Globalisation
Globalisation is a process by which the world’s economies are becoming more closely integrated. Globalisation ‘is the closer integration of countries and peoples of the world which has been brought about by the enormous reduction of costs of transportation and communication, and the breaking down of artificial barriers to the flows of goods, services, capital, knowledge and (to a lesser extent) people across borders’ Joseph Stiglitz. One reason for the onset of globalisation is the advances in communication and transport technology. Better transportation allows firms to split their production process between countries in order to benefit from varying cost conditions.
Multinational corporations (MNCs) are companies whose production activities are carried out in many countries. Globalisation has led to an expansion of MNCs who are able to take advantage of cheaper labour in some countries. Some MNCs have a greater turnover than the GDP of some of the countries in which they operate. Improve communication also permits this as production can be quickly outsourced as can intellectual work.
A second reason for increased globalisation is the reduction in trade barriers. This is partly due to the work of the WTO (World Trade Organisation) and the GATT (General Agreement on Tariffs and Trade). There has also been an increase in free trade areas and trade blocks. Examples of these include Mercosur/Southern Common Market (Argentina, Paraguay, Uruguay, Brazil, Venezuela and Bolivia), North American Free Trade Agreement (US, Canada and Mexico), Central European Free Trade Agreement (an agreement between non-EU European countries) as well as the trade agreement within the EU Common Market. This was exacerbated with the removal of capital controls (although they still exist in some countries) making it easier for firms to operate globally.
Financial transactions can happen much more quickly and efficiently now as a result of improved communication technology.
Some claim that globalisation has resulted in damage to the environment and has contributed to global warming. The main reason for this, it is argued, is due to increased transportation due to the fragmented nature of a goods production process.
Page last updated on 15/04/14
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