MJC_H2_ECONS_EQ6

1 6 Globalisation has made our world more in terconnected than ever before and presented a wealth of opportunities. Yet, globalisation has also presented an uneven distribution of its benefits and costs. (a) Explain the factors that have fuelled globalisation. [10] (b) Globalisation has presented an uneven distribution of its benefits and costs. Discuss the reasons for this. [15] Suggested answers to part (a) (a) Explain the factors that have fuelled globalisation. [10] Introduction: Define globalisat ion and briefly describe the main factors that have fuelled globalisation Globalisation is the increas ed integration and interdepe ndence of economies. It can be categorised as economic globalisation ; the greater integration of goods and services (via trade), labour and capital markets and geographical globalisation; the reduction in travel times between location s and the rapid (elect ronic) exchange of information. Knowledge and production previous ly confined to certain geographical areas may now cross borders and be made av ailable because of the communication and transport technological innovations. Body 1: Explain how trade liberalisation led to increase trade flows based on the theory of CA. One main factor that fa cilitates globalisation is trade liberalisation and the promotion of free trade based on the Theory of Comparative Advantage. The theory of comparative advant age posits that economies c an mutually benefit from specialisation and exchange of goods they have a lower opportunity cost in producing. For example, between Thailand and Singapore, Thailand’s vast amount of arable land and large number of rice farmers meant that it has resources that are more suited for the cultivation of rice over Singapore. In the cultivation of rice, Thailand has a lower opportunity cost as compared to Singapore as Singapore does not have the similar factor endowments that are suitable for rice cultivation. On the other hand, Singapore would have a lower opportunity cost in the production and manufacturing of electronic goods because of its skillful labour force and level of technological adoption. If Thailand devotes its resources to the cult ivation of rice and Si ngapore devotes its resource to the production of electronic goods, both countries would be more efficient in their production. With subsequent exchange, that is, Thailand to export rice and import electronic goods, while Singapore w ould import rice and export electronic goods, both countries could exploit their differences in relative opportunity cost and consume a combination of goods outside what they possibly could if they produce both goods on their own (consume beyond their PPC). The greater amount as well as variety of goods available for consumption among other potential gains from free trade have led to increasing liberalisation of trade and capital

2 markets, facilitated by governments movi ng towards polic