Globalisation — Edexcel A-Level Economics B
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Globalisation explained
Globalisation covers 2 specification points, including O increased investment flows o world trade… and O trade liberalisation o capital market….
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Open a point below for its explanation and revision guidance.
a) Characteristics of globalisation: o increased investment flows o world trade rising as a proportion of world Gross Domestic Product (GDP) o increased migration
Globalisation is the increasing integration and interdependence of the world's economies. A key characteristic is the rise in world trade as a proportion of world Gross Domestic Product (GDP), meaning countries are exporting and importing a larger share of what they produce. Another feature is increased investment flows, such as foreign direct investment (FDI), where a multinational corporation might build a factory in a developing nation to access new markets or lower production costs. Finally, globalisation is characterised by increased migration, as workers move across borders seeking better employment opportunities, which alters labour supply and can help fill skills shortages in host countries while generating remittances.
b) Factors contributing to globalisation in the last 50 years: o trade liberalisation o capital market liberalisation o political change resulting in the opening up of China and the former Soviet Union o reduced cost of transport and communications o increased significance of global (transnational) companies
Globalisation over the last 50 years has been driven by several key factors. Trade liberalisation, facilitated by the WTO, has reduced tariffs, encouraging international trade. Capital market liberalisation has allowed money to flow freely across borders, boosting foreign direct investment. Political changes, notably the opening of China's economy and the collapse of the Soviet Union, integrated billions of people into the global market. Technological advancements have drastically reduced the cost of transport (e.g., containerisation) and communications (e.g., the internet), making global supply chains viable. Finally, the increased significance of global or transnational companies (TNCs) has accelerated integration, as these firms operate across multiple countries to minimise costs and maximise market reach.
Your focus
- Define the main characteristics of globalisation.
- Explain how world trade is rising as a proportion of world GDP.
- Analyse the role of increased investment flows and migration in the process of globalisation.
Show all 6 objectives
- Define trade and capital market liberalisation and explain their role in globalisation.
- Analyse how political changes in China and the former Soviet Union integrated new markets into the global economy.
- Evaluate the impact of reduced transport and communication costs alongside the rise of transnational companies.
Globalisation exam tips
Marking Points
- Defines globalisation as the growing integration of the world's economies.
- Identifies increased investment flows, such as foreign direct investment (FDI), as a core characteristic.
- Explains that world trade has grown faster than world GDP, making trade a larger proportion of global output.
- Recognises increased migration of labour across international borders as a key feature of globalisation.
- Identify trade liberalisation as the removal of trade barriers such as tariffs and quotas.
- Explain how capital market liberalisation enables foreign direct investment and cross-border financial flows.
- Recognise the impact of political changes in China and the former Soviet Union on expanding the global labour force and consumer markets.
- Describe how containerisation and the internet have lowered transport and communication costs, facilitating global supply chains.
- Assess the role of transnational companies in driving globalisation through offshoring and foreign direct investment.
Examiner Tips
- 💡Be prepared to identify the specific characteristics of globalisation from a list in multiple-choice questions.
- 💡Use the concept of a ratio (Value of World Trade / World GDP) to understand how trade is rising as a proportion of GDP.
- 💡Remember to include increased investment flows and migration when defining the scope of globalisation, not just imports and exports.
- 💡When evaluating the causes of globalisation, weigh the relative importance of technological factors against political decisions.
- 💡Use containerisation as a specific example of how reduced transport costs have revolutionised global trade in goods.
- 💡Remember to explicitly link the rise of transnational companies to their ability to exploit economies of scale on a global level.
Common Mistakes
- Stating that globalisation only involves the trade of physical goods; correction: it also includes services, investment flows, and the movement of labour.
- Confusing GDP with trade volume; correction: the characteristic is that trade is rising as a proportion of world GDP, meaning trade is growing faster than overall economic output.
- Assuming migration only flows from developing to developed countries; correction: migration occurs between all types of economies for various reasons, including skilled labour transfers.
- Confusing trade liberalisation with capital market liberalisation; trade refers to goods and services, while capital refers to financial flows and investment.
- Assuming globalisation is only driven by technology; political changes and trade agreements are equally crucial structural drivers.
- Believing the Soviet Union and China opened up at the same time; China began economic reforms in 1978, whereas the Soviet Union collapsed in 1991.