The meaning of globalisation and types of economies

Globalisation describes the process where economies around the world become more interconnected, mainly through greater trade and the easier movement of workers and investment.

Categories of economies in globalisation

• Developed economies - These are wealthier nations with advanced industries, such as the UK, Japan, and Australia. They typically have high gross domestic product (GDP) per person.
• Developing economies - These rely heavily on sectors like farming and basic manufacturing, which require a lot of workers. Examples include Colombia and Angola, where GDP per person is low and living standards are below those in developed nations.
• Emerging economies - These are progressing towards development but are not fully there yet. Countries like China are expanding rapidly through industrial growth, though they still face challenges compared to developed economies.

Main characteristics of globalisation

Globalisation involves several key features that promote closer links between countries, affecting trade, production, and cultural exchanges.

Economic characteristics

• Movement of resources - Capital and workers can move freely across borders, allowing businesses to invest and hire internationally.
• Trade freedom - Goods and services are traded without many barriers between nations.
• Growth in international trade - Trade between countries makes up a larger share of overall economic activity.
• Financial flows - More money moves between nations through investments.
• Integrated production - Products are made in stages across different countries.
• Foreign ownership - Companies are increasingly owned by entities from other countries.

Structural changes

• Industrial shifts - Developed nations lose manufacturing jobs (de-industrialisation), while developing and emerging ones gain them (industrialisation).
• Labour division - Work on products is split among countries, often shifting from developed to less developed areas.
• Wider participation - More nations join in global trade.

Technology and cultural aspects

• Technology and knowledge sharing - Innovations and employee expertise are used and protected globally through patents.
• Political and cultural influences - International organisations like the United Nations (UN) encourage joint decisions and cooperation. Cultural aspects, such as global fast food brands or practices like yoga, spread worldwide.

Attractions for production in developing and emerging economies

Developing and emerging economies often draw foreign businesses due to their growing capabilities and cost advantages.

• These economies are gaining the necessary skills and technology to produce goods, which are then sold in wealthier markets.
• Labour costs are lower compared to developed economies.
• Additional draws include reliable transport systems, leading to examples like Brazil supplying software services to Spanish firms.

Multinational corporations

Multinational corporations (MNCs) are businesses that operate in their home country and at least one other nation, such as Toyota or international fast food chains. They contribute to globalisation by expanding trade and investment worldwide.

Factors attracting MNCs to countries

• Cost savings - Access to inexpensive workers and raw materials.
• Infrastructure - Strong transport networks for moving goods.
• Market access - Entry to new customer bases.
• Supportive policies - Governments that encourage foreign investment through favourable rules.

Strategies used by MNCs

• Offshoring - Establishing operations in another country.
• Outsourcing - Hiring external firms to handle specific tasks.

Causes contributing to globalisation

Several factors have accelerated globalisation, making international economic integration faster and more widespread.

Policy and institutional factors

• Trade liberalisation - Lowering or eliminating tariffs and trade barriers, often negotiated through the World Trade Organisation (WTO), which also sets global standards to build consumer trust in imports.
• Government incentives - Policies that attract foreign businesses to invest locally.
• Trading blocs - Groups like the European Union (EU) increase trade among members.
• New market openings - Former closed economies, like those in Eastern Europe after the Soviet Union's fall or China joining the WTO in 2001, have expanded trade.

Technological advances

• Transport improvements - Cheaper and quicker shipping, thanks to larger vessels, reduces the cost of exporting and importing.
• Communications advances - The internet simplifies and lowers the expense of global trade.

Economic drivers

• Profit maximisation - Businesses set up in countries with low labour costs, boosting foreign direct investment (FDI).
• Economies of scale - Firms grow internationally to produce more efficiently and cut costs per unit.
• Rise of MNCs - Their expansion increases global trade and investment.
• Sovereign investments - Countries like Norway use national funds to invest in foreign businesses.
• International specialisation - Nations focus on what they produce best, promoting trade with others.