4.3.1 - Globalisation

Developed, developing and emerging describe broad patterns of income, sector structure, institutions and living standards. Classify from several indicators and trends because countries differ within each group and can change over time.

Compare growth, GDP per capita, HDI, employment by sector, infrastructure and market conditions. An emerging economy may grow faster than a developed economy, but this does not mean every citizen is wealthier or every business opportunity is attractive.

Countries in Asia, Africa and other regions gain economic power as their output, incomes, investment, firms and share of global demand expand. Power means greater ability to shape trade, production, finance and business decisions—not growth alone.

Assess population, income per person, growth quality, institutions and globally competitive firms together. A large fast-growing economy may still have unequal incomes or infrastructure gaps that limit demand and operating reliability.

Economic growth is an increase in real output over time. It can raise income, investment and government revenue, changing what people buy, where businesses sell and how labour is distributed across sectors.

For an international business, growing demand can increase sales, but success depends on affordability, local adaptation, distribution and competitor strength. For individuals, new jobs and incomes may improve welfare while automation, relocation or sector decline creates losers.

Growth indicators summarise different aspects of an economy. Use their trend and comparison, then state what each can and cannot establish.

A business may use total GDP to gauge market scale, GDP growth to assess momentum, GDP per capita as a rough affordability signal and HDI to infer human capability. Combine them with population, distribution, infrastructure and sector-specific demand.

An export is a good or service sold by a business in one economy to a buyer abroad. An import is bought from abroad for use or resale in the domestic economy. The same transaction is an export for the seller's country and an import for the buyer's.

A country exports more when its businesses sell abroad, while importing businesses can lower cost or improve quality. International trade can support jobs and income, but benefits depend on competitiveness, value added and how gains and losses are distributed.

Specialisation occurs when a country or business concentrates resources on a narrower range of activities in which it can build capability, then trades surplus output for other goods and services.

Assess market demand, diversification, substitutes, resource sustainability and the ability to move into higher-value activity. Specialisation is more resilient when the advantage is difficult to copy and revenue funds skills or complementary sectors.

Foreign direct investment (FDI) occurs when a business invests in productive assets or acquires a lasting ownership interest and influence in an enterprise in another economy. It differs from merely exporting or buying a short-term financial security.

The investing firm can reach demand, resources or lower costs; host suppliers may gain orders, workers gain income and knowledge may spread. These effects can increase local business activity and demand.

Trade liberalisation is the reduction or removal of tariffs, quotas and other restrictions on cross-border trade. It makes exchange cheaper or easier, so markets become more integrated and competitive.

The World Trade Organization provides a framework for trade agreements, monitors members' trade policies and offers processes for resolving disputes. These functions can encourage lower barriers and more predictable trade, though negotiation and compliance depend on member governments.

Political change contributes to globalisation when governments permit more international trade, investment, ownership and movement. The direction can reverse if policy becomes more protectionist or unstable.

Trace a policy change through cost, permission or confidence to an actual flow of goods, services, capital, people or ideas. The size of the effect depends on enforcement, infrastructure, demand and business capability.

Globalisation accelerates when the cost and time of moving goods, people and information fall. More cross-border transactions become economically viable, and firms can coordinate activities across locations.

Effects vary by product: digital services are less constrained by distance than bulky, perishable or low-value goods. Fuel prices, congestion, infrastructure, reliability, cyber risk and environmental costs can offset headline savings.

A multinational corporation (MNC) owns or controls business activity in more than one country. Its significance grows as large firms organise production, investment, employment, technology and sales across national boundaries.

MNCs can create jobs, tax revenue, competition and supplier demand, while also intensifying market concentration or regulatory challenges. Assess local value added, conduct, linkages and alternatives rather than firm size alone.

An FDI flow is direct investment entering or leaving an economy during a period. As more firms commit capital to foreign facilities and enterprises, markets become linked by ownership, production and long-term business relationships.

Lower barriers, political stability, infrastructure, skills and expected return can encourage flows; uncertainty or controls can deter them. FDI may promote trade when plants import components or export output, but can substitute for exports when firms produce inside the destination market.

Migration is the movement of people to live or work within or between economies. International migration contributes to globalisation by connecting labour supply, skills, income, business networks and ideas across borders.

Effects depend on worker skill, legal status, labour conditions, public services and whether origin economies lose scarce expertise. Migration can support competitiveness and trade, but it is only one driver alongside policy, FDI and lower transport or communication costs.

The global labour force grows when more working-age people participate in economic activity and become accessible to international businesses through education, infrastructure, migration, trade and investment.

A broader labour pool can lower cost, fill gaps and support FDI or outsourcing, increasing trade and income. It can also intensify job displacement in higher-cost locations and expose poor working conditions.

Structural change is a long-term shift in the relative importance of economic sectors, occupations and production methods. Movement from primary activity toward manufacturing and services can connect an economy more deeply to global markets.

Globalisation can cause structural change through trade and FDI, while new sector capability also enables more globalisation. Trace both directions and assess skills, infrastructure, institutions and the pace of transition.

Globalisation increases cross-border flows of goods, services, capital, people and ideas. Its business impact depends on whether the firm can convert wider access into advantage while controlling new dependencies.

Assess product value-to-transport cost, brand or cost advantage, adaptability, supply-chain resilience, regulation and stakeholder impact. A firm may benefit as an exporter but suffer as an employer or input buyer.

Protectionism is government action that restricts imports or gives domestic producers an advantage. Governments may pursue several aims, but each protection creates costs and possible retaliation.

The case is stronger when the objective is specific, the measure targets the problem and benefits exceed consumer and input costs. Long protection can weaken innovation and competitiveness.

A tariff is a tax charged on an imported good or service. It can be a fixed amount per unit or a percentage of value. The immediate effect is to raise the importer's landed cost.

A tariff on an imported raw material may protect its domestic producer but raise costs for downstream firms and consumer prices. Exporters can absorb the tax through lower margins, increase price, relocate production or leave the market.

An import quota sets a maximum quantity or value of a product that may enter an economy during a period. Licences or allocations determine which importers can use the restricted allowance.

Unlike a tariff, a binding quota fixes the permitted import quantity rather than the tax per unit. It offers greater quantity certainty but can create arbitrary licence advantages and less public revenue.

Non-tariff barriers change market access or relative cost without levying a conventional import tax. The specification focuses on government legislation and domestic subsidies.

For a business, legislation can create a fixed entry cost that affects small exporters most, while a subsidy may help a domestic competitor undercut imports. Effects depend on enforcement, design, duration and whether firms can comply or relocate.

The impact of protectionism depends on whether a business competes with imports, exports into the protected market, uses restricted inputs or operates on both sides of the barrier.

Evaluate barrier type and size, duration, demand elasticity, substitutes, local capacity, firm scale and retaliation. Small firms may struggle with fixed compliance costs; a strong differentiated brand may pass on more of a tariff.

A trading bloc is a group of economies with an agreement that gives members easier or preferential trade with one another. Expansion brings more economies and economic activity inside the agreed rules.

Lower internal tariffs and simpler rules can enlarge the accessible market, support specialisation and create regional supply chains. Some blocs also coordinate external barriers or standards, affecting firms outside the group.

Trading blocs change market access, input cost and competitive intensity. Start by locating the business, its suppliers and customers relative to the bloc, then identify which barriers actually change.

Effects depend on the depth of the agreement, product rules, business competitiveness, demand, exchange rates and ability to adapt. Trade creation can replace expensive domestic production; trade diversion can replace a cheaper outsider with a member producer.