Drivers of Globalisation PDF

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The drivers of globalisation as part of the hsc economics course....

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Trade What?

Define trade

(Main idea)

Trade involves the transfer of goods or services from one person or entity to another, often in exchange for money. Outline the main trend that has been occurring in terms of global trade The volume of world trade 2018, has grown over 125 times its 1960s levels

Why?

Trade is increasing because:

(Role/significanc FTA has been increasing, in 2010 there were about 200 bilateral and e/rationale) multilateral agreements compared to about 470 agreements in 2019. Trade has also seen a correlation between the increasing GWP, indicating increasing living standards which means that spending has increased globally, which means that people will buy more imports, increasing trade. Increases in TNCs have also allowed for an increase in trade, not only with their products but also due to the manufacture of their goods that may need products from around the world. (In commerce, global supply-chain management is defined as the distribution of goods and services throughout a trans-national companies' global network to maximize profit and minimize waste.) Comparative advantage has also influenced an increase in trade. This is because countries get really good at increasing the products, they are good at producing which also leads to interdependencies for an increase.

How?

What has enabled trade to increase?

(Process)

Technology, expansion of TNCs and establishment of global supply chains. For instance, looking at 22 industrialised countries, it finds that containerisation is associated with a 320% increase in bilateral trade over the first five years and 790% over 20 years. An increase in technology has also allowed an increase in communication Increase in FDAs allows for an increase in trade because of the reduction or protection between countries.

Date/trends

Trends in global trade for the last 5-10 years

Cause/s of trends General

General The world has become more ● The WTO has forecasted global trade globalised from increasing growth of 2.6% for 2019 and 3% in technologies and 2020 assuming that trade tensions communication. Increases in will ease. ● The value of exports of goods and services have grown rapidly in recent decades increasing from US$4.3 Trillion (19% of GWP) into over US$25.1 trillion (30 % of Global Output) in 2018. The size of the GWP is now over fifty times its nominal level in 1960 but the volume of world trade has grown to over 125 times its 1960 level ● For instance, in 2017 manufacture goods were over 50% of all trade, however, it can be seen that the service will be the fastest-growing sector in the future, benefiting more developed companies with better labour. Emerging ● Higher contribution from BRICS developing economies since 2013. ● The growth of emerging economies was 4.1% in 2018 compared to 4.8% in 2017. ● East Asian and the Pacific region experienced the most rapid increase in trade from 7-15% ● Emerging economies received more FDI than Advanced economies in

Emerging Emerging countries are still increasing trade but at a slower rate than before. This is because countries like China are getting more developed and it is focusing less on growth. Emerging countries also had the highest growth and growing contributions because they have relatively cheap resources and therefore a higher demand then advanced countries. Developing Developing country contribution has increased as developed countries use low-cost labour to manufacture. This use of labour has also decreased poverty in such countries. Advanced The contribution from advanced countries has

2012 Developing ● Developing economies shares of global exports for both goods have steadily increased from 33.90% in 2004 to 44.60% in 2018

dropped because there have become cheaper substitutes from emerging countries. Therefore the share of the trade for developed countries have decreased.

● The number of people living in extreme poverty has been cut in half since 1990, to just under one billion people Advanced ● Between 1995-2017 high income economies saw their overall share of global trade fell from 82% to 68%

Technology, Transport and Communication What? (Main idea)

Advancements in technology, transport and communication have facilitated the process of globalisation by changing the way businesses conduct activities and enabling the other drivers of globalisation. This achieves: ● Faster and more efficient technology ● Quicker transport ● More widespread and faster communication Technological developments facilitate integration of economies - Cheap + reliable communications = international services Finance + investment: Rapid movement of money worldwide Phones + internet = Changing structure of industries - > online Advances in transport(planes and trains) have permitted greater

labour mobility and better movement of G+S

Data/trends/examples

Firms moving into overseas markets to sell G+S -> invest in new countries -> technology drives FDI Also, brings structural changes in the production and distribution of G+S. Technology 2000 - 2012: internet usage up 566% Transport Some points to consider: ● Changes in methods of transportation e.g. roads, railways, aeroplanes, freight etc. ● Availability of transport infrastructure in advanced, emerging and developing nations o For instance, looking at 22 industrialised countries, it finds that containerisation is associated with a 320% increase in bilateral trade over the first five years and 790% over 20 year. Communication Some points to consider: ● Changes in communication technology in the global economy (refer to overall trend in the global economy, as well as advanced, emerging and developing economies) ● Some reasons for these changes

Effects

Implications of technology ● Effect of technological advancements on the way businesses, including TNCs, operate ● Advantages and disadvantages of technology diffusion/technological innovations. Consider in terms of overall effects on the global economy, as well as effects on advanced, emerging and developing nations. Also, consider in terms of how some nations that lack access to technology are affected. Technology has meant for more efficient transport and communication. It has also meant globally, the technology sector has grown larger. It also means, overall, trade has become more efficient and globalised. Better technology has also lead to increases in the efficiency of the transfer of money, leading to more globalised financial flows. Better technology has meant businesses act more efficiently,

such as higher levels of automation in manufacturing in advanced countries. However, this has also lead to less labour in more menial tasks for such countries. Benefits: Stock ordered instantly(reduce waste), IT system maintains inventories(reduced warehousing costs), increased choice, lower price(increased competition)

Internal Division of Labour What? (Main idea)

Define the term ‘international division of labour Internal division of labour, is the specialization of labour force, dividing the production process into different stages allowing for specialization. Which groups in the labour market are more likely to migrate? Lesser skilled workers because they will be the most likely to lose their jobs and forced to migrate.

Why? (Role/significance/rationale)

The international division of labour is increasing because…. (why do people want to migrate? Look from an economic, not humanitarian perspective) International division of labour is increasing because of globalisation, with countries able to utilise their resources to more effectively specialise in certain goods and services, hence the manufacturing of countries is more specialised compared to before. Outsourcing of work to countries with cheaper labour is increasing e.g. manufacturing and communications. Labour immigration is encouraged because… (why do countries want to accept immigrants of labour?) Distinguish between between the reasons for the movement of labour at the top end versus the bottom end? Movement of labour at the top is towards advanced economies, higher pay and better conditions. (BRAIN DRAIN) Low skilled usually move because of a loss of work, either being taken over by technology or forced out by difficult conditions.

Why is the international division of labour the least globalised driver? (comparison between drivers) It is difficult for people to move and hence, it is the least globalised driver. Labour markets are far less internationalised -> people do not move jobs freely. Barriers to working overseas: Immigration, language, culture, incompatible education and qualifications

How? (Process)

What has enabled global labour migration to increase? (e.g. consider work visas.) Global labour migration has been increased through the process of globalisation that has opened up the possibility of work visas meaning labour can quickly move overseas to find work.

Date/trends

Trends in the number of net The World Bank estimates 230+ million people have moved for work Trends in the number of net emigration Consider: ● Where the emigrants originate ● Where the emigrants go to ● Number of emigrants

Trends in international division of labour for the last 5-10 years Consider trends in terms of: ● General (i.e. overall trends in terms of the global economy) ● Advanced ● Emerging ● Developing For each of the above categories, write down 2-3 trends. One trend has to refer to the current trend (i.e. what is happening now). When writing trends, consider any

Cause/s of trends For each trend outlined in the previous column, outline the reason that trend occurred.

changes

Effects

Implications of international division of labour Consider the positive and negative effects of international division of labour (try to distinguish between the effects on advanced, emerging and developing nations)

International financial flows What? (Main idea)

Define the term ‘international financial flow Financial side of international flows, where money is exchanged in transactions for exports and imports. List examples of international financial flows Examples include: Forex Trade, imports and exports, FDI, lending and borrowing.

Why? (Role/significance/rationale)

International financial flows are increasing because… (why do countries want to lend or borrow internationally?) Countries want to borrow and lend more because it helps countries to fund projects to increase economic growth and with that, grows the international relations. This process helps both countries because it means one country has funding for needed projects, the other country will earn interest off their investment and ultimately, both of them grow a better connection.

Why are international financial flows the most globalised driver? (comparison between drivers) Money moves quicker than goods and services and this makes it far more demandable than imports and exports. Hence, it is the most effective global driver

How?

What has enabled international financial flows to increase?

(Process)

(e.g. consider the role of financial deregulation; improvements in technology) Globalisation, the process of operating on an international scale has permitted the international financial flows to increase. Recently there has been an increase in international flows into countries due to variety of reasons. International financial flows expanded substantially after the deregulation in 1970 and 1980’s, controls on foregin currency markets, flows of foreign capital, banking interest rates and overseas investment in share markets were lifted Technology has also linked financial markets throughout the world, between major international markets such as New York, Tokyo, London and Hong Kong

Date/trends

Trends in the amount of int financial flows Exchange traded derivatives reached almost $98 trillion in 2018 (GREATER THAN GWP)

Exchange traded derivatives are financial instruments that trade on a regulated Trends in international financial exchange and whose value flows in the last 5-10 years is based on the value of another asset. Simply put, Consider trends in terms of: these are derivatives that ● General (i.e. overall trends in are traded in a regulated terms of the global economy) fashion. ● Advanced ● Emerging ● Developing General : After falling significantly in 2008(GFC) and 2013(Eurozone crisis), the exchange traded derivatives have reached a high in 2018 *Forex turnover ($6.1 trillion)[2016] UP $2.1 trillion from 2010] *$1.43 trillion FDI(Global investment) *GWP $88 trillion *Money spent on foreign investment on developing and emerging economies has gone from a quarter of total -> half *$706 billion FDI into developing countries, $512 billion went to Asia

Cause/s of trends For each trend outlined in the previous column, outline the reason that trend occurred.

AUD is the 5th most traded currency Effects

Implications of the trends in international financial flows Main benefit(Forex) - Enables countries to obtain funds to finance domestic investment = EG Main disadvantage - Speculation creates volatility -> herd mentality

Investment and TNC’s What?

Define the term ‘investment’

(Main idea)

To allocate money in the expectation of return in the form of profit. Distinguish between ‘foreign direct investment [FDI] and portfolio investment’ With an FDI, an investor will establish a direct business interest in a foreign country. A portfolio investment, FPI, will purchase stocks or bonds and assets the like in foreign countries. FDI -> Movement of funds b/w economies to establish a new company or buy substantial proportion of shares in an existing company(10%) -> long term investment Define the term ‘transnational corporation [TNC] A transnational corporation is a company that does business in several countries. Many times, the TNC can earn more than the entire country, it can also enrich the country’s economy, or exploit its labour and environment.

Why?

The number of TNCs are increasing because…. (why do

(Role/significance/ratio nale)

countries want to have TNCs in their countries?) the number of TNCs in the world have been increasing due to the economic prosperity it provides. As TNCs are large corporations, they provide work for the domestic labour of the country, and by providing work, Y which creates an on flow of economic growth. FDI is increasing because… (why do countries want to have more FDI?) FDI is increasing because certain countries have greater allocative efficiency in certain industries. As a result, more countries invest in those countries which are more efficient, allowing them to make a greater return. Countries have been becoming more efficient in their production processes in order to encourage FDI into their economy, which will benefit them in production and quality of life.

How? (Process)

What has enabled for TNCs to increase? (e.g. consider the role of deregulation; government incentives, such as tax allowances and less stringent labour/environmental regulations, access to infrastructure; improvements in technology; acquisitions, mergers etc.) TNCs have been enabled to increase through the deregulation of trade and more free trade policies. Incentives such as tax breaks encourage FDI as TNCs have to pay less tax. Tax holidays, which are periods where a business does not pay tax also incentivises FDI. Economic zones are also favored by TNCs as they bring reduced taxation and tariffs on goods exported or imported by the company. Economic zones are the primary incentives for TNCs. What has enabled for investment to increase? (consider the role of FTAs, improvements in technology, expansion of TNCs and deregulation of financial markets -> expansion of TNCs is particularly relevant for the increase in FDI) Improvements in technology such as global communication networks has allowed investment to increase by increasing

the amount of information available surrounding investment and instant transactions between entities allowing money to be wired instantaneously has made investment easier. FTAs, or free trade agreements has made investment easier by reducing the barriers to trading between countries. By reducing the barriers, it makes investing into foreign companies more attractive by allowing for greater profit to be made. The expansions of TNCs globally has allowed for more investment as TNCs inject money into domestic economies, as well as global economies. By expanding their presence in more countries, they inject more money into economics and increase the total amount of investment.

Date/trends

Trends in the number and expansion of TNCs 82 000 MNCs with 810,000 foreign affiliates(due to mergers Make up ⅓ of all world trade and ¼ of total output

Trends in global FDI for the last 5-10 years Consider trends in terms of: · General (i.e. overall trends in terms of the global economy) ·

Advanced

Cause/s of trends For each trend outlined in the previous column, outline the reason that trend occurred. Governments have encouraged MNC’s through incentives(subsidies, tax concessions)

·

Emerging

·

Developing

For each of the above categories, write down 2-3 trends. One trend has to refer to the current trend (i.e. what is happening now). When writing trends, consider the changes in the direction and value of FDI inflows and outflows General TNC’s account for up to 40% of global trade through production webs and supply chains

Effects

Implications of TNCs The implications of TNCs on advanced economies are mainly positive. Common to all nations, TNCs inject money into the economy by providing domestic jobs, having an expansionary effect on economic activity due to the increased APC. A negative impact of TNCs are that they bring greater income inequality. They also outcompete domestic businesses due to their generally more competitive prices. In emerging and developing nations, TNCs bring large amounts of FDI as they create a domestic demand for labour. In developing and emerging countries, the cost of labour is usually cheaper than advanced economies, so TNCs are attracted to these nations. By investing in these nations, they increase income inequality, but at the same time increase the quality of life through greater imports and incomes. Hence TNCs act as economic powerhouses for developing, emerging and advanced economies.

Implications of the trends in global FDI Consider the positive and negative ST and/or LT short term long term effects of FDI inflows/outflows in terms of: · General (i.e. overall trends in terms of the global economy) ·

Advanced

·

Emerging

·

Developing

The trends in FDI long term will be that slowly investment will go to countries that have a comparative advantage in the production of certain goods and services. the implications of FDI...