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Unit 4 Revision Notes
Globalisation – increased cultural, political and economic integration and interdependence
worldwide
Characteristics of globalisation:
Increased global trade, increased movement of financial capital, international specialisation, growth
of TNCs and FDI
Causes of globalisation:
 Trade liberalisation – decreased protectionism (WTO) – increased trade and movement of
labour – ev trade blocs
 Decreased cost of communication, technology and transportation – growth of internet and
instant global messaging + containerisation – ev some groups left behind
 TNCs – operations in 1 country, headquarters in another – increased FDI – increased exports
+ trade
 Increased mobility of labour – decreased transportation costs – skills gaps filled + sharing of
culture
 Opening of previously closed markets – collapse of Iron Curtain, China, India and
deregulation of financial markets
Effects of globalisation:
 Decreased prices
 Increased profits
 Productivity gains
 Increased govt revenues – spent on reducing poverty and inequality
 Increased choice
 Brain drain
 Unemployment/ employment in MEDCs/LEDCs – skills gaps
 Environmental degradation – negative externalities
Reasons to trade – differences in factor endowments, price, product differentiation + political
reasons
Patterns of trade:
 Collapse of communism – A8 accession
 Growth of NICs – Chindia – emerging middle class – resources from Africa + SA
 Growth of trade blocs – around 50% of UKs trade with EU – no longer ACP + commonwealth
 Developed and developing country relationships
Factors that may determine whether an MNC provides FDI:
Level of infrastructure, trade blocs involved in, relative costs of production (labour, resources and
transportation), corporation tax, environmental standards and legislation
Specialisation and Comparative advantage:
Decreased range of g/s produced by a country
When one country has a relative (not necessarily an absolute) advantage in producing a g/s, by
having a lower opportunity cost – leads to specialisation + trade between countries
 Workers higher skilled – higher paid
 More training for firms
 Increased output for countries – increased export revenues

 Interdependence – vulnerable to external shocks + overreliance
 Lower prices
World Trade Organisation:
Formed from GATT
Objectives:
 Enforce rules of international trade
 Forum for negotiating trade liberalisation
 Resolve trade disputes
 Help developing countries benefit from trade
Ineffective – Uruguay round lasted 87months
Effective – 40% reduction in tariffs + no MEDC tariffs on textiles from LEDCs, 3% decrease in Russian
tariffs when joined WTO
Trade Conflicts:
 Banana wars – lasted 20 years, 17% of EU bananas were from ACP countries (ex-colonies
who got special tariff rates) – USA sues as TNCs in SA were losing out – reduction in tariffs
from 176 euros per tonne to 114 euros per tonne – 14% decline in ACP-EU bananas – had to
diversify into fair trade bananas and tourism
 China dumping solar panels on EU
 EU CAP
Trade Blocs:
Group of countries that protect themselves from imports by non-members
Types:
 Preferential Trade Area – reduction or elimination of trade barriers on selected g/s between
members
 Free Trade Area – reduction or elimination of trade barriers on all g/s between members
 Custom Union – FTA + common external tariff – negotiate as an entity
 Common Market – removal of trade barriers on g/s + labour + capital + common policies on
industries + competition e
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CAP + Common Fisheries Policy
Benefits:
 Decreased costs and prices
 Employment from internal trade
 Increased profits for firms – e of s
 Protection from dumping
 Loss of trade between trade blocs – significance to major exports varies
 Loss of benefits from specialisation and comparative advantage
 Inefficiencies
 Retaliation
Restrictions on free trade:
 Tariffs, quotas, embargos, legislation, subsidies
etc
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b
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g
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4% of GDP
 Lower interest rates – Celtic Tiger – growth of Ireland in 90s + 21st century – 7%+ econ g last
few years
 Lower prices
 Blanket monetary policy for diverging economies – Greece needs boosting whilst Ireland
may be overheating
 Loss of sovereignty
 Inability to devalue currency to improve exports
Competitiveness:
Measurements:
 Relative export prices
 Ratio of import to export prices
 Relative unit labour costs
 Labour productivity
 Terms of trade
Factors affecting:
 Exchange rate
 Productivity – supply side policies
 Wage and non-wage costs
 Regulation
 Relative inflation
 Infrastructure + FDI
 Flexibility of labour force
Strategies to improve it:
 E+t
 Incentivising investment e
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Nissan plant bought at agri
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e
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e
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g
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g
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g
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g
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7% of GDP
2016 – 38% of GDP
£600bn a year
Crowding out of the private sector by public spending
Education - £99bn
Health £141bn
¼ of social welfare goes on pension – will grow due to ageing population
Drivers of welfare spending:
 Demographic trends – LE going up, net immigration – migrant workers bring children and
parents,
 Labour market trends – growing population means increased unemployed + economically
inactive + disabled, short term trends based on economic cycle
 Inflation and earnings growth – welfare growth usually tied to inflation or wage growth –
Triple Lock Pension
 Housing market trends – amount of OO decreased due to house price inflation
 Social renters (council housing) broadly stable – private renters growing – increased housing
benefit claimants – reasons for bedroom tax and benefits cap
 ‘buy-to-rent’ increasing inequality – 2+ home owners buying property then renting
Gov’t debt – makes FDI by countries unattractive as may not get money back, may lose AAA credit
rating – makes loans more expensive
Growth and Development:
Limiting factors:
 Poor infrastructure (the whole structures essential for an economy to run smoothly) –
unattractive to FDI + hard to trade – no jobs created
Ev China will likely invest in infrastructure due to resources present
 Human capital inadequacies – poor education, poor health (HIV/Aids)
Ev little education required in manufacturing + use of child labour
 Primary product dependency – affected by price fluctuations (difficult to plan investment),
natural disasters, protectionism by MEDCs and little value added – Prebisch-Singer

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hypothesis – commodity exporters get less in return for their exports in terms of their
imports – due to low YED for commodities
Ev Botswana’s development based on diamonds, comparative advantage, commodity prices
generally rising as they become more scarce
Savings gap – inadequate savings, due to low incomes + high MPC, for banks to lend out to
businesses to invest to grow – Harrod-Domar model – low savings, low investment, low
capital accumulation, low output and income, low savings – highlights 3 possible injections –
Aid + borrowing to supplement savings, FDI to supplement investment and technological aid
and human capital to supplement capital accumulation – may however see a repatriation of
profits, tied aid and debts being accumulated
Ev SK grew with savings rate similar to Sudan and Afghanistan, easily overcome with FDI and
aid
Lack of foreign currency – can’t buy capital as don’t have hard currency – limited investment
Ev sale of exports to e
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China will get LEDCs hard currency to reinvest
Capital flight – savings put into foreign banks or buy assets in foreign countries e
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Chinese
businessmen buying London property, contributes to savings and foreign currency gap +
currency devalues as decreased d
Ev exports more competitive as currency cheaper
Population issues – high fertility rate – youthful population – high number of economic
dependents, may have ageing population – population shrinking – lack of workers
Ev youthful means large future workforce, can supplement with open migration policy who
will be working age
Debt – heavy borrowing at times of low interest rates – now unserviceable – most of income
spent on just the interest, may have spent money on weapons or corruption – poor
governance
Ev developed countries have some of highest debts – USA over $19,000,000,000,000

Ways of promoting economic growth and development:
Econ
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g
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g
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g
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Guyana or e
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all-weather roads in Uganda
Reduction in interest payments on investment income section of current account –
improvement in current count therefore b of p
Ev decreases incentives to effectively collect taxes, corruption e
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half money invested into
healthcare and schools was pocketed by officials, no punishment for wasteful spending,
often tied to conditions that may not help country
 Aid – any assistance given to a country that would not have been provided through normal
market forces
Development aid – aid given to help improve the welfare of individuals and alleviate poverty
Tied aid – aid provided with conditions, normally that recipient has to buy donors goods
Long term loans – repaid over 10-20 years, low interest rate and use their own currency
Food aid – aid needed in famine periods
In many countries, private investment not an option as don’t have enough income left after
spending on necessities

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Ev - may disrupt local markets, pocketed by officials – best done by NGOs who directly target
needs of population + non-monetary means less likely lost to corruption
Fair-trade – premium price above market price, have to improve environmental standards,
money used to invest in local communities – coffee growing in SA has reduced gang
involvement as new income reduces need to turn to crime, +ve multiplier – ev may be
burdened by debts so will have little impact
Microfinance - Muhammad Yunus:
Economist and noble-prize winner who set up Grameen bank - provide small (£50) loans –
long term low interest – invest in capital to improve incomes
‘best entrepreneurs are the world’s poor – poor because don’t have the opportunity to turn
creativity into a sustainable income’
Human capital improvements – UNESCO involvement in SS Africa – garden schools to
improve attendance rates – improved productivity + get access to higher paid jobs
Improved technology – better comms allows just-in-time production – increased profits –
trickle down
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05% to 0
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8% growth 2015 – doesn’t require low IR whereas Greece does – may overheat
UK experienced it last year
Cant use fiscal policy - £70bn deficit already
Zombie firms – low IR allows inefficient firms to survive on low cost loan servicing
Japan has persistent deflation from:
 low productivity – inefficient public sector + low capital investment – ‘job for life’ – 3
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g
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g
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e
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g
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g

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