Globalization (Copy)
11.6 Globalisation
11.6.1 Meaning, Causes, and Consequences of Globalisation
Meaning:
- Increasing integration and interdependence of national economies through trade, investment, technology, and the movement of people and ideas.
Causes:
- Trade liberalisation (reduction of tariffs/quotas).
- Advances in transport (containerisation, cheaper air freight).
- Communication and IT developments (internet, mobile technology).
- Growth of multinational companies (MNCs).
- Financial market liberalisation.
Consequences:
| Positive | Negative |
|---|---|
| Access to larger markets. | Loss of cultural identity. |
| Economies of scale. | Environmental degradation. |
| Technology transfer. | Widening income inequality. |
| Job creation in developing countries. | Vulnerability to global economic shocks. |
11.6.2 Distinction Between Types of Economic Integration
| Type | Definition | Features |
|---|---|---|
| Free Trade Area (FTA) | Agreement to remove trade barriers between members. | Each member sets its own external tariffs. |
| Customs Union | FTA + common external tariff for non-members. | Requires coordination on trade policy with outsiders. |
| Monetary Union | Members adopt a common currency and monetary policy. | Requires a shared central bank (e.g., Eurozone). |
| Full Economic Union | Monetary union + harmonised fiscal policy, regulations, and laws. | High level of political/economic integration. |
11.6.3 Trade Creation and Trade Diversion
Trade Creation:
- Occurs when economic integration leads to replacement of higher-cost domestic production with lower-cost imports from member countries.
- Increases efficiency and welfare.
Trade Diversion:
- Occurs when imports shift from a more efficient non-member producer to a less efficient member due to preferential trade agreements.
- Can reduce global efficiency.