Globalization, Free Trade and Protection (Copy)
6.2 Globalisation, Free Trade and Protection
6.2.1 Definition of Globalisation
- Globalisation: Increasing integration and interdependence of world economies through trade, investment, movement of labour, and technology.
- Features: Free flow of goods, services, capital, and ideas across borders.
6.2.2 Role of Multinational Companies (MNCs)
- MNCs: Large firms operating in multiple countries.
- Benefits to Host Country:
- Job creation.
- Technology transfer.
- Investment and infrastructure development.
- Wider product choice for consumers.
- Costs to Host Country:
- Profit repatriation to home country.
- Exploitation of labour/natural resources.
- Possible crowding out of local firms.
- Benefits to Home Country:
- Profit inflows.
- Larger global market access.
- Costs to Home Country:
- Loss of domestic jobs if production shifts abroad.
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Economics Full Scale Course
6.2.3 The Benefits of Free Trade
- Greater consumer choice.
- Lower prices due to competition.
- Access to larger markets → economies of scale.
- Encourages efficiency and innovation.
- Allows countries to specialise according to comparative advantage.
- Increases global economic growth.
6.2.4 Methods of Protection
- Tariffs: Taxes on imports to raise price and reduce demand.
- Import quotas: Limits on quantity of imports allowed.
- Subsidies: Government support to domestic producers to reduce costs.
- Embargoes: Bans on trade with specific countries.
6.2.5 Reasons for Protection
- Protect infant industries (new and developing sectors).
- Support declining industries to reduce unemployment.
- Protect strategic industries (e.g., defense, food security).
- Avoid dumping (when foreign firms sell below cost to destroy local firms).
- Reduce current account deficits by cutting imports.
- Maintain political/strategic independence.
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Economics Full Scale Course
6.2.6 Consequences of Protection
- For the Home Country:
- Higher prices for consumers.
- Less choice of goods and services.
- Short-term job protection, but risk of inefficiency.
- Retaliation by trading partners may reduce exports.
- For Trading Partners:
- Reduced access to markets.
- Loss of income and employment in export industries.
- Global Impact:
- Reduction in world trade.
- Potential trade wars.
- Slower global growth.
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Economics Full Scale Course