Globalisation
a). Globalisation is the increasing integration of national markets that were previously much more segmented from one another. This includes the increasing dominance of multi-national corporations (MNCs) in global markets. This means that production takes place in various countries, so that components are manufactured in several countries in order to produce a finished product, which is often assembled in another country in order to sell the product worldwide on the global market. This leads to a rapid increase in international trade and growing direct investment by MNCs in several countries.
b). Since 1980 the developing countries have experienced an increase in the percentage of exports that manufactured goods account for, from approximately 29% to just over 80% of total exports. The percentage that mineral exports account for has experienced a decrease over this period from approximately 55% of total exports to approximately 10%. There has been a slight decrease in the percentage that agriculture accounts for from about 16% to about 10%. As a percentage over total exports, manufacturing overtook minerals exports in 1984. Also, during this period the percentage that services account for has approximately doubled for developing countries from 9% to 17%.
c). One way in which economies are allowed to prosper due to globalisation is through comparative advantage. The law of comparative advantage states that a country has comparative advantage over another in the production of a good if it can produce it at a lower opportunity cost. Globalisation means that restrictions on international trade generate gains by the reallocation of resources towards those sectors in which countries have a comparative advantage. If two countries specialise in goods, which they have comparative advantage, then both countries will benefit from trade. This is because if each country continues producing the good that it makes relatively cheaply, the countries together make more of both goods. Trade liberalisation increases the size of the market, so that the market is now on a global scale. This leads to increased competition in the domestic market, leading to increased efficiency. Due to the larger market size, firms can benefit from economies of scale, which can lead to lower costs and the increased competition stimulates investment and advances in technology. Also, globalisation leads to the dominance of multi-national corporations (MNCs). These MNCs invest in countries, creating jobs and income as well as improving the infrastructure of the country. Also MNCs can introduce new technology into a country and train the workforce. This would mean that developing countries would begin to manufacture more and begin to lose their primary product dependency. MNCs setting up in countries would cause a positive multiplier effect in that country creating even more jobs and income. However, globalisation can cause environmental problems and lead to an over-dependence on rich countries.
