Globalisation

1
Globalisation

• The growing interdependence of countries and the
  changes associated with it.
• Growing international division of labour
• Growth of trading blocs
• Development of international transport movement
  of goods people (consumers workers) around
  the world
• Improvements in IT allowing rapid communication
  of info ideas
• Increasing role of multinational companies (MNCs)

2
Two Schools of Thought

• Adam Smith (The Wealth of Nations 1776) wealth
  depends on the extent of markets, matching higher
  efficiency with increased customers, and the
  search for customers drives firms from national
  to international markets
• Karl Marx (Communist Manifesto 1848)
  globalisation involves differentiation of people
  and countries, as well as rapid change and
  sweeping away of traditions all that is solid
  melts into air under the forces of capitalism

3
Growing Economic Interdependence of Countries

• Rapid Capital Mobility speculative hot money
  flows very quickly between countries
• Multinational Investment investors are quick to
  move where the action is countries have to
  compete to attract foreign direct investment
• Reductions in Protectionism
• Communication Technology

4
Key Characteristics of MNCs

• Networking between companies hubs of network
  of satellite companies tends to be based in US,
  EU, or Japan
• Decentralisation of production many MNCs
  produce very close to final market (? transport
  costs respond to local tastes, etc)
• Concentration the top 500 MNCs are responsible
  for 90 of the worlds foreign direct investments
• wild geese MNCs tend to base their location
  on subsidies, govt investives, etc. when these
  run out, they move somewhere else

5
Impact of MNCs on Developed Countries

• ? investment may be of particular benefit to
  previously undeveloped regions
• ? tax revenues
• Incentives for countries to make supply-side
  improvements to attract FDI
• ? capital acct in short-run (longer run ?
  current acct)
• MNC may bring management expertise technology
  with spill over effects
• May bring instability if economy becomes largely
  influenced by movement of FDI and MNCs

6
Impact of MNCs on Developing Countries

• To be explored through studies in development
  economics