GLOBALISATION, FREE

TRADE AND
PROTECTION
GLOBALISATION
This can be defined as the process by which the world’s economies become
increasingly interdependent and interconnected.

Globalisation has increased the exchange of goods and services throughout the
world.

Examples of globalized markets are fast food, financial markets, motor vehicles,
sports and football.
CAUSES OF GLOBALISATION

1. Fall in transport costs thereby reducing costs of exporting and

importing and increasing international trade.

2. Improvement in communications due to advances in

technology and increasing growth in MNCs

3. Improvement in communications can encourage

consumers to buy from other countries and enabling branches in
different countries to keep in touch.
BENEFITS OF GLOBALISATION
1. Increase in international trade thus bringing about employment.
2. Freer movement of labour, capital, goods and services.
3. Greater economies of scale thereby reducing average cost.
4. Greater choice of goods and services for consumers.
5. Removal of some trade restrictions. The general trend has been for tariff s
and quotas to be reduced.
PROBLEMS OF GLOBALISATION

1. Greater dependence on the global economy.

2. Wider gaps in income and wealth among countries.
3. It is, however, making economies more susceptible to external shocks. The
greater the integration of economies means that a recession in one
economy can have a significant impact on other economies.
4. The ability of MNCs to shift production from branches in one country to
other countries can cause structural unemployment.
5. Some workers may also lose their jobs because of the increased competition
that is arising from the breaking down of barriers between national markets.
Role of multinational companies (MNCs)
A multinational company (MNC) is a business organisation that produces in more
than one country. For example, the US based McDonalds has outlets in many
countries.

ADVANTAGES OF MNCs
1. Producing in countries where products are sold rather than exporting to
those countries will reduce the MNCs’ transport costs and enable them to
keep in close contact with the market.
2. It may also enable them to get around any restrictions on imports
3. They gain access to cheaper labour and raw materials.
4. They may also receive grants from the governments of the countries in which
they set up their franchises
5. They provide employment opportunities
6. They can increase output through economies of scale and offer lower prices t
consumers.
7. They increase the tax revenue generated by the government.
8. They may bring in new technology and management ideas
and help in development of infrastructure.
DISADVANTAGES OF MNCs
1. They be more prone to generate pollution.
2. They may be willing to close down plants in foreign countries.
3. Their size and their ability to shift production may mean that they can put
pressure on the governments of the host countries in which they have
plants, to give them tax concessions and not to penalise them for poor
safety standards.
4. In addition, although MNCs may increase employment, there is a risk that
they may drive domestic firms out of business.
5. The profits they earn may be paid to shareholders in their home countries
rather than being reinvested in the host country.
6. They exploit workers by offering low wages in low income countries.
7. They may be unsuccessful if they offer goods and services that do not
appeal to local tastes and customes.
FREE TRADE AND PROTECTION
FREE TRADE
Free international trade occurs when there are no restrictions on the products
bought by firms and consumers from abroad or products sold by firms to other
countries and no imposition of special taxes.

ARGUMENTS IN FAVOUR OF FREE TRADE (ADVANTAGES OF FREE TRADE)

1. Selling freely to a global market should enable firms to take greater
advantage of economies of scale, raise competitive forces and give them
access to more sources of raw materials and components.
2. Lower prices for consumers,
3. Improvemment in the quality of products
4. Greater choice of products.
PROTECTION
Protection is the shielding of the country’s industries from the competition
though the use of trade restriction.
There are a number of methods that a government of a country or the
governments of a group of countries may employ, to protect their industries.
These include:
1. A tariff . A tax can be imposed on imported products. Such a tax is also
referred to as a customs duty or import duty. Sometimes tariff s are used to
raise government revenue but most commonly, they are used to discourage the
purchase of imports.
2. A quota: this is a limit placed on the quantity of a good that can be imported.
The quota limits the quanity imported and thus raise prices of foreign goods.
3. Embargo: The import of a product or trade with another country may be
banned. A government may want to ban the import of demerit goods. Embargo
can be defined as a ban on imports or exports.
4. Exchange control: A government may try to stop households and firms from
buying imports, by restricting the availability of foreign currency. Those wanting to
buy foreign products, travel or invest abroad will have to apply to buy foreign
currency. Exchange control can be defined as a limit on the amount of foreign
currency that can be obtained.
5. Quality standards: A country may require imports to reach artificially high
standards. This measure will either dissuade other countries from selling to the
country or push up their costs and prices if they do try to sell to the country
6. Subsidies. A government may protect its domestic industries from cheaper
imports by giving them subsidies. Such help may enable domestic firms to sell
at lower prices, which may undercut the price of imports. Subsidies is a form of
government financial assiatnce to help reduce production costs of them thereby
enabling them to compete internationally.