Globalisation
Globalisation refers to the intesification of international interconnections in culture, politics, and economy. There are three different dimensions of globalisation (see above) which mutually reinforce each other.
Causes of globalisation
Globalisation has mainly happened because of:
- The development of new technologies (financial, security, transport).
- The introduction of efficient communication systems.
- Improved political relations between countries (that were cemented by trade agreements).
- The establishment of supranational institutions (WTO, WHO...)
Economic globalisation
- Economic globalisation refers to the increasing independence of world economies. This is a result of the growing scale of cross-border trade (commodities and service), increasing flow of international capital, and wide and rapid spread of technologies.
FDI
A foreign direct investment (FDI) is a cross-border investment in which an investor based in one country establishes a controlling ownership over a business enterprise resident in another country.
National governments encourage FDI because the influx of capital can boost economic growth, employment opportunities, infrastructure and tax revenues for the host country.
Trade Blocs
A trade bloc is a type of intergovernmnetal agreement, where barriers to trade in a world region (both tarrif and non-tarrif barriers) are reduced or eliminated amongthe participating states. They can be stand alone agreements, or part of a regional bloc (EU).
TNCs
Transnational Corporations (TNCs) can be described as the "architects" of globalisation: they bolt together different national markets with their supply chains and marketing strategies. TNCs import and export goods and services, and in the process, they make significant investments in foreign countries.
Globalisation inequality
Since the pattern of connection is not uniform across all countries, the benefits of globalisation are not distributed evenly.
Global hubs are "cores" with a number of intense connections to the rest of the world, because others wish to connect to them. Many hubs host major TNCs. Demographic, finance, trade and idea flows move towards them. The opportunities for creative and productive collaboration between well-connected places have increased (transport and communication technologies), so the best-connected places are also the best placed to specialise and produce goods.
Trade Blocs pros and cons
Pros: - Bigger markets: Member states can access the markets of each others without paying tariffs.
- FDI: members of trade blocs are less volatile and are thus an attractive opportunity for investments.
Political stability: TBs enforce peace through dependence.
Cons: - High Competition: within a common market large multinational producers can easily outcompete smaller producers due to lower prices.
- Interdepence: As TBs increase trade among participating countries, they become dependent on one another.
- Loss of sovereignty: a TB is likely to lead to some loss of sovereignty (authority of a state to govern itself).
TNCs pros and cons
Pros: - Higher environmental standards: TNCs have international brands to maintain and can thus set up high environmental standards, bringing good practice into countries that have low environmental protection.
- Raised living standards: FDI increases the productivity of the labour force in developing countries, leading to higher wages and rising living standards.
- Tech transfer: TNCs transfer tech from their parent companies (MEDC) to their branch plants (LEDC).
Cons: - Growing global inequalities: TNCs cluster in selected economies and concentrate FDI in favoured regions (ex: Eastern rather than Western China).
- Unemployment: Outsourcing and offshoring can lead to unemployment in developed economies.
- Tax avoidance: TNCs pay tax in the lowest tax regime they can.