Economics of Globalisation

Globalisation involves the increased integration and interdependence of national economies. Globalisation reflects the increased importance of the whole  international economy. Globalisation involves increased international trade, increased inward investment and an increased role for global multinational companies.

Reasons for growth of globalisation

  1. National Economies are becoming more closely integrated with each other. For example the Common Market in the EU, harmonization of Monetary Policy. But also closer integration in  America and Africa
  2. Increase in World Trade, Tariffs and other impediments to world trade have gradually been reduced leading to an increase in world trade.
  3. The  WTO has been instrumental in bringing about a more integrated and interdependent global economy
  4. Economies tend to move in trade cycles together. A slow down in US growth has an impact on the whole world economy, because of the importance of trade.
  5. Monetary Policy is linked between the economies, if US cuts its interest rate, this is likely to lead other countries to cut theirs
  6. At the level of the firm, more product markets have become open to international influences due to:
    • Globalisation of brands e.g. McDonalds
    • Growth of Multinationals through Mergers and internal expansion, this is noticeable in Pharmaceuticals, airlines, oil processing leading to the growth of global oligopolies
    • At a personal level people can shop on the internet buying books in the UK from the US

More detail at: Causes of globalisation

Benefits of globalisation

  • Increased trade
  • Increased economies of scale enabling lower prices
  • Increased competition pushing down prices
  • Increased choice of goods, services and opportunities for work

Costs of globalisation

  • Growth of global monopolies with opportunity to exploit consumers
  • Environmental costs from increased use of raw materials.

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