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Economics Revision Resources

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Globalisation

Globalisation refers to the increasing integration and interdependence of economies, cultures, and societies across the globe. It is driven by advancements in technology, trade, and communication, and has far-reaching economic, political, and cultural consequences.


This post explores its meaning, causes, and consequences, alongside distinctions between various trade unions and concepts like trade creation and diversion.


 

Meaning of Globalisation

  • Definition: The process of growing interconnectedness and interdependence among countries through increased trade, investment, cultural exchange, and technology transfer.

Key Features:

  1. Trade Liberalisation: Reduction of tariffs and trade barriers to encourage free trade.

  2. Capital Flows: Cross-border investments, such as FDI and portfolio investments.

  3. Labour Mobility: Migration of workers in search of better opportunities.

  4. Cultural Exchange: Spread of ideas, values, and lifestyles through global media and communication.

 

 Causes of Globalisation

  1. Advancements in Technology:

    • Improvements in transportation (e.g., container shipping) reduce trade costs.

    • Digital communication enables instant global connections.

  2. Trade Agreements:

    • Reduction of tariffs and quotas through agreements like the WTO, encouraging free trade.

      • Example: NAFTA (now USMCA) boosted trade between the US, Canada, and Mexico.

  3. Economic Policies:

    • Many countries adopt open-market policies, encouraging trade and foreign investment.

  4. Transnational Corporations (TNCs):

    • Firms like Amazon and Apple expand operations globally, driving economic integration.

  5. Cultural Exchange:

    • Social media platforms like TikTok and Instagram enable cultural diffusion.

 

Consequences of Globalisation

3.1 Economic Consequences:

  • Positive:

    • Boosts economic growth through increased trade and investment.

    • Encourages specialization based on comparative advantage.

      • Example: China’s economic growth due to its integration into global trade networks.

  • Negative:

    • Widening income inequalities between and within countries.

    • Job losses in industries exposed to foreign competition.

      • Example: Deindustrialization in parts of the US Midwest (Rust Belt).

3.2 Social and Cultural Consequences:

  • Positive:

    • Exposure to diverse cultures and ideas.

    • Improved access to global products and services.

  • Negative:

    • Erosion of local traditions and cultural homogenization.

3.3 Environmental Consequences:

  • Positive:

    • Encourages global cooperation on climate change.

  • Negative:

    • Increased carbon emissions from transportation and industrialization.


 

Distinction Between Types of Trade Unions

4.1 Free Trade Area:

  • Countries remove trade barriers among themselves but maintain independent trade policies with non-members.

    • Example: NAFTA.

4.2 Customs Union:

  • Removes internal trade barriers and adopts a common external tariff on non-members.

    • Example: MERCOSUR.

4.3 Monetary Union:

  • Member countries adopt a single currency and monetary policy.

    • Example: Eurozone.

4.4 Full Economic Union:

  • Combines the features of a monetary union with harmonized fiscal policies and free movement of goods, services, capital, and labour.

    • Example: European Union (EU).


 

Trade Creation and Trade Diversion

5.1 Trade Creation:

  • Occurs when the formation of a trade bloc leads to more efficient production and lower prices.

    • Example: The EU’s elimination of tariffs on intra-bloc trade increases efficiency in member states.

5.2 Trade Diversion:

  • Occurs when trade shifts from a more efficient producer outside the bloc to a less efficient producer within the bloc due to tariffs.

    • Example: Post-Brexit, UK trade diverted from EU suppliers to less efficient non-EU suppliers.


 

Conclusion

Globalisation has reshaped the global economy, creating opportunities for growth and development while posing challenges like inequality and environmental degradation. Understanding the mechanisms of trade unions and concepts like trade creation and diversion is essential to analyzing global economic integration.


 

Exam Tips for Globalisation

  1. Define Clearly:

    • Explain key terms like globalisation, trade creation, and trade diversion.

  2. Use Real-World Examples:

    • Mention recent trends like Brexit, US-China trade wars, or the rise of global brands.

  3. Evaluate Impacts Critically:

    • Discuss both positive and negative consequences of globalisation.

  4. Incorporate Diagrams:

    • Include graphs showing trade flows or the structure of trade unions.


 

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