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Economic Impact of Globalisation

Economic Impact of Globalisation

Have you ever been to Primark, an Irish fast-fashion retail brand, and noticed that few to none of the clothes there are actually “Made in Ireland”? Most of the items will usually have “Made in Pakistan” or “Made in Bangladesh” on the tags. Or maybe you made a little pit stop at your local Starbucks and wondered where your coffee really comes from. Believe it or not, the clothes you wear and the cup of coffee in your hand actually took a long and adventurous voyage to reach you. Globalisation has made all that possible.

Economic Impact of Globalisation Overview

Let's take a look at the characteristics associated with globalisation and its impacts:

Globalisation is the phenomenon wherein goods, services, people, cultures, money and information can be swiftly transferred amongst countries with little to no barriers, thus linking countries in interdependent relationships, and creating a more connected world.

Globalisation- Alleyway with Flags- StudySmarterFig. 1: Alleyway filled with flags from around the world

Characteristics of Economic Globalisation include:

  • Increase in free trade

  • Increase in global labour flows

  • Increase in capital flows

  • Increased growth of Trans-National Companies (TNCs)

  • High integration of the global trade cycle

  • Advancement of communications and transport sectors

  • Reduction of barriers between countries, “dissolution of borders”

Economic Impact of Globalisation Trends

The UK has one of the world's largest economies, making it highly interconnected with the rest of the world. As the economy grows further, the UK is trying to become more economically, environmentally and socially sustainable. Let’s dive deeper into the recent globalisation trends of the UK economy.

Post-1980s Era

Since the 1980s, many of the UK's manufacturing industries have migrated to low-income countries because they can take advantage of cheaper labour and fewer costs, thus making businesses more profitable. This process of investing money in another country is called “foreign direct investment (FDI)”, and FDI is only possible when multi-lateral companies can invest anywhere in the world without any restrictions or barriers. This phenomenon is called “free trade”.

Globalisation Manufacturing Example StudySmarterFig. 2: D. Napier & Son Ltd. 'Aero Engine in the Making', England, circa 1918

Post-Industrial Era

As a result of many UK industries moving abroad, the UK economy was able to transform from a predominantly “manufacturing” economy into a “service-based” or “tertiary” economy, which is an economy that is mainly focused on the provision of services rather than the production and manufacture of goods. These services can include building infrastructures such as roads and buildings, providing healthcare (doctors, nurses and mental health therapists.), providing catering services (such as restaurants, take-outs and cafes) and transportation services (such as bus drivers, taxi drivers and train operators).

Delivery Service - Economic Change- Geography- StudySmarterFig. 3: Delivery service in action on a foggy December morning.

Moreover, the UK economy was also able to dominate itself in the “quaternary” or “knowledge” sector which consists of industries that are based on human knowledge and involve activities within the realm of technology, advanced research and development, financial planning, and information and data analytics. The boom of this industry can be accredited to the rise in literacy levels in the UK, giving rise to a highly-educated workforce that can work and contribute to global industries.

In 2021 alone, there were over 2.75 million students at UK universities, and 40.6% of the population aged between 15 and 64 had a degree in the UK.

Economic Impact of Globalisation Costs & Benefits

Let's compare the benefits and costs of the impact of globalisation on the economy!

BENEFITS
COSTS

Economic Growth: Every year, the UK economy grows by approximately 1-2%, mostly owing to the increase in trade with other countries around the world.

Less Manufacturing: The UK has had to open itself up to an increase in imports of manufactured goods. Thus, factories have to shut down in the UK, and hundreds of people are left unemployed.

Cheaper Goods and Services: A lot of the products we buy nowadays are much cheaper now because they are manufactured in low-income countries.

Outsourcing Jobs: Jobs that were previously done in the UK can now be done easier and cheaper in another country, which means fewer job opportunities, loss of employment and lower wages for those still working in the UK.

Foreign Investment: Foreign multinational companies invest in the UK, bringing in new and advanced research, ideas and technology, which also creates more job opportunities for UK workers and lowers unemployment rates.

Economic Inequality: The wage gap between low-paid unskilled workers and high-paid skilled workers has been increasing in recent decades. This means that the UK is more vulnerable to high poverty rates, unemployment rates and lower literacy rates.

High-Value Production: The UK economy has become a pioneer in high-value manufacturing and services, such as data science, information technology and artificial intelligence.

FDIs: There is no guarantee that FDI creates more job opportunities and better outcomes for the local population. Instead, such companies can often escalate pollution levels and environmental degradation in the host countries.

Migration: Thousands of people immigrate to the UK every year to take up jobs in industries that face skilled-worker shortages, for example, in healthcare and construction. This has helped the UK to become a global hub of diversity and multiculturalism.

Economic Impact of Globalisation Risks

Looking into the current and future globalisation trends, here are some potential risks that come with such trends.

Economic Inequality

Globalisation can accelerate income disparities and inequality between highly educated and highly skilled workers and the country's less educated and unskilled workers. 4 This means that unskilled workers have to face lower wages and their livelihoods are constantly threatened by globalisation. Unskilled workers also have less negotiating power in terms of wages, because their job can simply be done abroad by a worker accepting half the wages. Due to technological advancements, more and more jobs become automated every day, and workers with those specific niche skills are no longer wanted.

Environmental Damage

Traditional industries set up in the UK and those set up by TNCs can often accelerate environmental damage by increasing deforestation and air and water pollution around the country. The UK government is now trying to make modern industrial development as environmentally and economically sustainable as possible.

The development of the London Sustainable Industries Park (London SIP) located on Thames Gateway, is actually built on the site that was previously home to a Dagenham Ford car factory. The first three organisations set up in the park focus on research and development of recycling processes, sustainable uses of food waste and the production of biogas. The park is an excellent example of what the future of UK industries could look like.

environmental pollution-globalisation-studysmarterFig. 4: Environmental pollution caused by industries

Economic Impact of Globalisation Example

To better understand the reality of the economic inequality exacerbated by globalisation, we can take a look at the case of the North/South Divide in the UK.

The North/South Divide

Studies have shown that there has long been an income divide between the northern and southern cities of the UK. This happened because while the UK was globalising, most of the new businesses were set up in the South. This created a wealth disparity because the south experienced lower wages, higher unemployment and lower standards of living compared to the north

According to the Centre for Cities, in 2015, for every 12 jobs created in the south since 2004, only one job was created elsewhere in the UK. For example, while cities like London and Milton Keynes had seen a surge in jobs available on the market, cities like Blackpool and Hull in the north have actually seen a decline.

North South Divide-UK-Globalisation-StudySmarterFig. 5: Map showing the north-south divide in the UK

Economic Impact of Globalisation - Key takeaways

  • Globalisation is the increasing connections between places and people across the planet, established through trade, politics and cultural exchanges, and helped by technology and transport.

  • Economic Globalisation is characterised by free trade, free labour and capital flows, and the increase in TNCs around the world, making the global trade cycle highly integrated.

  • The impact of globalisation on the UK economy can be seen in three phases: the post-1980s era, the post-industrial era and the recent sustainability era.

  • Some of the benefits of globalisation for the UK include economic growth, cheaper goods and services, foreign direct investment, migration and high-value manufacturing.

  • Some of the costs of globalisation for the UK include high dependence on imports, structural unemployment, economic inequality and environmental damage.

  • The North-South Divide in the UK is a good example that highlights the growing inequalities and wealth and income disparities in the UK in recent times.


References

  1. What is the definition of globalization? (n.d.). The Economic Times. [online]

Frequently Asked Questions about Economic Impact of Globalisation

The UK economy witnessed the impacts of globalisation in three distinct phases: the post-1980s era, the post-industrial era and the recent sustainability era. 

Globalisation helps the economy move from being a predominantly agricultural economy to a manufacturing and then services and knowledge economy.  

Economic globalisation is characterised by the increase in free trade which leads to an increase in TNCs around the world. An example would be the "Mcdonaldisation Effect" which refers to the global spread of the Mcdonald's fast-food chain to every corner of the world, becoming a symbol of homogenisation and interconnectedness of the global economy. 

Some positive effects include economic growth, cheaper goods and services, migration and FDIs. Some negative effects could be a high dependence on imports, homogenisation of cultures, economic inequality and environmental degradation.

Globalisation can create a lot of environmental damage and can strain natural resources which can stunt economic growth in the long run. It can also widen the income and wealth disparities in a country. 

Final Economic Impact of Globalisation Quiz

Question

Which of the following is a characteristic of economic globalisation? 

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Answer

Free Trade

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Question

What are three phases regarding the economic impact of globalisation on the UK economy? 

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Answer

  1. Post-1980s era
  2. Post-Industrial era
  3. Sustainability era

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Question

Which of the following are benefits of globalisation for the UK economy? 

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Answer

Cheaper goods

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Question

Which of the following are the costs of globalisation for the UK economy?

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Answer

Structural unemployment

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Question

The site where the new London SIP is located was previously home to? 

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Answer

Dagenham Ford car factory

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Question

What is the knowledge sector? 

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Answer

Industries that are based on human knowledge and involve technology, advanced research, financial planning, and data analytics.

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Question

What did the initial companies in the London SIP focus on? 

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Answer

Recycling, sustainable uses of food waste and the production of biogas

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Question

What does the North-South divide in the UK refer to? 

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Answer

The income divide between the northern and southern cities of the UK.

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Question

The southern cities of the UK face which of the following? 

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Answer

High incomes

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Question

What is the service sector? 

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Answer

An economy that is mainly focused on the provision of services rather than the production of goods.

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Question

Which of the following economic activities are part of the services sector? 

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Answer

Manufacturing cheese

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Question

What happened to the UK economy after the 1980s? 

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Answer

UK's manufacturing industries migrated to other low-income countries to take advantage of cheap labour and fewer costs.

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Question

The rise of the knowledge sector in the UK can be attributed to? 

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Answer

High literacy rates which produced a  highly-educated and skilled workforce.

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