The Rise of Globalisation in the World Economy

1. Institutional Factors at the National Level

The rise of global trading blocks such as NAFTA and the EU have helped undermine the national economy. Even though the UK is not a member of the Single Currency, Monetary policy is still affected by what the ECB does to interest rate

2. Free Trade

Countries have realised the benefits of trade due to the principle of Comparative Advantage and further gains from Specialisation. There is less support for protectionism amongst Politicians, despite protests against the WTO. The US and China have recently agreed terms to reduce trade barriers between the 2 countries

3. Capital Mobility

The improved mobility of Physical and Capital mobility has enabled further gains from trade. This is because it has reduced the cost of transport and international finance. For example a Multinational can produce a good in different countries e.g. it can locate the Labour intensive part of its production process in countries with a relative abundance of labour in order to minimise costs on a global scale

4. Economies of Scale

It is argued that a firm operating in a global market is able to benefit from greater economies of scale, which it can’t at a national level.

E.g. Sharing risk of Oil Exploration
Airline firms investing in super jumbos
R & D of pharmaceutical companies

Note some mergers may be subject to low returns or even diseconomies of scale due to managerial diseconomies of scale (it is more difficult to manage a large firm)

5. The Internet

This enables firm to communicate on a global level, this may overcome managerial diseconomies of scale. The firm may be able to get cheaper supplies by dealing with a wider choice of firms. Consumers are also able to order more goods on line E.G. Dell Computers takes orders online and can meet customer specification.Merger of AOL and Time Warner show the potential of this

6. International Media Corporations

E.G. CNN, MTV, The Economist. Global events such as the Olympics and the World Cup strengthen Multinational companies who can advertise to a global market.

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More: Macro Economics Essays Richard Pettinger studied Politics and Economics at Lady Margaret Hall, Oxford University. He now works as an economics teacher in Oxford. He enjoys writing essays on Economic and he edits a site - Economic Help. www.economicshelp.org/

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