🚧 Changes in trade restrictions
When countries remove limits on imports, trade between them grows and economies link up faster. When they add new limits, globalisation slows down. You will study the types of restriction in Methods of Protection.
Globalisation and Trade Restrictions » Globalisation: Causes and Effects
What you'll learn this session
Study time: 30 minutes
Cambridge spec: 6.2.1, 6.2.2
- What globalisation means
- Four causes of changes in globalisation: trade restrictions, transport costs, communication costs and the movement of multinational companies
- The effects of globalisation on trade, competition, the environment, migration, income distribution and economic development
- How to show both the good and the bad sides in an exam answer
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Unlock This CourseWhat is globalisation?
Look at the label inside your shirt, the phone in your pocket or the app you use to chat to friends. Many of the things we use are designed in one country, made in another and sold in dozens more. The world's economies are more and more tied together. That is globalisation.
Key terms:
- Globalisation: the process by which the world's economies become more closely linked and more dependent on each other, through the trade of goods and services, the movement of money and firms, and the movement of people and ideas.
Globalisation is not switched on or off. It can speed up or slow down. The spec asks you to know what causes it to change and what the effects are when it does.
Causes of changes in globalisation
🚢 Changes in transport costs
Cheaper and faster shipping, air freight and lorries make it affordable to send goods a long way. Falling transport costs speed up globalisation. Rising costs, for example from a fuel price jump, slow it down.
📡 Changes in communication costs
Cheaper phone calls, email and video meetings let a firm manage workers and customers in many countries at once. Lower communication costs make it easier to trade across borders and speed up globalisation.
🏭 Movement of multinational companies
A multinational company (MNC) has operations in more than one country. When MNCs open factories, shops and offices abroad, they move money, jobs and ideas across borders. More MNCs moving means more globalisation. Multinational Companies covers them in depth.
These causes often work together. If trade restrictions fall and shipping gets cheaper at the same time, a firm in one country can sell far more in another.
Effects of globalisation
Globalisation affects different groups in different ways. For each effect below, remember that there are usually gains and losses.
Effect on international trade
As globalisation increases, countries trade more with each other. Exports and imports both grow, and goods and services cross borders more freely. Firms can sell to a wider market. In Free Trade you met the gains and losses that come with this.
Effect on competition
Home firms now face rivals from all over the world. This can lead to lower prices, better quality and more choice for consumers. But a firm that cannot keep up may lose sales and close, and its workers may lose their jobs.
Effect on the environment
- Negative: more transport by ship, plane and lorry means more fuel use and pollution. Higher production to meet world demand uses up more resources.
- Positive: countries can share cleaner technology and ideas for protecting the environment.
Effect on migration
Globalisation makes it easier for people to move to find work, and firms may move workers between countries. The country workers leave may lose skilled people. The country they move to may fill job gaps and gain skills. Workers may also earn more abroad than at home.
Effect on income distribution
The gains from globalisation are not shared equally. Skilled workers, firm owners and people in growing export industries may see their incomes rise strongly. Workers in industries that lose out to imports may see their incomes fall or lose their jobs. Income distribution can therefore become more unequal within a country. In some low-income countries, new jobs and investment can raise incomes for many people, so the picture is mixed.
Effect on economic development
Trade, investment and new technology can help a developing country to grow, create jobs and raise living standards. However, a country that relies on a few exports can be badly hit if world prices fall, and the benefits may not reach everyone.
Worked example
Question: Explain one way that falling transport costs might affect an economy.
Answer: Falling transport costs make it cheaper for a firm in Yelmara to send its goods abroad (1). The firm can sell more to customers in other countries, so exports rise (1). This is a rise in international trade, and so globalisation increases (1). However, cheaper imports also arrive, so a local firm faces more competition and may lose sales (1).
Common mistakes
- Writing that globalisation is only about trade. It also includes the movement of firms, money, people and ideas.
- Mixing up causes and effects. Cheaper transport is a cause of globalisation. More competition is an effect.
- Giving only the good or only the bad side. Most effects have both.
- Saying that everyone gains. Some people and firms lose out.
Exam-style question
Quendra is a country with a growing economy. In recent years cheaper shipping and faster internet services have helped many multinational companies to open factories there.
(a) Define globalisation. [2 marks]
(b) Explain two causes of increased globalisation. [4 marks]
(c) Analyse how globalisation might affect income distribution in Quendra. [6 marks]
Model answer
(a) Globalisation is the process by which the world's economies become more closely linked (1) and more dependent on each other (1).
(b) One cause is falling transport costs (1). Cheaper shipping makes it affordable to send goods to other countries, so trade rises (1). Another cause is falling communication costs (1). Firms can manage staff and customers abroad more easily, so they trade and invest across borders more (1).
(c) Some people in Quendra may gain (1). Skilled workers in the new factories may earn higher wages and owners of firms that export may earn more profit (1). This raises their incomes compared with others (1). Workers in Quendra's older firms may face competition from imports and lose their jobs or see lower wages (1). Their incomes fall, so the gap between richer and poorer people may widen and income distribution becomes more unequal (1). However, new jobs may also raise incomes for some who were earning little before, so the gap might not widen (1).
Exam tip
In an Analyse question such as part (c), build a chain of reasoning: who gains, why their income rises, who loses, and what that does to the gap between them. One link per mark.