Rise of the Global Economy (Edexcel IGCSE Geography)

Causes of Globalisation

Spec point — 4GE1-S3.065

• Globalisation is where the world has become or is becoming interconnected through the processes of:

  • economics
  • culture
  • politics
  • trade
  • tourism

• It also includes environmental globalisation through the impacts of global warming

• Modern transport and communications have made trade almost instantaneous

• Globalisation reduces the effect of political borders of countries

  • It makes them more interdependent

• More powerful countries and businesses affect decisions in other parts of the world

  • This has led to a rise in global inequality

• Global cities have developed, which are the focus of the world economy

• The improvements and developments in communication and transport have made globalisation what it is today—a shrinking world

Time-space compression

• The network flows to places and populations are the result of four significant developments:

  • Appearance of large transnational corporations (TNCs)
  • Growth of regional economics and trading blocs
  • Development of modern transport networks
  • Advances in IT and communications, particularly the WWW and the internet

The Production Chain

Spec point — 4GE1-S3.065

• The developments in globalisation have led to the formation of a global economy

• There are very few countries in the world that haven't 'networked' in one way or another

• There are five different network flows:

  • Trade
  • Aid
  • Foreign investment
  • Labour
  • Information

Trade

• Trade is the import and export of raw materials, food goods and services

• Increased volume of trade can lead to better political relationships between countries

• It can also lead to a sharing of different cultures

• Trade between countries can increase economic development and reduce inequality

• However, global trade is unequal

  • Developed countries benefit more from trade than developing and **emerging countries **
  • Many developing countries are paid** low rates** for materials and products

• There are fewer barriers to trade than there were previously

  • Tariffs and quotas are much lower

• Trade blocs have developed to make trade easier. For example:

  • The European Union (EU) has encouraged free trade between its members, which has increased trade overall

Aid

• Aid is the transfer of resources from one country to another to help with development or after a disaster

  • Most aid is economic, either through receiving or donating

• This allows developing countries to invest in education, health, infrastructure and trade

Foreign investment

• Investment can either be direct or indirect

Labour

• This is important to the working of the global economy and labour migration fuels this market either with a specialist or cheap labour
• The availability of lower-cost labour in developing and emerging countries has led many transnational corporations (TNCs) to invest in those areas

Information

• Advances in communication mean that companies can have factories and offices around the world
• Media and advertising also increase the demand for products

Commodity chain

• The global production, supply or commodity chain pulls these flows together to produce goods or commodities

  • A commodity chain is therefore a pathway along which goods travel from producers to consumers

• Before the development of global production, products tended to be manufactured in one country

  • Globalisation means that parts of different products can be made in several countries
  • At each stage of the flow, value is added to the emerging product

• Despite the miles involved and the number of countries involved, the product is still cheaper to produce in various stages

• This is known as the economies of scale: the cost per item reduces when operated on a large scale

• Transport improvements through large container ships mean that costs are reduced and goods are moved longer distances more quickly

• Labour costs are cheaper in emerging and developing countries and there are usually reduced legal restrictions

Global Investment

Spec point — 4GE1-S3.065

• Investment is not just monetary (economic), although this is a large part of it

  • Investment can be in people, research or products

• Foreign investment is when individuals or firms from abroad invest in another country

• Call centres are examples:

  • Call centres can be located anywhere, e.g. India
  • Investment is made in the country through building the call centre, paying taxes, etc.
  • Local people are employed and trained
  • Service is provided to the donor country, for example the UK

Transnational corporations

• Transnational corporations (TNC) provide most of the foreign direct investment (FDI)

  • Transnational corporations (TNCs) are companies which operate in more than one country
  • These companies invest in factories and infrastructure

Location of manufacturing

• Moving manufacturing from developed to developing or emerging countries

  • China is the main area for manufacturing goods from around the world
  • Investments are made in China to produce goods
  • Completed goods are shipped back to the original country, e.g. Germany

Labour

• Investment in people, either for cheap labour or for their expertise

  • Specialist surgeons from the USA to Australia
  • Investment in developments that attract cheap labour—the construction of Dubai attracts many Indian migrants
  • Research and development investment - motor car industry to build more fuel-efficient motoring—Elon Musk's Tesla electric cars

Aid

• Investment can come from aid for rebuilding after a disaster. Ukraine will need aid after the war with Russia ends

  • Aid can be funds sent to the government to use as necessary, although this can often lead to corruption and funds not going where they should
  • Aid can be in the form of goods and services directed to the affected area – refugee camps or after a natural hazard such as a tropical storm or earthquake

Worked Example Identify the meaning of the term TNC

(1 Mark)

A. Translocal Corporation

B. Transnational Corporation

C. Transnational Country

D. Transporting National Corporation

• Answer:

  • B (1) – as none of the other terms exist.