Determinants of economic growth- Investment
Capital goods are man-made aids to production
They can be faster or more efficient than workers doing a job
They might also be used by workers to help them work more efficiently
This can lead to the economy being able to make more in the future
Determinants of economic growth- Changes in technology
Advances in technology can improve the quality of capital goods.
This means the same amount of capital can make more goods and services.
Improved capital may mean a country can use all its other factors of production more efficiently
Determinants of economic growth- Size of workforce
An increase in the number of potential workers in a country can mean that more can be made
This is because there is an increase in the factors of production
For instance, an increase in immigration may increase the quantity of labour available to work
Determinants of economic growth- Education and training
Education and training can affect the quality, and quantity, of the labour factor of production
An increase in spending on education may lead to more skilled workers in the future
These workers are more productive and can increase how many goods and services they make
Determinants of economic growth- Natural resources
The quantity of natural resources available affects the land factor of production.
If a country finds new natural resources it can either sell them to other countries or use them to make more goods and services
Both of these could lead to an increase in output, GDP and economic growth
A country may also face a decrease in its natural resources, such as losing land due to rising sea levels
This can mean it is less able to make as much output and economic growth may decrease or become negative
Determinants of economic growth- Government policies
The amount of government intervention in a country will depend on the type of economy: planned, mixed or market
A government may have policies that affect specific markets or ones that impact the whole economy
Improved infrastructure can make it easier for producers to supply goods and services, by increasing their efficiency and reducing costs
This can lead to an increase in output, GDP and economic growth
Government policies can also affect total demand within an economy and economic growth
Benefits of economic growth
Economic growth means an economy can make more output
This may be beneficial as there could be a greater supply of goods and services available to buy, which may lead to a decrease in prices and an increase in living standards of consumers
More workers may be needed to make the extra output, which leads to more jobs and less unemployment
The government may receive more tax revenue (e.g. through increased income tax due to more people working), which can be used to improve the welfare of society (e.g. by improving healthcare)
An increase in tax revenue combined with falling government spending on unemployment benefits may improve the budget balance
Costs of economic growth
Pollution and quality of life: more production may create more pollution, harming health
Congestion: if output increases, more inputs and goods have to be transported around the country
Depletion of resources: more raw materials are needed to make more output, so non-renewable resources are used up and the ability to produce in the future is reduced
Workplace stress: increased output might be achieved by increased pressure on workers, which can impact mental health
Inflation: if demand rises faster than supply, there is more competition between consumers for goods and price levels rise
International competitiveness: inflation makes a country's goods seem relatively more expensive than those from other countries and can result in a drop in demand
Inequality: economic growth leads to increased average incomes, but there could be increased inequality if the increase in incomes is not evenly spread between people
Benefits of unemployment
Easier to recruit: if there are more workers looking for employment, it is easier for firms to find new workers and expand output
Dynamic economy: unemployed workers help an economy to be responsive if they can move from one industry to another as demand patterns change
International competitiveness: workers may have to accept a lower wage rate to get a job, which reduces costs for firms, meaning they can lower prices and be more price competitive against overseas firms
Inflation: lower wages mean individuals can afford to buy less, so there is less demand for goods, resulting in lower general price level
Costs of unemployment for individuals
Lower income: unemployment benefit is relatively low and wages are pushed down due to a surplus of workers
Excluded workers: firms may not want to employ the long-term unemployed, e.g. due to outdated training
Lower standard of living: due to less income tax revenue, the government may cut spending on services
Tax increases: income tax may increase for those employed if a government needs to raise more money to pay increased benefits
Costs of unemployment for government
Lower output than potential: one of the factors of production (labour) is not being fully used, so scarce resources are being wasted
Budget deficit: the government may spend more than it receives in tax revenue due to increasing costs (such as unemployment benefits) and falling revenue (such as income tax and VAT)
Costs linked to social problems: these may result from unemployment, e.g. increased health problems due to the unemployed having lessmoney to spend on healthy food
Cycle of increasing unemployment: lower incomes lead to lower consumption, leads to less total demand, leads to fewer workers needed to make less output, leads to increased unemployment
Costs of unemployment for regions
Regional standard of living: a cycle of increasing negative impacts due to high local unemployment, e.g. shops and services closing
Causes of uneven distribution of income
Assets are distributed unevenly: if individuals do not have any land, capital or shares in an enterprise, then they will not receive income in the form of rent, interest or profits
Wage differences: wage rates are based on demand and supply for specific jobs, so the equilibrium price varies. Many people may paid the national minimum wage, whereas for jobs where there is high demand and low supply of labour, the wage rate will be much higher
Benefit reliance: state benefits are usually lower than wages and tend to be the only source of income for a household, e.g. where individuals are pensioners, unemployed or disabled
Age: both the young and old are likely to have a lower share of income. People under 25 have a lower level of national minimum wage and younger workers have less experience so are usually paid less. Older people may well be retired and pensions are likely to be less than their previous wage
Gender: in the UK, the average income of women is less than that of men. Legally, men and women are supposed to be paid the same for the same work. However, time taken out to look after families or gender bias are cited as reasons for lower pay being given to women
Causes of uneven distribution of wealth
Inheritance: some families may own more possessions, e.g. property, which can be passed on to the next generation
Savings: some people with enough income may decide to save some of their income rather than spend it all. These savings receive interest and may increase their wealth over time
Property: some people with enough income may decide to buy property, e.g. their own homes, property to rent out, or shares in a company. All these types of property can generate income or increase in value
Enterprise: entrepreneurs with a business idea may have invested their income or borrowed money to set up a business. A successful business can be worth an increasing amount of money and its increasing value would be a form of wealth
Costs of inequality
Poverty: in some countries, people without jobs or government benefits are in absolute poverty so cannot afford to buy the necessities to survive and have less than the minimum standard of living. In other countries, inequality leads to relative poverty where people earn less than 60% of average income, so have a much lower standard of living than other people
Housing: people on low incomes may not be able to afford to buy a house and have to live in poor-quality housing
Health: people on low incomes may not be able to afford some healthy food or medicines, so they may be likely to have health problems and a lower life expectancy
Education: in countries with no state education, families on low income may not be able to afford education, which results in a lower wage and continues the poverty cycle
Social problems: the combination of poverty, poor housing, health and education may lead to unhappiness at the unfairness and social unrest within a country
Lower economic growth: less-educated, unhealthy and unhappy workers are less productive, so there is less output in an economy
Benefits of inequality
Incentives: some argue that the possibility of a higher income may motivate people to work harder, which may lead to greater productivity in an economy and its resulting benefits
Trickle-down effect: some argue that if some individuals are on higher incomes, they may spend more in an economy or set up businesses, which may lead to more income for other people
Consequences of inflation for consumers
Loss of consumer confidence: inflation makes it more difficult for spending their income, so the uncertainty may stop them buying goods and services as it is hard for consumers to value different goods and to decide how to prioritise goods and services
As prices change with inflation, consumers and firms have to keep comparing prices of different goods from different suppliers. This costs time and effort to find the best deals, e.g. the highest interest rate on a bank account to balance inflation
Fall in real income: if income rises at a slower rate than inflation, consumers will have less purchasing power, i.e. their income will buy fewer goods and services at the higher prices, and their standard of living falls
Income redistribution: some workers, e.g. with strong trade unions, may be able to negotiate higher wages during times of inflation so they can maintain or increase their standard of living. However, other workers without this advantage may not get wage increases
Consumers as debtors: if consumers have borrowed money, e.g. mortgages, the real value of the debt falls if there is inflation. As the general price level increases, the opportunity cost of paying back the money falls as you can now buy fewer things with the money owed
Consequences of inflation for producers
Increased production costs: inflation may increase the price of inputs, increasing costs and possibly reducing profits
Menu costs: firms may have to update pricing information on their goods due to inflation, which can increase their production costs, e.g. printing and distributing new catalogues
Labour market disputes: if there is inflation, firms may need to spend more time negotiating wage rises with workers, requiring wages for the negotiators and possibly increased pay for workers
Lower exports: if inflation in the UK is higher than in other countries, UK goods may seem relatively more expensive to overseas consumers and they buy less from the UK
Producers as creditors: this includes banks who are owed money. If there is inflation, the real value of their loans to borrowers may fall
Producers as debtors: firms with debts may gain as the real value of their debt falls
Loss of business confidence: if firms are uncertain about the prices of their input costs and the selling price for their goods, this them reluctant to invest, which can lead to lower productivity
Consequences of inflation for savers
Inflation reduces the impact of any interest and may reduce the real value of the money saved, for example, if someone is saving for a specific target such as a new car, but the price of the car rises at a faster rate than the person can save
Consequences of inflation for government
Government as employer: inflation leads to pressure on the government to increase wages for its employees, such as NHS and state school staff. This can lead to costly industrial disputes and, if wage rises are agreed, increased government spending
Government as benefits provider: benefits, such as state pensions and unemployment benefits, may be linked to rise in line with inflation. This means an increase in government transfer payments
Tax revenue: if there is inflation, some tax revenue may increase, VAT and income tax. VAT may increase because it is a percentage of higher prices. Income tax may increase if it is a percentage of higher incomes and people may be dragged into higher tax brackets. However, taxes that are fixed as a specific amount, e.g. tax on alcohol, may fall in real terms
Government as debtor: the government borrows money to cover a fiscal deficit. The real value of the national debt can fall if there is inflation, so this may be a benefit for government
Impact of government spending
Labour market- The government is a major employer so any change in spending will have a major effect on: civil servants, teachers, doctors and nurses, etc
Construction market- Governments are directly responsible for: roads, hospitals and schools. They can also encourage housebuilding by cutting interest rates (see Chapter 16)
Private sector- By building new schools there is more demand for computers, tables etc. so the profits of firms rise. The same will be true if the Royal Navy orders a new ship etc
Specific markets- Subsidies may be given to specific areas of the economy
Costs of fiscal policy
Consumers may save rather than spend their extra income so the economy does not grow as much as expected
Firms and consumers might spend the extra money on imports making the balance of payments worse
Inflation may rise if supply cannot keep up with demand in either the factor or product markets
Opportunity cost of spending or cutting spending
Benefits of fiscal policy
Reduced unemployment- Government can cut taxes/increase spending leading to more demand for labour as consumers can spend more
Economic growth increase- Cutting taxes and increasing spending both lead to greater output as consumers purchase more and firms increase investment
Faster acting-Compared with monetary policy and supply side policy changes in fiscal policy act more directly and faster on the economy
Impacts of a fall in interest rates on employment
Spending and borrowing by consumers increases- This leads to more demand for UK goods and services so more people are employed to provide these
Borrowing for investment by firms increases- This leads to more spending on capital goods so suppliers employ more people. More investment may lead to the growth of firms and thus more employment
UK exchange rate falls- This leads to more demand for UK goods and services and less demand for imports. This means more employment to meet the rising demand
Impacts of a rise in interest rates on price stability
Spending and borrowing by consumers decreases- Borrowing is dearer so those who have a mortgage pay more. Spending incurs a higher opportunity cost (more saving) so consumption falls leading to a fall in demand for goods and services
Borrowing for investment by firms decreases- The cost to firms of borrowing or using their own money for investment rises, so less spending on capital goods. Once again demand falls
UK exchange rate rises- This leads to less demand for UK goods and services and more demand for cheaper imports so overall demand falls
Factors affecting investment
Expected returns from the investment: if these are greater than the rate of interest then firms will invest
State of the economy: when an economy is doing poorly this will deter firms from investing whatever the rate of interest
Competitors: when competitors are investing it is essential to try to keep up with them by also investing as a firm cannot afford to fall behind despite the change in the interest rate
Taxation on profits: high taxes will deter firms from investment
Supply side policies to achieve government objectives
Education and training- Better education and training improves workers' skills and the quality of labour. This increases productivity and economic growth and reduces unemployment
Competition policy- Control of monopolies increases competition leading to lower prices (targets inflation) and possibly less unemployment
Reducing trade union power- This reduces the number of strikes and other industrial disputes leading to higher economic growth
Reducing both direct taxes on incomes and benefits- Lower taxes increase the incentive to work as do lower benefits from not working. This reduces unemployment
Cutting direct taxes on firms- Cutting corporation tax encourages firms to invest and multinational companies to move to the UK. Economic growth and employment both rise
Privatisation- Should increase competition leading to greater efficiency and output and lower prices/inflation. Exports are more competitive helping to improve the balance of payments
Improved transport facilities- Helps to increase the mobility of the factors of production leading to economic growth and improved balance of payments
Costs of supply side policies
Time lags- Policies take a long time to become effective so the conditions in the economy may have changed
Monetary cost- Because policies take a long time, costs can grow beyond estimates. Policies such as education/training are labour intensive so costly
Opportunity cost- To undertake one policy may involve not doing another, such as spending more on education/training and maybe less on health
Opposition to policies- Policies such as controlling trade unions or monopolies may be unpopular with those affected leading to strikes or less investment respectively
Equity- Cutting benefits may make the poor poorer, at least in the short run
Unintended effects- It is difficult to predict fully the outcome so that a cut in income tax might not lead to people working more as their disposable incomes have risen
Benefits of supply side policies
Targets specific markets- Policies can be aimed at specific parts of the economy or markets to improve efficiency
Reduced inflation- Product and labour markets become more efficient so output rises to combat increase in demand thus keeping inflation under control
Increased employment- More output requires more workers. Increased productivity can lead to higher wages making working more attractive
Increased economic growth- Policies lead to increased output which leads to economic growth. This in turn is likely to result in higher living standards
Improved balance of payments- Policies leading to increased competitiveness will improve the balance of payments as exports are of better quality and lower priced
Costs and benefits of taxation to correct externalities
Costs:
Tax may be regressive: if the same tax amount is taken, it is a greater proportion of a low income, leaving poor consumers with less income to buy goods and services needed to survive. This may increase inequality
Cost to administer and enforce taxation: goods, e.g. cigarettes, may now be sold illegally on the black market, which needs policing. These goods are not regulated, so product safety may be reduced and can have negative effects on health and the NHS. Finally, there is no tax revenue from this unofficial market. This budget impact on government has an opportunity cost for other government services
Benefits:
Reduction in negative externalities
Tax revenue: taxation raises revenue for the government that it can use, e.g. to subsidise goods with positive externalities or to help with problems caused by negative externalities. Tax revenue from goods with inelastic PED can be significant as consumers continue to buy at the higher price
Costs and benefits of subsidies to correct externalities
Costs:
Opportunity cost for government: due to limited resources, if the government pays for subsidies, it may have to give up the benefits of another good or service
Opportunity cost for taxpayers: the government may raise taxation to pay the subsidy. Individuals or firms have to sacrifice other uses for the income they lose through tax
Benefits:
The main benefit of a subsidy is that it encourages production and consumption of goods with positive externalities
It may also lead to more jobs being created in the market subsidised
Costs and benefits of state provision to correct externalities
Costs:
Opportunity cost for government: due to limited resources, if the government pays for and provides goods and services for consumers, it may have to give up the benefits of another good or service
Opportunity cost for taxpayers: the government uses taxation to raise the funds to pay for state provision. Individuals or firms have to sacrifice other uses for the income they lose through tax. This may be offset by use of free provision of state goods and services
Shortages: over time, demand may shift to the right creating or increasing a shortage and making it more difficult for some consumers to access, e.g. due to an increase in population
Benefits:
Improved standard of living: due to the ability for low-income consumers to access essential goods and services
Increased benefits for society: there may be many knock-on effects of state provision of certain goods and services, such as education leading to a more skilled workforce, which increases productivity and output
Costs and benefits of legislation and regulation
Costs:
Opportunity cost of policing black markets: there may be significant costs involved in policing unofficial markets for banned goods, but policing is essential to ensure impact. This government money could have been spent elsewhere and any associated benefits are lost
Opportunity cost of monitoring regulations: the government may have to spend money on checking regulations are complied with, such as emissions targets not being exceeded, and penalties are enforced if individuals do not comply
Benefits:
The main benefits of regulation are the corrected positive and negative externalities that can benefit society
Costs and benefits of information provision to correct externalities
Cost:
Opportunity cost: there are still costs involved with producing and delivering this information, which means the government will not have that money to spend elsewhere
Benefit:
It may cost less than other government intervention options, such as subsidies
Benefits of trade for consumers
Producers need to compete against a wider range of producers internationally, so may reduce price to try to keep or gain market share
Producers may respond to increased competition by investing in research and development (R&D) so their goods and services become better quality
Consumers now have access to a greater variety of goods, especially goods that countries do not have the resources to be able to produce
Benefits of trade for producers
International trade gives access to more potential consumers. With greater output needed to meet this demand, producers may benefit from greater economies of scale. This means they have lower average costs, which may result in greater profits
Producers can buy resources for their production worldwide. They can find resources that are not available in their own countries or find resources to buy at lower prices which may lead to lower average costs.
Increased competition leading to greater efficiency: producers become more focused on how they produce, so they minimise their average costs to compete on price
Specialisation and lower average costs: with a greater market, producers can specialise more and grow, leading to more benefits (less wastage of resources during production, increased productivity and output)
Free trade agreements
Free trade agreements mean that the receiving country doesn't impose any restrictions on either imports or exports
So free trade allows specialist producers to sell goods without price or quantity being changed by a country
This means consumers may choose to buy lower price (or better quality) goods from these specialists
This may benefit consumers as well as reduce use of scare resources globally
European Union
The EU is a group of European countries that have joined together to make a range of agreements that affect their laws and economies
This means that there are no import taxes or fixed quantities of imports and exports between EU countries
As a result, EU member states, their consumers and producers receive the benefits of free trade within the EU
These agreements prevent the occurrence of business practices that reduce competition within the EU, which are considered harmful
EU member states agree to a common trading policy with the rest of the world
EU member states may also benefit from the EU having more bargaining power with countries in the rest of the world
Any member state leaving the EU will have to renegotiate all trade deals, both with the EU and the rest of the world
A deficit is of particular importance and concern
If it is caused by problems in the economy, such as falling total demand for domestic goods, which can be caused by low international competitiveness and poor product quality
If it is due to a factor that will take a long time to change, such as low productivity, as the deficit will last longer which is harder for the country to be able to finance
If it is large in size as again this is harder for a country to be able to finance and increases national debt more significantly. It also has bigger consequences such as higher unemployment
A deficit is not as important and concerning
If it is only temporary, e.g. due to importing more raw materials or capital goods to put into production of goods that will eventually be exported to increase economic growth
It reduces inflation within the domestic economy: imports are greater than exports, reducing total demand, reducing upwards pressure on prices
Over time, it leads to a fall in the exchange rate which can increase the international competitiveness of UK goods
It is only a small percentage of GDP so debt can be paid for with less difficulty
A surplus is important and beneficial if
It reflects rising total demand for domestic goods, which can be linked to decreased unemployment, more income tax revenue and lower benefit payments
It decreases the debt of a country because more money is flowing into the country from greater spending on exports than money is flowing out to pay for imports
A surplus is not as important and beneficial if
It causes rising inflation within the domestic economy: as exports are greater than imports there is an increase in total demands for domestic products, putting upwards pressure on prices
It hides the causes that have a negative impact on global economic growth such as protectionist policies that give domestic goods an artificial advantage
It leads to a rise in the exchange rate, which can decrease the international competitiveness of UK goods
Causes of a surplus
The strength of the economy, e.g. products are of a high quality, sold at a low price, or reflect what households and firms at home and overseas want to buy
A lack of growth in the domestic economy: consumers within the economy may buy fewer imports, while domestic firms, finding it difficult to sell at home, compete more to sell exports abroad
A fall in the exchange rate, which may increase the quantity of exports if overseas consumers are responsive to the now lower export prices. I may similarly reduce imports
A net inflow of investment income: investments that foreign residents have made in the country earn less than the investments the country's inhabitants have made in other countries
Causes of a deficit
Structural problems in the economy, e.g. firms overpricing goods, producing poor-quality goods or goods no longer in demand
Falling incomes overseas, which may lead to falling exports
Rising incomes in the domestic economy may lead to rising imports
A rise in the exchange rate, which may decrease the quantity of exports if overseas consumers are responsive to the higher export prices. It may similarly increase imports
A net outflow of investment income: the investments that foreign residents have made in the country earn more than the investments the country's inhabitants have made in other countries
Effect of a rise in the exchange rate on consumers
Import prices fall: domestic consumers may be more willing and able to buy imported goods
An improved standard of living: domestic consumers may enjoy a better standard of living as their income can buy more imported goods
Increased tourism overseas: more domestic consumers may go overseas for holidays as their British pound will buy more foreign currency
A fall in the inflation rate: due to total demand falling, if imports grow and exports fall, there is likely to be a downward pressure on the price level. This may benefit consumers as their income will now buy more goods
Effect of a rise in the exchange rate on producers
A fall in import prices: this is a benefit for producers who import raw materials, components or capital goods, as now their average costs will be lower and there is a chance of increased profits
Increased tourism overseas: producers involved in the provision of holidays overseas, e.g. travel agents and airlines, should benefit from the increased demand from British consumers. However, producers involved in providing holiday and leisure services within the UK may suffer
A rise in export prices: usually this would be expected to result in a fall in demand for goods from British producers, which may mean lower profits or losses leading to firms shutting down. However, if overseas consumers have inelastic PED for these British goods, they will not be responsive to the rise in price and may still continue to demand a similar quantity
A fall in the inflation rate: due to total demand falling, if imports grow and exports fall, there is likely to be a downward pressure on the price level. This may benefit producers, as there is less need for wage rises, it should lower menu costs and British products become more internationally competitive
Driving factors of globalisation- Reduction of barriers to international trade
At various points in time, such as after the Second World War, countries had to work together and trade with each other in order to grow their economies
This resulted in the removal of barriers to trade such as taxation and regulations that restricted movement of resources
This led to easier movement of people, raw materials, money and goods between different countries
The costs associated with barriers to international trade were reduced and it became more profitable to trade around the world
Driving factors of globalisation- Improvements in transport
Improvements in transport have enabled producers to trade worldwide: to source and buy inputs for production and also to distribute goods around the world
This has enabled firms to trade worldwide by employing overseas producers to take on parts of the production process
Improvements have cut the average costs of transport, e.g. development of huge container ships has resulted in economies of scale for transport, making it more profitable to trade worldwide. They have cut transport time, making it possible to trade goods worldwide that might otherwise have perished on longer journeys
Investment into transport infrastructure worldwide has made it possible for goods and people to travel between countries, so greater integration and trade worldwide is more likely to happen
Driving factors of globalisation- Worldwide foreign investment
Foreign investment is now a significant contributor to the flow of money into and out of different countries and has increased the interdependence of countries around the world
The promotion of free trade and the removal of restrictions on foreign investment have ensured significant growth
The growth of multinational corporations (MNCs) has also resulted in an increase in worldwide foreign investment.
These businesses, such as Shell and Nestlé, have a base in one country but will then conduct business (via production or retail outlets) in other countries
In order to produce or sell in another country, these businesses have to invest in all sorts of ways, from buying factories to building roads
This network of MNCs can significantly increase world trade and the integration of countries worldwide
Driving factors of globalisation- Advances in technology and communication
Advances in technology and communications have made it both easier and less costly to trade around the world
It is easier for producers to have parts of their business in other countries, e.g. accounts and IT departments
The internet has allowed producers to find suppliers of the resources they need for production in different parts of the world, thereby increasing trade
It has enabled consumers to find a wider range of suppliers and products from countries around the world that can now be traded
Online banking and e-commerce have made buying and selling worldwide faster, more secure and easier, which has encouraged the expansion of trade globally
Measurements of development
GDP per capita: an increase in GDP represents economic growth, where more workers are paid to make increased output. This means they can afford to buy more and improve their standard of living
Life expectancy: this is the average age to which a person lives and is a useful gauge of development - it is likely to tally with the overall health of a population and reflects the standard of living.
Access to healthcare: the availability of hospitals, medical facilities and medical professionals has a significant effect on wellbeing
Technology: statistics on access to technology, e.g. mobile phones and internet, link to education, enabling communication and trade, and personal banking services that help individuals prosper
Education: numbers accessing education and the literacy rate, percentage of adults who can read and write. Education increases future productivity and economic growth. It can reduce inequality in a country as an increase in skills enables people to access higher wages and standard of living
Costs of globalisation in a developed country- producers
Possible decline of industry: less developed countries may have a cost advantage, such as low wages, which means producers in developed countries are unable to compete and have to close
Vulnerability to problems in the worldwide economy: e.g. if incomes fall in another country, producers in developed countries are not able to export as much, which may harm businesses
Some increased production costs: e.g. increased administration costs to enable trading across the world, e.g. paying lawyers in different countries and set-up costs for facilities overseas
Benefits of globalisation in a developed country- producers
Wider markets to sell into: the potential for vastly increased sales as producers can now sell virtually anywhere in the world, which could lead to greater economies of scale or specialisation
Cheaper and wider range of resources: the ability to buy resources worldwide increases competition meaning lower prices, as well as access to resources that were not available in their own country
Cheaper and more skilled labour force: increases in overseas workers can benefit producers who have access to a wider range of workers, sometimes with different skills or willing to work at lower prices
Costs of globalisation in a developed country- workers
Decline of industry and structural unemployment: industries may go into decline due to global competition and it may be difficult to get new jobs requiring new skills
An increase in the use of machinery and unemployment: there may be fewer jobs if, in a bid to be more internationally competitive, producers replace workers with machinery to increase productivity
An increase in dependence on world markets and unemployment: if incomes fall in other parts of the world, the demand for UK goods may fall, so fewer workers are needed to make less output
An increase in immigration and unemployment: more immigration may have a negative effect for workers in the domestic country if the are not competitive in terms of either skills or price
Benefits of globalisation in a developed country- workers
Increased employment due to increased output: over time, there may be more jobs available as the economy produces more to meet the demands of international trade
Increased employment due to increased foreign investment: this can lead to more jobs being created in new businesses that are formed
Increased geographical mobility: the opening up of markets means that workers from developed countries have the opportunity to live and work anywhere in the world
Costs of globalisation in a developed country- consumers
Rising prices: as there are more consumers competing to buy some goods, this can actually lead to an increase in worldwide prices
Less choice due to global brands: e.g. the rise of global companies like Starbucks may have led to smaller, local coffee shops closing
Volatile prices: if prices fluctuate greatly on goods traded globally, such as oil, it can lead to worldwide uncertainty and difficulty planning personal finances
Benefits of globalisation in a developed country- consumers
A wider range of goods: in general consumers are able to research and buy a wider range of goods from around the world
Lower prices for goods: increased worldwide competition between firms should result in lower prices, increasing affordability and standard of living
Better-quality and more innovative goods: due to increased competition, producers have to be much more focused on the quality of their goods and innovate to stay ahead of rivals worldwide
Greater opportunity to travel: opening up borders allows greater tourism and travel for consumers in developed countries
Improved services due to more skilled professionals: due to freer movement of people, there may be more skilled professionals moving from less developed countries to developed countries
Costs of globalisation in a less developed country- producers
Vulnerability to problems in the worldwide economy: this is a more significant problem for producers in less developed countries as they already have fewer resources to deal with economic shocks. A reduction in foreign investment or demand for exports can make it difficult for producers to survive
Increased migration and loss of skilled workers: many skilled workers may choose to work in a developed country, which leaves a less productive workforce
Smaller, developing industries go out of business: these may not be able to compete with bigger businesses worldwide
Benefits of globalisation in a less developed country- producers
Wider markets to sell into: there is the potential for increased sales, as producers can now sell worldwide. This may be more difficult for producers in a less developed country who may not have the resources to grow their output and take advantage of potential exports
Advances in technology: sharing of scientific information and joint research may lead to reduced costs for producers in less developed countries, but they may take time to filter through
Increased foreign investment: this combined with attempts by governments to attract more investment may reduce costs for producers in less developed countries, e.g. more roads may be built, which helps the moving around of people and goods
Costs of globalisation in a less developed country- workers
Increased use of machinery and unemployment: workers may be replaced with machinery to increase productivity, so they can be internationally competitive
Increased vulnerability and unemployment: the problem of increasing dependence on world markets is that, if global demand falls for exports from less developed countries, then fewer workers will be needed
Increased gap between rich and poor: the increased revenue from more trade may not filter down to workers but may instead be spread between the government, owners and managers
Poor working conditions: there may be less regulation in less developed countries, which can create cost advantages for global firms, but leads to poor treatment of workers there such as lower pay and long working hours
Benefits of globalisation in a less developed country- workers
Increased employment due to increased output: over time, there should be an increase in employment within a country due to increased output to meet international trade
Increased employment due to increased investment: an increase in foreign investment may help less developed countries and provide more jobs for workers
Increased geographical mobility: the opening up of markets means that workers from less developed countries have the opportunity to live and work anywhere in the world
Costs of globalisation in a less developed country- consumers
Rising prices: as there are more consumers competing to buy some goods, this can actually lead to an increase in global prices, so consumers in less developed countries, may no longer be able to afford the prices of essential goods, e.g. rice.
Poor quality of services due to migration: freer movement of people may mean a loss of skilled professionals in less developed countries
Benefits of globalisation in a less developed country- consumers
Wider range of goods: due to the lowering of barriers to trade and the internet, there should be increased access to a greater range of goods, such as life-saving medicines
Access to global brands: the availability of global brands to consumers in less developed countries may be seen as a positive consequence
Greater opportunity to travel: the opening up of borders also allows greater tourism for those consumers in less developed countries who can afford to travel
Better infrastructure due to foreign investment: consumers may benefit from some of the development linked to foreign investment, e.g. better transport links