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What are the causes and effects of globalisation?

What is Globalisation?
Globalisation: growing cultural, political and economic integration and interdependence worldwide. Characteristics: An increase in trade as a proportion of world GDP. Increased movements of financial capital between countries. Increased international specialisation and division of labour. Growing importance of TNCs and FDI.

Causes of Globalisation
Trade Liberalisation: Trade liberalisation refers to a reduction of trade barriers this will open up worldwide markets. Trade barriers have fallen since the Second World War. New organisations were formed to increase integration GATT (General Agreement on Tariffs and Trade, WTO from 1995). WTO has been responsible for negotiating reductions in tariffs and other barriers to trade most recently with the DOHA round: - DOHA round began in 2001. - Objective was to reduce trade barriers around the world. - Still havent been any agreements disputes over the issue of American agricultural subsidies, which are seen as trade barriers. - Recent push to start negotiations again. Some countries are reluctant to reduce trade barriers still, particularly after the global economic crisis.

Improvements in technology: Technological improvements have helped to speed up improvements in communications and transport. Most important development in recent years the internet: - The Internet has been growing since the 1960s, and was opened up for commercial use by the US government in 1995. - Post 1995 Internet began to experience rapid growth as businesses and consumers began to connect to the World Wide Web. - The internet has contributed to the death of distance much easier for people who are far away from each other to communicate. - Transaction speeds have increased. - Firms costs have been reduced led to the development of online businesses such as amazon and eBay reduces land and labour costs means that they can operate on a global scale.

Reduced cost/improvement of communications and transportation: Fall in the real cost of transporting goods has significantly decreased allowed for the cheaper importation and exportation of goods. Decline in the cost of communications has also helped this. Improvements in transportation have also allowed firms to split up the production process to cash in on varying cost conditions in different parts of the world. This has helped to facilitate the growth of TNCs.

Communications technology has developed rapidly with the growth of the internet and e-commerce firms can compete more easily in global markets.

Increased significance of TNCs (transnational corporations): TNCs are large companies with production based in several different countries, e.g. General Motors and Exxon (Esso). After the Second World War more economic power was shifted to corporations accelerated growth. TNCs have grown even further due to favourable corporation tax rates in many countries and tax breaks, as TNCs supposedly bring in more jobs. In 2007, the annual revenue of Wal-Mart Stores was greater than the GDP of Sweden. There were about 78,000 TNCs in 2006 TNCs now control most of the worlds investment capital, technology, and access to international markets. TNCs partake in foreign direct investment, which increases the integration of economies. Many TNCs want to gain entry to, for example, the EU due to its single market, and China due to its large and growing market. However, the majority of large TNCs are based in developed countries not all-encompassing. Nokia: - Originated in Finland. - Now manufactures 37 out of every 100 phones sold worldwide. - Nokia products connect one billion people worldwide.

Collapse of Communism: Before the collapse centrally planned economies, little trade and FDI. 1989 onwards the USSR began to decline dissolved by 1991. Led to rapid globalisation rise in free market economies and Capitalism in Eastern Europe. New markets opened up FDI and exports allowed capital to flow into the previously Communist countries slow process due to the economic isolation of the USSR. Also led to an increase in labour mobility today hundreds of thousands of Eastern Europeans work in the UK. Led to an increase in the movement of commodities Russia is now the worlds largest exporter of oil, producing almost 10m barrels per day. The opening up of the Chinese economy since the 1970s has also had an impact on globalisation China is now the largest exporter and second-largest importer worldwide.

Increased international labour mobility: Labour mobility how willing or able a worker (or group of workers) is to take up a new job in a different country. Labour mobility has increased significantly since WW2 collapse of Communism, improvements in communication, EU (allows for free movement of labour in Europe). Foreign workers in the UK 2.3m in 2009 (up from around 1.6m in 2006). Increased labour mobility has helped with the integration of cultures and the spread of knowledge and skills worldwide. However recently after recession those in the West have become more Xenophobic only allow immigrants in with select skills.

Deregulation of financial markets: Financial markets markets which allow the trade of financial securities, commodities and other fungible items. There have been moves towards removing restrictions on the movement of financial capital between countries. Many countries have removed capital controls made it easier for firms to operate globally.

Reinforced by developments in technology that enable financial transactions to be undertaken more quickly and efficiently i.e. the Internet. Financial markets have increased globalisation due to their being set up in various contries. They allow for more interface and communication between different parts of the world over the trade of financial assets.

Effects of Globalisation
Advantages (mainly due to comparative advantage)
Cheaper goods for consumers: increased global competitiveness leads to cheaper goods and an increase in consumer surplus. Increased competitiveness may also lead to improvements in quality and choice of goods. Increase in skilled workers in MEDCs: increased international labour mobility has led to an increase in skilled workers in the West.

Disadvantages
Increased commodity prices: resource costs will increase as the demand for oil, coal, natural gas etc. increase cost push inflation. Increases in food prices may have a disproportionate effect on the poor. Decrease in skilled workers in LEDCs: There has been a Brain Drain in some countries, as skilled workers and graduates are attracted to more developed countries. For example, India experiences a large outflow of intellectuals. It has been estimated that the emigration of computer experts to the US means that India loses $2bn a year. Environment: On the other hand, a study by DEFRA showed that importing tomatoes from Spain into the UK (particularly by sea) causes less environmental damage than growing them at home, because the climate of Spain means that tomatoes can be grown in a more environmentally friendly manner (in Spain no head is required to encourage growth and ripening).

Environment: It has been argued that an increase in globalisation and thus trade may be having a negative effect on the environment. This is due to the fact that increased trade means increased emissions of greenhouse gases because of the need to transport goods over long distances. For example, a large proportion of the fruit and vegetables in the UK are imported from abroad, even if they can be produced in the UK. Lower production costs: as firms can source cheaper materials from overseas this will lead to increased profits for firms and therefore increased tax revenues.

Exploitation of cheap labour: increased labour mobility and the growth of TNCs may lead to exploitation of cheap labour by firms. For example, Nike has been criticised for contracting with factories which violate minimum wage and overtime laws in various countries, such as Vietnam, in the 1990s. In the same decade Nike was exposed as having used child labour in Cambodia and Pakistan to manufacture footballs. Spread of diseases: as migration increases the spread of disease also increases.

Improvements in education: increased globalisation and the spread of the internet has helped to improve education. For example, many universities now have virtual lectures online. Cultural diversity: increased movement of labour leads to an increase in the spread of different cultural ideas. Poverty reduction: globalisation has led to increases in GDP and GDP per capita. For example, in China in 1990 60% of people lived on under $1.25 a day, but now only 15% do.

Loss of cultural identity and segregation: immigrants may lose their sense of cultural identity, or immigrant communities may develop, which means that a spread in cultural diversity is limited. Dumping: this is when markets become flooded with cheap/substandard goods. For example, US subsidies of around $3bn to American cotton producers means that producers dump US cotton onto global markets, which have negative effects for cotton producers in other countries, such as Brazil, Mali and Burkina Faso. Difficult for domestic firms to establish themselves: competitiveness of global firms and Increased relative poverty: globalisation leads to the middle classes becoming richer, but the poorest dont benefit as much. e.g. burgeoning middle classes in China and India. Increased inequality: improvements in technology which have facilitated globalisation cannot be shared by all countries poorer countries wont have sufficient access to the internet, for example, which will hinder their development.

In addition, protectionist measures adopted by developed countries act as a barrier to firms in developing countries (although there are currently higher tariffs in developing countries than developed countries). Increased vulnerability and instability: globalisation and the liberalisation of financial markets has led to an increase in instability, for example the financial crises in Asia at the end of the 1990s and the global credit crunch in the 2000s, following the collapse in confidence in the banking system.

Deglobalisation: Global financial crisis of 2008 has led to a trend referred to as deglobalisation, or glocalisation. Countries are increasingly adopting protectionist policies in an attempt to protect domestic employment. This has led to a decline in specialisation and trade. For example, in 2009 the US gave subsidies to the car industry. Since 2008, Russia has imposed tariffs on imported cars. The EU has raised duties on imported Vietnamese shoes.

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