1. Globalisation

Globalisation is the process of increased integration and interdependence of economies worldwide, driven by trade, investment, technology, and cultural exchange.

Causes of Globalisation:

• Trade Liberalisation – Reduction of tariffs and trade barriers, making international trade easier.
• Technological Advancements – Improvements in communication (internet, smartphones) and transportation (air freight, shipping).
• Multinational Companies (MNCs) – Expansion of businesses across multiple countries, increasing economic interconnectedness.

Impacts of Globalisation:

Positive:

• Increased trade and economic growth.
• Access to a wider variety of goods and services.
• Greater opportunities for businesses to expand internationally.

Negative:

• Exploitation of workers in developing countries (low wages, poor conditions).
• Environmental degradation due to increased industrial production.
• Risk of economic instability due to global financial interdependence.

Example: The rise of global brands like Apple and Nike demonstrates how globalisation connects consumers and producers across multiple countries.

2. Multinational Companies (MNCs) and Foreign Direct Investment (FDI)

Multinational Companies (MNCs): Businesses that operate in multiple countries.

Foreign Direct Investment (FDI): Investment by a company in another country, such as building factories or buying local businesses.

Advantages of MNCs and FDI:

• Job Creation – MNCs create employment opportunities in host countries.
• Technology Transfer – Advanced technologies and skills are introduced to local economies.
• Improved Infrastructure – FDI can lead to better roads, communication, and power supply.

Disadvantages of MNCs and FDI:

• Worker Exploitation – MNCs may pay low wages or enforce poor working conditions.
• Environmental Damage – Increased industrial production can lead to pollution.
• Profit Repatriation – MNCs often send profits back to their home country, reducing local economic benefits.

Example: Toyota, a Japanese MNC, has manufacturing plants worldwide, creating jobs and transferring technology to host countries.

3. International Trade

The exchange of goods and services between countries.

Benefits of International Trade:

• Specialisation – Countries focus on producing goods they are most efficient at.
• Economic Growth – Trade increases GDP and national income.
• Access to Resources – Countries can obtain raw materials and products not available domestically.

Costs of International Trade:

• Dependency – Over-reliance on imports can be risky if supply chains are disrupted.
• Job Losses – Domestic industries may struggle to compete with cheaper foreign imports.
• Trade Deficits – If imports exceed exports, countries may face economic imbalances.

Example: Germany exports high-value cars and machinery while importing agricultural products, benefiting from specialisation.

4. Protectionism

Government policies that restrict international trade to protect domestic industries.

Methods of Protectionism:

• Tariffs – Taxes on imports to make them more expensive.
• Quotas – Limits on the quantity of imports allowed.
• Subsidies – Financial support for domestic industries to reduce production costs.

Advantages of Protectionism:

• Protects Jobs – Shields domestic industries from foreign competition.
• Supports Infant Industries – Helps new businesses grow and compete internationally.
• National Security – Reduces dependency on foreign goods (e.g., food and energy security).

Disadvantages of Protectionism:

• Higher Prices – Consumers pay more for protected goods.
• Retaliation – Other countries may impose their own trade barriers.
• Reduced Efficiency – Domestic firms may lack incentives to innovate and improve.

Example: The US imposed tariffs on Chinese steel to protect its domestic steel industry from foreign competition.

5. Trading Blocs

A group of countries that agree to reduce trade barriers among themselves.

Types of Trading Blocs:

• Free Trade Areas (e.g., NAFTA/USMCA) – No tariffs between members.
• Customs Unions (e.g., EU) – Free trade internally with common external tariffs.
• Common Markets – Free movement of goods, services, and people.

Advantages of Trading Blocs:

• Increased Trade – Members benefit from reduced tariffs and quotas.
• Economic Integration – Encourages cooperation and political stability.
• Bigger Market Access – Companies can sell to a larger consumer base.

Disadvantages of Trading Blocs:

• Loss of Sovereignty – Members may have to follow bloc regulations.
• Trade Diversion – Trade shifts from more efficient global producers to bloc members.
• Inequality Between Members – Smaller or weaker economies may struggle to compete.

Example: The European Union (EU) is a customs union that allows free movement of goods, services, and people among member states.

6. The World Trade Organization (WTO) and World Trade Patterns

WTO: An international organisation that regulates global trade and resolves disputes.

World Trade Patterns: Trends in trade flows between countries and industries.

Role of the WTO:

• Promotes Free Trade – Encourages countries to lower trade barriers.
• Dispute Resolution – Helps settle trade disagreements.
• Trade Negotiations – Facilitates agreements between nations.

Trends in World Trade:

• Growth of Emerging Economies – Countries like China and India are major exporters.
• Increased Digital Trade – More services (banking, software) are being traded globally.
• Supply Chain Changes – COVID-19 and geopolitical tensions have shifted trade routes.

Example: The WTO helped resolve a trade dispute between the US and the EU over aircraft subsidies.

7. Exchange Rates and Their Determination

The price of one currency in terms of another.

Factors Affecting Exchange Rates:

• Demand and Supply – Higher demand for a currency increases its value.
• Interest Rates – Higher rates attract foreign investment, boosting currency value.
• Inflation – High inflation can reduce currency value.

Types of Exchange Rate Systems:

• Floating Exchange Rate – Determined by market forces.
• Fixed Exchange Rate – Set by the government or central bank.

Example: The British pound (GBP) has a floating exchange rate, meaning its value fluctuates based on global demand and supply.

8. Impact of Changing Exchange Rates

Effects of a Depreciation (Fall in Currency Value):

• Exports Become Cheaper – Foreign buyers purchase more domestic goods.
• Imports Become More Expensive – Domestic consumers pay higher prices for foreign goods.
• Boosts Tourism – Foreign visitors find the country cheaper to visit.

Effects of an Appreciation (Rise in Currency Value):

• Exports Become More Expensive – Foreign buyers reduce demand for domestic goods.
• Imports Become Cheaper – Local businesses may struggle to compete.
• Lower Inflation – Imported goods cost less, reducing inflationary pressure.

Example: A depreciation of the Indian rupee makes Indian textiles cheaper for foreign buyers, boosting exports.