LISA YANG IBUS20002 Business in the Global EconomyGLOBALIZATION Drivers of globalisation 1.Emergence of supranational institutions at regional / global level 2.Liberalisation of trade and foreign investment 3.Technological changes: the world has ‘become smaller’ 4.Mass media e.g. satellite TV and Internet BENEFITS DETRACTORS Efficiency gains ●Trade enhances division of labour as businesses and countries specialize in areas of comparative advantage ●Opportunities arise for producers and consumers to reap the benefits of economies of scale ●Increased competition and reduction in monopoly profits incentivises businesses to seek cost-reducing innovations and improvements in what they sell Economic growth ●Gains in efficiency should bring about animprovement in economic growth and higher per capita incomes○The OECDGrowth Project found that a 10%-point increase in trade exposure for a country was associated with a 4% rise in income per capita over time ○Significant progress has been made in China and India and notably in a number of a sub-Saharan African countries whose annual growth of real GDP has often exceeded 10% ●Underpinning this growth isjob creation, knowledge spillovers and infusion of foreign capital and technology Poverty reduction ●Every 1% increase in GDP per head reduces poverty by around 1.7% ●China accounts for 75% of the world’s total decline in extreme poverty over the last 30 years from 84% in 1980 to about 10% now ●World Bank economists David Dollar and Aart Kraay: since 1980, globalization has contributed to a reduction in poverty and global income inequality. ○in "globalizing" countries in the developing world, income per person grew three-and-a-half times faster than in "non-globalizing" countries, during the 1990s. In general, they noted, "higher growth rates in globalizing developing Illegal, dangerous and unethical e.g. drugs, human trafficking, organs and counterfeit goods ●Ease in communication, monitoring and transacting ●Ease of transit ○Movement of freight and people ○Permeability of borders within regional blocs (EU, NAFTA) ●Growing demand ○Rising income levels, urbanisation ●Growing supply ○Criminal organisations taking advantage of opportunities from trade/FDI; terrorism networks benefiting from transnational drug crime ○Conflict-affected or fragile countries with weak governance/rule of law are key sources Contagion ●spread of a crisis from one country to another ○1997 Asian Financial Crisis, Subprime mortgage crisis, Greek Bond Crisis and European sovereign debt crisis ●Financial globalisation not a new phenomenon but today’s depth and breadth are unprecedented ○Decreasing capital controls by governments and increasing capital mobility given growing participation of more countries ○Information technology diminishing the importance of geography ●Countries with weak fundamentals and very open economies are prone to market imperfections and volatile capital flows ●
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