Chapter 22 Globalization

8/6/2019 Chapter 22 Globalization

1/36

ECONOMICSECONOMICS Year 11Year 11Chapter 22Chapter 22

GlobalizationGlobalization


2/36

W hat is Globlisation?W hat is Globlisation?Globalisation means the integration of Globalisation means the integration of national economies into the internationalnational economies into the internationaleconomy through trade, foreign directeconomy through trade, foreign direct

investment,investment, capitalcapital flows, migration, and theflows, migration, and thespread of technology.spread of technology.

Example:Example:

Expansion of multinationalsExpansion of multinationalsRapid growth of certain countries economiesRapid growth of certain countries economiesIntercontinental travelIntercontinental travelGlobal climate change because of pollutionGlobal climate change because of pollution


3/36

Acc ording to di c tionaries Acc ording to di c tionaries Globalisation (Globalisation ( nn ) )

is the "pro c ess enabling finan c ial and investmentis the "pro c ess enabling finan c ial and investmentmarkets to operate internationally, largely as a result of markets to operate internationally, largely as a result of deregulation and improved c ommuni c ations" (Collins ) deregulation and improved c ommuni c ations" (Collins )

or or from the USfrom the US - - to "make worldwide in s c ope or to "make worldwide in s c ope or applicationapplication " (W ebster ). " (W ebster ).

The finan c ial markets, however, are where the storyThe finan c ial markets, however, are where the storybegins .begins .


4/36


5/36

Spe c ialization & TradeSpe c ialization & Trade

W orld wide spe c ialization throughW orld wide spe c ialization throughexpansion of labour expansion of labour

A s su c h c ountries have spe c ialised in the A s su c h c ountries have spe c ialised in theprod of parti c ular goods and trade themprod of parti c ular goods and trade theminternationally .internationally .


6/36

T he potential benefits from specialisationT he potential benefits from specialisationB y c on c entrating on what people and businesses doB y c on c entrating on what people and businesses dobest rather than relying on self suffi c ien c y:best rather than relying on self suffi c ien c y:

H igher outputH igher output : Total output of goods and servi c es is: Total output of goods and servi c es israised and quality c an be improved . A higher output atraised and quality c an be improved . A higher output atlower c osts means more wants and needs might belower c osts means more wants and needs might be

satisfied with a given amount of sc

ar c

e resour c

es .satisfied with a given amount of sc

ar c

e resour c

es .V ariety;V ariety; Consumers have improved a cc ess to a greater Consumers have improved a cc ess to a greater variety of higher quality produ c ts i .e . they have more andvariety of higher quality produ c ts i .e . they have more andbetter c hoic e both from their own e c onomy and from thebetter c hoic e both from their own e c onomy and from the

produc

tion of other c

ountriesproduc

tion of other c

ountries


7/36

A bigger market:A bigger market: spe c ialisation andspe c ialisation andinternational trade in c rease the size of theinternational trade in c rease the size of themarket offering opportunities for e c onomies of market offering opportunities for e c onomies of s c ale (a fall in long run c osts per unit of output )s c ale (a fall in long run c osts per unit of output )

C ompetition and lower prices:C ompetition and lower prices: Inc reasedInc reasedc ompetition for domesti c produ c ers a c ts as anc ompetition for domesti c produ c ers a c ts as aninc entive to minimise c osts and innovate toinc entive to minimise c osts and innovate toremain c ompetitive . Competition helps to keepremain c ompetitive . Competition helps to keeppric es down and maintains low inflationpric es down and maintains low inflation


8/36

c omparative advantage and international tradec omparative advantage and international trade

C omparative advantageC omparative advantage exists when aexists when ac ountry has ac ountry has a margin of superioritymargin of superiority ininthe produ c tion of a good or servi c e i .e . the produ c tion of a good or servi c e i .e . where thewhere the opportunity costopportunity cost of produ c tionof produ c tionis lower . is lower .

DO exer c ise 1 page 404


9/36

Comparative A dvantage

Comparative & A bsolute A dvantage

Do exer c ise 2 Page 406


10/36

K EY THINGS TO CONSIDER INK EY THINGS TO CONSIDER ININTERN A TION AL TR A DEINTERN A TION AL TR A DE

W HY DO W E TR A DE W ITH OTHERW HY DO W E TR A DE W ITH OTHERCOUNTRIES?COUNTRIES?

W H A T DO W E EXPORT (SE LL ) A B RO A D)?W H A T DO W E EXPORT (SE LL ) A B RO A D)?W H A T DO W E IMPORT ( B UY) FROMW H A T DO W E IMPORT ( B UY) FROM

A B RO A D? A B RO A D?W H A T IS THE B ALA NCE OF P A YMENTS?W H A T IS THE B ALA NCE OF P A YMENTS?

W HY DO EXCH A NGE R A TES M A TTER?W HY DO EXCH A NGE R A TES M A TTER? SHOU LD W E K EEP THE OR JOIN THE SHOU LD W E K EEP THE OR JOIN THEEURO?EURO?


11/36

WHY DO C OUN T RIES T RA DEWHY DO C OUN T RIES T RA DEW ITH EACH OTH ER?W ITH EACH OTH ER?

To obtain goods that they c annot produ c e themselvesTo obtain goods that they c annot produ c e themselves

To in c rease c hoic e for their c onsumersTo in c rease c hoic e for their c onsumers

To obtains goods at a c heaper pri c e than what they c anTo obtains goods at a c heaper pri c e than what they c anprodu c e themselvesprodu c e themselves

To make more revenues and profits . It an extra pla c e inTo make more revenues and profits . It an extra pla c e inwhic h to sell their goodswhic h to sell their goods

Countries spe c ialise in the produ c tion of goods andCountries spe c ialise in the produ c tion of goods andservi c es at whi c h they are better .servi c es at whi c h they are better .

To exploit a c omparative or absolute advantage .To exploit a c omparative or absolute advantage .


12/36

C OMP A RAT IV E A DVA NTA GEC OMP A RAT IV E A DVA NTA GE

W here one c ountry c an produ c e a good atW here one c ountry c an produ c e a good ata relatively c heaper c ost in terms of other a relatively c heaper c ost in terms of other goods than another produ c er . (page )goods than another produ c er . (page )

AB SOLU T E A DVA NTA GEAB SOLU T E A DVA NTA GEW here one produ c er is better at produ c ingW here one produ c er is better at produ c ing

a produc

t than another produc

er .a produc

t than another produc

er .


13/36

UK A ND C OMP A RAT IV EUK A ND C OMP A RAT IV EA

DVA

NTA

GEA

DVA

NTA

GEIn re c ent years the U K had a c omparative advantage inIn re c ent years the U K had a c omparative advantage ina number of manufa c turing industries su c h as textiles or a number of manufa c turing industries su c h as textiles or motor c yc les .motor c yc les .

This was be c ause the U K had lots of natural resour c esThis was be c ause the U K had lots of natural resour c esand raw materials, trained workers and lots of relevantand raw materials, trained workers and lots of relevantma c hinery .ma c hinery .

However, now this advantage has been lost to other However, now this advantage has been lost to other areas of the world parti c ularly A sia . They have extremelyareas of the world parti c ularly A sia . They have extremelyc heap labour, new te c hnology and low transport c osts .c heap labour, new te c hnology and low transport c osts .


14/36

A dvantages from trade A dvantages from trade

Can obtain goods that the c ountry do notCan obtain goods that the c ountry do nothave or c annot produ c e themselveshave or c annot produ c e themselves

Cheaper to import from other c ountriesCheaper to import from other c ountriesIn international trade, more marketIn international trade, more marketopportunitiesopportunities thus e c onomies of s c alethus e c onomies of s c ale


15/36

Disadvantages of tradeDisadvantages of trade

Inc reased transportation c ausing pollutionInc reased transportation c ausing pollutionor greenhouse effe c tor greenhouse effe c t

Exploitation and unemployment to theExploitation and unemployment to thepeople if multinationals de c ided to movepeople if multinationals de c ided to moveInc rease to gap between ri c h and poor Inc rease to gap between ri c h and poor


16/36

Free Trade or Prote c tionism?Free Trade or Prote c tionism?

Prote c tionismProte c tionismCreation of barriers to free trade in anCreation of barriers to free trade in an

attempt to prote c t the e c onomies fromattempt to prote c t the e c onomies fromoverseas c ompetitionoverseas c ompetition

Free TradeFree Trade A system of trade poli c y that allows traders A system of trade poli c y that allows traders

to trade a c ross national boundariesto trade a c ross national boundarieswithout government interferen c eswithout government interferen c es

Do exer c ise 3 page 408


17/36


18/36

Reasons for Prote c tionismReasons for Prote c tionism

Prote c tion of a young industryProte c tion of a young industryTo prevent unemploymentTo prevent unemployment

To prevent dumpingTo prevent dumpingB e c ause other c ountries use barriers toB e c ause other c ountries use barriers totradetrade

To prevent over To prevent over- -spe c ializationspe c ialization


19/36

A rguments against prote c tionism A rguments against prote c tionism

Other c ountries will retaliate with tradeOther c ountries will retaliate with tradebarriersbarriers

It protects ineffi

cient domesti

cfirmsIt prote

cts ineffi

cient domesti

cfirmsThe loss of domesti c jobs from overseasThe loss of domesti c jobs from overseas

c ompetition will only be temporaryc ompetition will only be temporary

Trade barriers have inc

reased the gapTrade barriers have inc

reased the gapbetween the ri c h & poor c ountriesbetween the ri c h & poor c ountries


20/36

A RMS OR A ID??? A RMS OR A ID???

OR


21/36

Types of A IDTypes of A ID

Food A idFood A idFinan c ial A idFinan c ial A id

Te c hnologi c al A idTe c hnologi c al A idL oansL oansDebt relief Debt relief


22/36

A rguments against A ID A rguments against A ID

Poor c ountries unable to utilize thePoor c ountries unable to utilize thefinan c ial aid properlyfinan c ial aid properlyA

id is sometimes use to fund wars A

id is sometimes use to fund warsA id is used to fund the lavish lifestyles of A id is used to fund the lavish lifestyles of c orrupted government offi c ialsc orrupted government offi c ialsA

id used by ruthless dictators

Aid used by ruthless di

ctators


23/36

Conservation or Commer c ialization?Conservation or Commer c ialization?

DO EXERCISE 5Page 415


24/36

See Page 416 & 418 Textbook for See Page 416 & 418 Textbook for

A RGUMENTS FOR CONSERV A TION A RGUMENTS FOR CONSERV A TION

Do exer c ise 6 Page 417


25/36


26/36

B enefits of GlobalisationB enefits of GlobalisationB y buying produ c ts from other nationsB y buying produ c ts from other nationsc ustomers are offered a mu c h wider c hoic e of c ustomers are offered a mu c h wider c hoic e of goods and servi c es .goods and servi c es .

Creates c ompetition for lo c al firms and thusCreates c ompetition for lo c al firms and thuskeeps c osts down .keeps c osts down .Globalisation promotes spe c ialisation . CountriesGlobalisation promotes spe c ialisation . Countriesc an begin to spe c ialise in those produ c ts theyc an begin to spe c ialise in those produ c ts theyare best at making .are best at making .Ec onomi c Interdependen c e among differentEc onomi c Interdependen c e among differentnations c an build improved politi c al and so c ialnations c an build improved politi c al and so c ial

links. links. Do exer c ise 3 page 408


27/36

Drawba c ks of GlobalisationDrawba c ks of Globalisation

CheapCheap importsimports from developing nations c ouldfrom developing nations c ouldlead to unemployment in developed c ountrieslead to unemployment in developed c ountrieswhere the c ost of produ c tion is high .where the c ost of produ c tion is high .

Choosing to spe c ialise in c ertain produ c ts mayChoosing to spe c ialise in c ertain produ c ts maylead to unemployment in other se c tors whi c h arelead to unemployment in other se c tors whi c h arenot prioritised .not prioritised .Inc reased c ompetition for infant industry .Inc reased c ompetition for infant industry . DumpingDumping of goods by c ertain c ountries at of goods by c ertain c ountries atbelow c ost pri c e may harm industries in order below c ost pri c e may harm industries in order c ountries . c ountries .


28/36

H ow fluctuation in exchangeH ow fluctuation in exchangerate affects businessrate affects business


29/36

W ho gains and W ho losesW ho gains and W ho loses

L et s take the example of B ritain and US . L et s take the example of B ritain and US .

If the value of US$ flu c tuates inIf the value of US$ flu c tuates inc omparison to U K Pound, then, how will itc omparison to U K Pound, then, how will itaffe c t different businesses in Unitedaffe c t different businesses in UnitedStates?States?


30/36

A ffec t of A ffec t of A ppre c iation A ppre c iation of c urren c yof c urren c y

US Dollar becomes expensive asUS Dollar becomes expensive ascompared to B ritish Pound.compared to B ritish Pound.In order words, there is anIn order words, there is an(be c ause US$ has appre c iated )(be c ause US$ has appre c iated )

It will direc tly . It will direc tly . Lets see howLets see how


31/36

US importers will G A INUS importers will G A INbe c ause now US$ dollar c an buy more frombe c ause now US$ dollar c an buy more fromB ritain. Earlier $1 .5 c ould get only 1 PoundB ritain. Earlier $1 .5 c ould get only 1 Poundworth of goods from U K but now US importer worth of goods from U K but now US importer have to pay only $1 .3 to get 1 Pound worth of have to pay only $1 .3 to get 1 Pound worth of

goods from UK

. goods from UK

. Imported goods from U K will bec ome c heaper Imported goods from U K will bec ome c heaper for US c onsumers .for US c onsumers .Goods using imported c omponents from U K willGoods using imported c omponents from U K willbe c ome c heaper .be c ome c heaper .US tourists travelling to U K will be able to enjoyUS tourists travelling to U K will be able to enjoymore as they get more U K Pounds when theymore as they get more U K Pounds when theyex c hange dollars .ex c hange dollars .Customers will be happy but it might as it willCustomers will be happy but it might as it will

fac e c ompetition from c heaper fac e c ompetition from c heaper importsimports fromfrom


32/36

US Exporters will L OSEUS Exporters will L OSE be c ause now they will find it diffi c ult to c ompetebe c ause now they will find it diffi c ult to c ompetewith other c ountries with c omparatively c heaper with other c ountries with c omparatively c heaper ex c hange rate . ex c hange rate . UK businesses will now think twi c e to buy fromUK businesses will now think twi c e to buy fromUS be c ause earlier they c ould buy US$1 .5 worthUS be c ause earlier they c ould buy US$1 .5 worthof good for 1, but now, they c an only buyof good for 1, but now, they c an only buyUS$1 .3 worth of goods due to appre c iation inUS$1 .3 worth of goods due to appre c iation inthe value of US$ . the value of US$ .

B e c ause of fewer B e c ause of fewer exportsexports , US business will, US business willredu c e output, whi c h will lead to unemployment .redu c e output, whi c h will lead to unemployment .


33/36

So the moral of the story isSo the moral of the story is

T hough it is nice to hear that theT hough it is nice to hear that thevalue of our currency hasvalue of our currency has

appreciated but, in fact, it is not soappreciated but, in fact, it is not sonice for the economynice for the economy


34/36


35/36

US Importers will loseUS Importers will lose

Imports will be c ome more expensiveImports will be c ome more expensiveProdu c ts whi c h use imported c omponents willProdu c ts whi c h use imported c omponents willbe c ome expensive . be c ome expensive . US tourists to U K will have to shell out moreUS tourists to U K will have to shell out moremoney for their va c ation . money for their va c ation . Consumers will feel the pin c h and might beConsumers will feel the pin c h and might be

unhappy . B

UT domestic

produc

ers will gain asunhappy . B

UT domestic

produc

ers will gain asthey will have a c ost advantage over importedthey will have a c ost advantage over importedgoods . goods . Output will rise and so will employment.Output will rise and so will employment.


36/36

US Exporters will G A IN...US Exporters will G A IN...

UK businesses will prefer to buy from USUK businesses will prefer to buy from US

in the International market due toc

ostin the International market due toc

ostadvantage . advantage . A s exports rise, more goods will be A s exports rise, more goods will beprodu c edprodu c edTThus more jobs will be c reatedhus more jobs will be c reated

Chapter 22 Globalization

Documents

Transcript of Chapter 22 Globalization