Globalisation

What Globalisation covers

Globalisation is examined in Paper 2, Competing in the global economy, and in Paper 3, The economic environment and business. It covers the growing economic power of China and India, Africa and other emerging markets, rising incomes, firms and shifting employment patterns, nominal and real values, index numbers, trade liberalisation and economic growth, specialisation and comparative advantage, foreign direct investment and growth, trade creation and trade diversion, trading blocs and the single market, trading blocs, firms and growing interdependence, protectionism: tariffs, quotas and other trade barriers, trade negotiations and international institutions and exchange rate changes and the Eurozone.

The 14 subtopics

Each one has its own page.

• The growing economic power of China and IndiaChina and India shifting world output towards Asia, China as the workshop of the world, World Trade Organisation membership, China's slowing growth and rising wages, India's services-led growth model and offshored back-office work, the demographic dividend, weak infrastructure, the middle-income trap, middle-class demand, commodity prices, and concentration risk.Open →
• Africa and other emerging marketsEmerging markets, BRICS and MINT, Africa's population growth and natural resources, commodity dependence, mobile money, the African Continental Free Trade Area and low intra-African trade, contract enforcement, Vietnam against China, informal sectors, volatile emerging-market currencies, and capital flight.Open →
• Rising incomes, firms and shifting employment patternsHow spending patterns change as incomes rise and Engel's law, income elasticity of demand and inferior goods, rationalisation through overseas growth, trade opportunities in emerging economies, deindustrialisation, falling UK manufacturing employment, changing skill demands, structural unemployment, rising multinational costs, building capacity ahead of demand, and middle-class products.Open →
• Nominal and real valuesNominal against real values and the formula for converting between them, real GDP, calculating real pay and real sales, the approximation for real growth and when it breaks down, deflating a data series, overseas revenue in real terms, real interest rates, purchasing power parity comparisons, and fixed money pensions.Open →
• Index numbersIndex numbers and the base year of 100, the formula for an index and calculating one, percentage changes against point changes in an index, weighted indices and revising weights, working back to actual values, comparing indices with different base years, values below 100, presenting data as an index, and reading an index over time.Open →
• Trade liberalisation and economic growthTrade liberalisation and the developments that eased trade since the 1950s, GATT and the World Trade Organisation, falling transport costs and location, how liberalisation raises growth and long-run aggregate supply and benefits consumers, resistance and the infant industry argument, concentrated costs, the race to the bottom, inequality, and slow gains.Open →
• Specialisation and comparative advantageSpecialisation in international trade, absolute and comparative advantage and David Ricardo, calculating comparative advantage and opportunity cost ratios, the terms of trade needed for mutual gain, the assumptions of the theory, transport costs, over-specialisation, lower unit costs, global value chains, services specialisation, and changing comparative advantage.Open →
• Foreign direct investment and growthForeign direct investment, greenfield against brownfield, why multinationals invest abroad, short-run and long-run effects on host country growth, technology transfer, profit repatriation, transfer pricing, footloose capital, crowding out domestic firms, political stability, the balance of payments, and outward investment.Open →
• Trade creation and trade diversionTrade creation and trade diversion and Jacob Viner, consumer welfare gains, why diversion reduces world efficiency, classifying a switch in steel imports, the common external tariff, lost tariff revenue, blocs with similar industries, protected domestic firms, benefits of diversion to firms inside a bloc, and net welfare effects.Open →
• Trading blocs and the single marketTrading blocs, free trade areas against customs unions, the single market and its four freedoms, economic and monetary union, rules of origin, ASEAN and its aims, NAFTA and its replacement, vehicle manufacturing in North America, harmonised product standards, the costs of a customs union, and free movement of labour.Open →
• Trading blocs, firms and growing interdependenceHow bloc membership enlarges a firm's market and lowers average costs, tariff-jumping foreign direct investment, disadvantages to domestic firms, economic interdependence and just-in-time supply chains, financial contagion, weaker national policy, oil price shocks, reducing exposure, and reshoring.Open →
• Protectionism: tariffs, quotas and other trade barriersProtectionism, tariffs and the tariff diagram with its welfare areas, calculating tariff revenue, deadweight loss, import quotas and quota rent, tariffs against quotas for government finances, non-tariff barriers, regulations as hidden barriers, embargoes, domestic production subsidies and their diagram, arguments for protection, and retaliation.Open →
• Trade negotiations and international institutionsThe World Trade Organisation, the most favoured nation principle and national treatment, dispute settlement and slow trade rounds, the International Monetary Fund and conditionality, the World Bank, the G20 and policy coordination, bilateral trade agreements and their advantages, the spaghetti bowl criticism, and developing countries' view of trade rules.Open →
• Exchange rate changes and the EurozoneExchange rates, depreciation against devaluation, calculating export prices, SPICED, why depreciation may not improve the current account at once, the Marshall-Lerner condition, imported components, cost-push and demand-pull inflation, appreciation and employment, foreign direct investment, the Maastricht convergence criteria, the benefits and costs of the Eurozone, and asymmetric shocks.Open →

What you need to know

Answer each one before you reveal it.

Take Globalisation further

The same content, four other ways.

Commonly confused

Pairs that lose marks when they are blurred together.

• Absolute advantage vs Comparative advantage

  Absolute advantage: being able to produce more of a good than another country from the same quantity of resources. Comparative advantage: Being able to produce a good at a lower opportunity cost than another country, measured in units of the other good given up, which is what explains the gains from trade.

• Trade creation vs Trade diversion

  Trade creation: joining a bloc shifts production from a higher-cost domestic producer to a genuinely cheaper producer inside the bloc, which raises welfare. Trade diversion: Joining a bloc shifts imports from a cheaper producer outside the bloc to a dearer one inside it, because the outsider still faces the common external tariff.

• Free trade area vs Customs union

  Free trade area: a group of countries that remove tariffs on goods moving between themselves while each keeps its own tariffs on non-members, which is why rules of origin are needed. Customs union: A group of countries that remove internal tariffs and also adopt one common external tariff on goods bought from non-members.

Questions from this topic

Each one with the model answer underneath.

1. 1

   Name the two Asian economies whose growth has done most to shift the balance of world output towards Asia.

   Model answer

   China and India.

2. 2

   What is meant by describing China as the workshop of the world?

   Model answer

   It means China came to supply a very large share of the world's manufactured goods, using abundant low-cost labour, enormous scale and heavy investment in factories and ports to become the largest exporter of goods.

3. 3

   How did joining the World Trade Organisation in 2001 accelerate China's growth?

   Model answer

   It gave Chinese exporters secure low-tariff access to member markets and reassured foreign investors, so exports and inward investment rose sharply and manufacturing capacity expanded.

4. 4

   Why has China's growth rate slowed from the double-digit rates of the 2000s?

   Model answer

   The easy gains from catch-up investment have been used up, wages have risen, the working-age population is shrinking, and growth has shifted towards services and consumption, which expand more slowly.

5. 5

   How do rising Chinese wages affect a Western firm that has manufactured there for twenty years?

   Model answer

   Its unit costs rise, so it must accept a thinner margin, raise prices, automate, or move production to a lower-wage economy such as Vietnam or Bangladesh.

6. 6

   In what way is India's growth model different from China's?

   Model answer

   India's growth has been led by services such as software, IT support and business process outsourcing rather than by manufactured exports, so it has created far fewer low-skilled factory jobs.

What is inside Levo

Six ways to work the same material.

Globalisation revision questions

What does Globalisation cover in Edexcel A-Level Economics B?

14 subtopics: the growing economic power of china and india, africa and other emerging markets, rising incomes, firms and shifting employment patterns, nominal and real values, index numbers, trade liberalisation and economic growth, specialisation and comparative advantage, foreign direct investment and growth, trade creation and trade diversion, trading blocs and the single market, trading blocs, firms and growing interdependence, protectionism: tariffs, quotas and other trade barriers, trade negotiations and international institutions and exchange rate changes and the eurozone. Each one has its own page with questions and model answers.

How is Globalisation organised?

By the Edexcel 9EB0 specification, subtopic by subtopic, so it matches the order you are taught it in.