Globalisation: Causes and Consequences

Globalisation refers to the increasing integration and interdependence of the world's economies through the growth of international trade, capital flows, migration, and the spread of technology and ideas. It is one of the defining economic trends of the past fifty years and has profound implications for growth, inequality, employment, and the environment.

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Defining Globalisation

Key Definition: Globalisation is the process by which national economies become increasingly integrated and interdependent through the growth of international trade, investment, migration, and the sharing of technology, culture, and ideas.

Globalisation is not a single phenomenon but a multifaceted process encompassing:

• Economic globalisation — increased trade, FDI, and financial flows
• Political globalisation — growth of international organisations (WTO, IMF, World Bank, UN)
• Cultural globalisation — spread of consumer brands, media, and cultural practices
• Technological globalisation — global communication networks, the internet, and digital platforms

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Causes of Globalisation

1. Trade Liberalisation

• The GATT/WTO has overseen successive rounds of tariff reductions since 1947. Average tariffs have fallen from around 40% to below 5%.
• Regional trading blocs (EU, USMCA, ASEAN) have further reduced barriers.
• Unilateral liberalisation by developing countries (e.g., China's "Open Door" policy from 1978, India's liberalisation in 1991).

2. Technological Advances

Technology	Impact on globalisation
Containerisation (1950s–60s)	Dramatically reduced shipping costs — a standardised 20-foot container can be moved seamlessly between ship, rail, and truck
Jet aircraft	Enabled rapid international travel and high-value freight transport
Internet and digital communication	Instant communication across borders; enabled global supply chains, e-commerce, and remote services
Fibre-optic cables and satellites	High-speed data transfer supporting financial markets and global business
Automation and AI	Reduced manufacturing costs and enabled offshoring of service functions

3. Deregulation of Financial Markets

• Capital account liberalisation has allowed money to flow freely across borders.
• Financial deregulation in the 1980s (the "Big Bang" in London, 1986) enabled global investment flows.
• The growth of international banking, stock markets, and derivatives trading has created truly global financial markets.

4. Multinational Corporations (MNCs)

• MNCs drive globalisation by locating production, marketing, and management across multiple countries.
• They seek lower costs, access to new markets, and strategic resources.
• Examples: Apple designs in California, sources components from South Korea, Japan, and Taiwan, and assembles in China.

5. Political Changes

• The collapse of the Soviet Union (1991) and China's economic opening brought billions of people into the global market economy.
• The spread of market-oriented economic policies (privatisation, deregulation, free trade) — sometimes called the "Washington Consensus".
• Growth of international institutions that set rules for global economic governance.

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Consequences of Globalisation

Winners from Globalisation

Group	How they benefit
Consumers in developed countries	Lower prices through access to cheaper imports; greater product variety
Workers in export sectors of developing countries	Employment opportunities; rising wages (e.g., Chinese manufacturing workers)
MNCs and their shareholders	Access to global markets; ability to exploit low-cost labour and avoid regulation
Developing countries that have liberalised	Rapid economic growth, poverty reduction (China, India, Vietnam, Bangladesh)
Skilled and mobile workers	Can sell their skills in global labour markets

Losers from Globalisation

Group	How they are harmed
Low-skilled workers in developed countries	Job losses due to offshoring and competition from low-wage imports; wage stagnation
Domestic firms unable to compete	Forced out of business by cheaper foreign competitors
Workers in "sweatshop" conditions	May face exploitation, low wages, and poor working conditions
The environment	Increased production, transport, and consumption raise carbon emissions; environmental degradation
Countries with weak institutions	May experience a "race to the bottom" in regulation and taxation

Exam Tip: Globalisation questions frequently ask you to evaluate whether globalisation has been beneficial overall. The best answers distinguish between effects on different groups, countries, and time horizons, and avoid sweeping generalisations.

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Foreign Direct Investment (FDI)

Key Definition: Foreign direct investment (FDI) is investment by a firm in one country into productive capacity (factories, offices, land) in another country. It differs from portfolio investment, which involves buying financial assets.

Benefits of FDI for Host Countries