General consequences of globalisation on inequality and tax revenue

Globalisation can affect economies in various ways, with some impacts felt more strongly in certain types of countries.

Impact on inequality

Globalisation may lead to higher levels of inequality within many countries, whether developed or developing. In some emerging countries, such as China and India, the divide between the richest and poorest people has grown considerably in recent decades.

Impact on tax revenue

Multinational corporations (MNCs) can provide additional tax income to governments in both developed and developing countries. However, governments often need to introduce regulations, such as rules on transfer pricing, to prevent MNCs from avoiding taxes. Implementing these regulations can be expensive for governments.

Transfer pricing involves setting prices for goods or services transferred between different parts of the same company. MNCs might adjust these prices to reduce their tax liabilities.

Consequences of globalisation for developing and emerging countries

Globalisation brings both opportunities and challenges to developing and emerging countries, influencing their economic growth, employment, and local industries. Opinions vary on whether the overall effects are positive, so it is important to balance the advantages against the drawbacks.

Negative consequences

• Profit repatriation - Most profits generated by MNCs are sent back to their home countries rather than remaining in the host nation, which limits efforts to reduce poverty and can widen inequality.
• Brain drain - Skilled workers frequently move from developing or emerging countries to developed ones for better opportunities, which hinders the home country's potential for economic expansion.
• Challenges for local businesses - Domestic companies can struggle to compete with powerful MNCs, potentially leading to closures or reduced market share.
• Exploitation of workers - MNCs may take advantage of less skilled employees by paying very low wages, which can worsen living standards.

Positive consequences

• Job creation - Globalisation generates employment, helping to lower unemployment rates. MNCs often introduce skilled positions that offer relatively good pay and more stable income compared to other local jobs.
• Technology and efficiency gains - MNCs introduce advanced production techniques and technology, which can improve productivity and boost the overall economy through spillover effects.
• Increased investment - There is a rise in foreign direct investment (FDI) into developing and emerging economies, providing capital for growth and infrastructure.

Consequences of globalisation for developed countries

In developed countries, globalisation alters industrial landscapes, trade balances, and consumer benefits, often creating a mix of economic pressures and advantages.

Negative consequences

• Industrial decline and unemployment - Low-cost production abroad has caused sharp declines in certain sectors, leading to structural unemployment. For example, inexpensive clothing from countries like Bangladesh has played a role in the downfall of the UK's textile sector.
• De-industrialisation effects - The loss of industries results in broader economic issues, such as reduced exports and slower growth.
• Shifting global economic power - The rise of emerging economies, like China and India, has increased their portion of global gross domestic product (GDP) at the expense of developed nations.
• Balance of payments issues - Higher levels of imports due to expanded trade can harm a country's balance of payments by creating deficits.

Positive consequences

• Access to affordable resources - Countries gain easier access to low-cost raw materials and semi-manufactured goods from abroad, which can be used to produce domestic products for export or local sales.
• Lower production costs - MNCs benefit from cheap labour overseas, reducing overall production expenses and leading to lower prices for consumers in developed markets.