Study Notes
Globalisation has both positive and negative effects on economies worldwide, influencing growth, employment, and income distribution.
- Increased Economic Growth — Globalisation correlates with higher income per capita and productivity. Example: Export-led growth in China.
- Increased Tax Revenue — Economic growth from globalisation raises tax revenues. Example: Higher incomes and profits increase tax collection.
- Economies of Scale — Firms benefit from targeting larger international markets. Example: Lower average costs for producers and consumers.
- Lower Prices and Consumer Surplus — Globalisation reduces production costs and increases consumer surplus. Example: Lower tariffs and global sourcing.
- More Choice — Consumers have access to a wider variety of goods and services. Example: Increased availability of international products.
- Higher Living Standards — Real GDP per capita rises, improving living standards. Example: Developing countries benefiting from production shifts.
- Displaced Workers — Job losses in developed countries due to manufacturing shifts. Example: Manufacturing moving from the USA to China.
- Exploitation of Workers — Imbalance in power leads to worker exploitation. Example: TNCs exploiting weaker labor regulations.
- Environmental Impact — Increased production harms the environment. Example: Higher emissions and raw material demand.
- Loss of Tax Revenue — Transnationals avoid taxes through transfer pricing. Example: Manipulating production locations.
- Increased Income Inequality — Global competition affects wage levels. Example: Lower wages for low-skilled workers in developed countries.
- TNC Influence on Governments — TNCs can sway government policies. Example: Lobbying and investment promises.
Exam Tips
Key Definitions to Remember
- Increased Economic Growth
- Economies of Scale
- Consumer Surplus
- Displaced Workers
- Exploitation of Workers
Common Confusions
- Confusing increased tax revenue with loss of tax revenue
- Misunderstanding the role of TNCs in influencing government policies
Typical Exam Questions
- How does globalisation help firms benefit from economies of scale? Globalisation allows firms to access larger markets, reducing average costs.
- State the reasons why globalisation might increase living standards. Higher incomes, more job opportunities, lower prices, and increased consumer choice.
- Why might transnational companies have more power over domestic economic policy than they should? TNCs can influence policies through lobbying and investment decisions.
What Examiners Usually Test
- Understanding of both benefits and costs of globalisation
- Ability to explain how globalisation affects different economic factors
- Knowledge of specific examples illustrating globalisation's impact