of natural resources available
2. Demographics – factors such as an ageing population, net
migration, levels of women’s participation in the labour force
3. Rates of capital investment including infrastructure spending
4. Investment in research which can drive business innovation
5. Fluctuations in the exchange rate which then affect the
relative prices of exports and imports
6. Import controls such as tariffs, export subsidies and quotas
used to create an artificial comparative advantage
7. Non-price competitiveness of producers – e.g. product design,
innovation, product reliability, branding, technical standards.
THE GLOBAL CONTEXT

47. POLICIES TO IMPROVE COMPETITIVENESS
Improving the functioning of labour markets
• Investment in all levels of education and training
• Encouraging inward migration of skilled workers
• Improvements in management quality
Critical (Core) Infrastructure Investment
•Better motorways, ports, hi-speed rail, new sewers
•Communications e.g. super-fast broadband, 4G networks
Supporting Enterprise / Entrepreneurship
• Improved access to business finance e.g. for start-ups
• Incentives for business innovation and invention
• Reductions in business red tape
Macroeconomic Stability
• Maintaining low inflation / price stability to help confidence
• A sustainable and more competitive banking system
• A competitive exchange rate versus major trading partners
THE GLOBAL CONTEXT