Globalisation, Multinationals, and Free Trade: Advantages and Disadvantages
Globalisation
Globalisation is the process by which economies, businesses, and cultures become interconnected and integrated across the world. This can be seen in the increasing international trade and communication, the growth of multinational corporations, and the spread of cultural influences such as music, fashion, and technology.
BENEFITS:
- Globalisation involves the free movement of goods, services, capital, labour, and technology.
- This leads to intense competition among countries.
- Enterprises in your country export products overseas.
- Enterprises in your country import products overseas.
- Companies benefit from economies of scale and access to wider markets.
- Consumers benefit from a greater choice of goods and lower prices.
Multinationals
A multinational is a company that produces and sells goods in several countries. They have headquarters in one country and shareholders worldwide. The size of a multinational company can be measured by looking at the number of operating countries, the value of all shares in the business, the number of employees, and the range of goods it produces.
ADVANTAGES:
- They bring employment, new products, and new technologies to countries where they operate.
- The presence of multinationals can speed up development.
- They are able to buy labour and raw materials in more countries at lower prices.
- They are able to sell to a much larger market.
DISADVANTAGES:
- They are criticized for not paying enough for raw materials and employees in poorer countries.
- They also cause pollution and environmental damage.
- They have to adapt to different tastes, requirements, and legal standards in different countries.
Free Trade
Free trade is trading without barriers such as import tariffs. Free trade enables countries to specialize in what they do most efficiently and then trade with others to buy what they produce at less cost.
Trade Protection
Trade protection is restricting the entry of foreign goods into a domestic market or imposing a tax to raise the price of imports to protect its industry. The following are the main methods of protection: Import tariffs, import quotas, subsidies to companies, and embargo.
Exchange Rate
The exchange rate between two currencies is determined by demand and supply for them. An appreciation of a currency benefits imports but damages exports. A depreciation of a currency benefits exports but damages imports.
Current Account
The current account of the balance of payments is a document that shows the goods and services trade of a country. It shows the income earned by a country and the expenditure it makes when trading with other countries. The most important element in the current account is the balance of trade in goods and services.
- Trade goods: physical goods that a country trades.
- Trade services: non-physical items that a country trades.
- Imports: goods and services bought by a country from a foreign country.
- Exports: goods and services sold by a country to a foreign country.