Globalisation 2026 SH2 H2 Econ Ch15 Seminar notes

1 SECTION CONTENT PAGE 1 What is globalisation? 2 2 Drivers of / Factors affecting globalisation 3 - 14 3a Benefits and costs of globalization 15 - 33 3b Benefit and costs of globalisation: An evaluation 34 - 40 4 What is protectionism? 41 5 Types of protectionist measures 41 - 52 6a Benefits and costs of protectionism 53 – 64 6b Benefit and costs of protectionism: An evaluation 65 7 Economic co-operation and trade agreements between countries TBC Syllabus

2 1. What is globalisation? o Gobalisation refers to the increasing integration of national economies in terms of trade, financial flows, movement of factors of production (including labour) and technology. o One common measure of globalisation is the global trade -to-GDP ratio which measures the openness of an economy at a country level. ▪ Global trade-to-GDP ratio = 𝑋+𝑀 𝐺𝐷𝑃 x 100% Overview of globalisation Globalisation Trade (Flow of goods and services) Exports Imports Financial flow FDI Hot money Movement of factors of production Labour -Brain drain / gain - Foreign workers Raw materials Technological flow

3 2. Drivers of / Factors affecting globalisation o Globalisation is largely driven by the desire of firms to increase profits and also by the motivation of governments to tap into the wider macroeconomic and social benefits that come with globalisation. Overview • Refer to A-Level 2019 EQ6a Drivers of globalisation Gains from specialisation and trade because of differences in opportunity costs Sources of comparative advantages - Differences in resource endownment resource productivity - Differentces in technological advancement -Internal economies of scale Technological innovation Transportation technology Information and communication technology Production technology Economic policies Reduction in protectionist measures Investment liberalisation and promotion Differences in tax systems Development of global value chain

4 a. (i) Gains from specialisation and trade – Theory of comparative advantage o The concept of free trade and the gains from free trade drives globalisation. Explanation without numerical illustration o Trade occurs because nations have different resource endowments and technological capabilities. o Because of these differences, there exist differences in opportunity costs between countries in the production of different types of goods. ▪ Refer to the next subsection for an understanding of why opportunity costs differ / sources of comparative advantage. o This in turn determines a range of terms of trade (TOT) for which trade is mutually beneficial to both countries. ▪ Refer to the footnote in the numerical illustration for an understanding of TOT. o The theory of comparative advantage states that trade can be mutually beneficial if countries specialise in the goods in which they have a comparative advantage (i.e. can produce at a