Global Interdependence

Part 1
12 ATAR ECO
Discuss… 1. What is globalisation? Create a definition in your own words
2. What does globalisation involve? Just trade?
3. What are the causes of globalisation?
4. What are the effects of globalisation?
Globalisation is the economic integration of national economies and consequently, a reduction
in the economic significance of national borders.
 Globalisation includes…
Trade Financial services
Duh… Global financial markets and financial
01 Up until the GFC, the volume of
international trade grew faster than
02 deregulation in individual countries have
allowed the use of savings in one
global output. country to finance economic activity in
another country.

Foreign direct investment Foreign currency

MNCs and other companies requiring Most currencies can now be traded in
03 large amounts of capital have
capitalised on the opportunity to source
04 foreign exchange markets for other
currencies at floating or fixed exchange
funds from overseas investors and rates.
expand their production capacity.
 Globalisation includes…
Tourism Migration
International travel has grown Many countries (Australia included)
05 exponentially due to higher disposable
incomes and cheaper, more reliable
06 have expanded the quality and quantity
of their labour force by promoting skills-
transport. This also assists in the spread based migration opportunities.
of culture.

Culture and language Policy coordination

Multiculturalism has increased as
07 people communicate through business,
travel, TV and film, social media etc.
08
Governments see the benefits to and
importance of synchronising economic
policies. For example, summit meetings
like G20, FTAs, WTO membership etc.
 Developments in transport technologies –

Causes of gl cheaper, faster, more energy efficient, more

reliable, more accessible.

obalisation Technological developments –

Revolutionised the way we communicate, produce
and purchase, and use goods and services. EG?

New bilateral and regional trade and investment

agreements – increasing the ease and decreasing
the costs associated with trade eg. ChAFTA

Changes in business organisational structures

and operational strategies. For example,
outsourcing, offshoring, global supply chains…

Decreasing language and cultural barriers – allowing

increased confidence in overseas markets, in relocating
countries to work, and in international travel
 Effects of globalisation

1. Continually increasing global trade as a % of global GDP, with short term dr

ops due to external shocks. Peaked at 62% of global GDP in 2007 (pre GFC)
.

2. More efficient allocation of resources and distribution of investment. Less

DWL, less opportunity cost. Trade allows countries to specialise and trade for
the goods and services they do not specialise in.

3. Economies of scale: unit costs of production decrease as production volum

e increases  lower costs for the same good  lower prices and/or higher q
uality goods

4. Increased networks across a number of markets, meaning knowledge, expe

rtise are more readily shared

5. Increased competition – challenges producers to continually improve their p

roduct offerings.
 Effects of globalisation

6. Reduced administration and red tape where trade barriers have been
removed  more efficient trade, lower costs, better customer service,
more attractive to consumers

7. Increased consumer surplus as consumers have a wider variety of g

oods to choose from at cheaper prices.

8. Increased producer surplus as they can reduce their costs of product

ion and sell to a wider audience.

9. Reduction in poverty due to businesses taking advantage of cheaper

sources of labour (offshoring and outsourcing) and increasing levels of
education.

10. Greater global understanding, also known as the ‘peace dividend’. E

conomic connectedness has promoted political and social connections.
 Negative effects of globalisation
1. Unfair outcomes: while globalisation increases global output, some communities get left behind. World Bank data s
hows that in the majority of world economies income inequality has risen.

2. Structural change: as economies specialise and produce the goods/services in which they have competitive advant
age, workers in other, less competitive industries may struggle to find employment and may lack the mobility to move
to an economy more suited to their skills.

3. Migration: while skilled migration is an advantage for an economies labour force, increasing the supply of labour red
uces wages growth (and may decrease real incomes) which could reduce workers’ standard of living.

4. Hollowing out effect: as countries specialise, the demand for high-skilled labour increases and the demand for lowl
y-skilled labour decreases. This increases income inequality. New technologies has also eliminated the need for man
y middle-income jobs, thus hollowing out the labour force. This forces many previous middle-income earners to take
on low-income jobs.
 Negative effects of globalisation

5. Negative multiplier effects: unless new industry is attracted, the decline of an industry leads to a multiplier effect on
other industries, creating ’rust-belts’  two speed economy… even though some industries are performing well and
economic indicators suggest a healthy economy, some industries may have no/negative growth.

6. Forfeiture of control in trade blocs/FTAs: even though countries exercise their sovereignty in signing up to FTAs a
nd trade blocs, because the laws and regulations are standardised, the member countries give up some control in th
e process. This is also what has made MNCs so powerful, as they take advantage of trade agreements and expand t
heir reach.

7. External shocks: Countries heavily involved in international trade (eg. Australia) are more susceptible to external sh
ocks, which could be economic eg. GFC, political (eg. conflicts, wars, political tension), environmental (eg. extreme w
eather events).