The meaning and effects of globalisation

Globalisation refers to the growing interconnectedness of countries around the world through trade, communication, and cultural exchange. This process has transformed how businesses operate, allowing them to expand beyond their home markets and access resources globally.

Effects of globalisation on businesses and economies

• Expanded operations - Businesses can establish branches in multiple countries, sourcing raw materials from locations with lower costs and manufacturing in areas with affordable labour.
• Global trade networks - Firms can purchase supplies from and sell products to any country, creating opportunities for growth but also linking economies so that events in one nation impact others.
• Growth in developing economies - Globalisation contributes to the development of less economically developed countries (LEDCs), which have smaller economies and lower living standards, by increasing trade and investment.
• Contrast with developed economies - More economically developed countries (MEDCs) feature larger economies and higher living standards, often benefiting from globalisation through access to new markets while facing competition from lower-cost producers.

Measuring economic performance with GDP

Gross domestic product (GDP) serves as a key measure of a country's economic size and performance. It represents the total value of all goods and services produced within a nation's borders over a specific period, typically a year.

Calculating and using GDP

• GDP is adjusted for inflation to provide real terms figures, ensuring comparisons reflect actual output rather than price changes.
• GDP per capita is calculated by dividing total GDP by the population, enabling fairer comparisons between countries of different sizes.
• Percentage changes in GDP or GDP per capita indicate economic growth rates, such as 6.5% for a rapidly expanding Asian economy versus 2.3% for a mature European one.

Limitations of GDP as a measure

• Total vs per capita - A country with a high total GDP may still have low individual prosperity if its population is large; for example, a South American nation might exceed a European one in total GDP but lag far behind in GDP per capita.
• Other shortcomings - GDP does not account for wealth distribution, levels of disposable income, or living costs, meaning it may not fully capture overall living standards or economic inequality.

Other indicators of economic development

Beyond GDP, various indicators help assess a country's level of development, focusing on education, health, and overall human well-being. These provide a more rounded view of progress in both developed and developing nations.

Adult literacy rates

Adult literacy rate measures the percentage of people aged 15 and over who can read and write. Higher rates, such as 92% in a Latin American country compared to 38% in a sub-Saharan African nation, signal economic growth by showing improved education and potential for skilled employment.

Health indicators

The World Health Organization (WHO) evaluates health using factors like life expectancy, death rates, disease prevalence, and access to safe sanitation. Rising health standards indicate economic advancement, as they reflect government investment in healthcare and a healthier workforce capable of higher productivity.

The human development index

The Human Development Index (HDI) combines life expectancy, average schooling years, and income levels to gauge a country's development. Scores range from 0 to 1, with higher values indicating greater human development and quality of life.

The impacts of economic growth on businesses

Economic growth involves rising output and demand within an economy, creating both opportunities and challenges for businesses. It often leads to higher employment and incomes, stimulating further activity.

Positive impacts of economic growth

• Increased demand and opportunities - Higher earnings reduce poverty and expand the middle class, boosting demand for goods with positive income elasticity, such as luxury items.
• Business expansion - Growing markets encourage higher sales and profits, while foreign firms can enter to create jobs and meet rising demand for global brands.
• Cost-saving strategies - Companies may relocate operations to growing economies for cheaper labour or reduced transport costs, a process known as offshoring that provides local employment and raises incomes in the host country.

Negative impacts of economic growth

Offshoring can lead to job losses in the original country, reducing employment opportunities there despite benefits abroad.

Characteristics of emerging economies

Emerging economies are those experiencing rapid growth but not yet reaching full development. They often attract businesses due to their expanding markets and cost advantages.

Key features of major emerging economies

• BRICS group - Brazil, Russia, India, China, and South Africa represent nearly half of global population, offering low labour costs and attracting manufacturing investments as trade barriers decrease.
• MINT group - Mexico, Indonesia, Nigeria, and Turkey feature youthful, growing populations entering the workforce, with proximity to major markets supporting exports and further growth.

Opportunities in emerging economies

• Trade and investment - Reduced barriers facilitate international trade, while large populations create demand for products and services.
• Economic drivers - Young workforces and strategic locations near big markets contribute to sustained growth, making these economies appealing for business expansion.