Explore Economics

Globalisation is a process of deeper economic integration between countries and regions of the world.

The OECD defines globalization as

"The geographic dispersion of industrial and service activities, for example research and development, sourcing of inputs, production and distribution, and the cross-border networking of companies, for example through joint ventures and the sharing of assets."

Characteristics of globalisation

  1. Greater trade in goods and services both between nations and within regions
  2. An increase in transfers of capital including the expansion of foreign direct investment (FDI) by trans-national companies (TNCs) and the rising influence of sovereign wealth funds
  3. The development of global brands that serve markets in higher and lower income countries
  4. Spatial division of labour– for example out-sourcing and off shoring of production and support services as production supply-chains has become more international. As an example, the iPhone is part of a complicated global supply chain. The product was conceived and designed in Silicon Valley; the software was enhanced by software engineers working in India. Most iPhones are assembled / manufactured in China and Taiwan by TNCs such as FoxConn
  5. High levels of labour migration within and between countries
  6. New nations joining the world trading system. China and India joined the WTO in 1991, Russia joined the WTO in 2012
  7. A fast changing shift in the balance of economic and financial power from developed to emerging economies and markets – i.e. a change in the centre of gravity in the world economy
  8. Increasing spending on investment, innovation and infrastructure across large parts of the world
  9. Globalisation is a process of making the world economy more inter-dependent
  10. Many of the industrializing countries are winning a rising share of world trade and their economies are growing faster than in richer developed nations especially after the global financial crisis (GFC)
Globalisation to localisation?
Graphic evidence of the container principle at work!

Among the main drivers of globalisation are the following:

  • Containerisation – the costs of ocean shipping have come down, due to containerization, bulk shipping, and other efficiencies. The lower cost of shipping products around the global economy helps to bring prices in the country of manufacture closer to prices in the export market, and makes markets more contestable in an international sense.
  • Technological change – reducing the cost of transmitting and communicating information – sometimes known as “the death of distance" – a key factor behind trade in knowledge products using web technology
  • Economies of scale: Many economists believe that there has been an increase in the minimum efficient scale (MES) associated with particular industries. If the MES is rising, a domestic market may be regarded as too small to satisfy the selling needs of these industries.
  • Opening up of global financial markets: This has included the removal of capital controls in many countries facilitating foreign direct investment.
  • Differences in tax systems: The desire of corporations to benefit from lower unit labour costs and other favourable factor endowments abroad and develop and exploit fresh comparative advantages in production has encouraged countries to adjust their tax systems to attract foreign direct investment (FDI)
  • Less protectionism - old forms of non-tariff protection such as import licencing and foreign exchange controls have gradually been dismantled. Borders have opened and average tariff levels have fallen – that said in the last few years there has been a rise in protectionism as countries have struggled to achieve growth after the global financial crisis.
  • The table below tracks average import tariffs since 1991.
Average Most Favoured Nation Applied Import Tariffs (%) 1991 2001 2009
Developing Countries (134 countries) 27.7 13.5 9.9
Low Income Developing Countries (42 countries) 44.4 14.4 11.8
Source: World Bank

The breakdown of the Doha trade talks a few years back dashed hopes of a globally based multi-lateral reduction in import tariffs and other trade barriers

In its place there has been a rising number of bi-lateral trade deals and the emergence of regional trading blocs such as NAFTA, MECOSUR and plans for a new Trans-Pacific Partnership (TPP)

Globalization no longer necessarily requires a business to own or have a physical presence in terms of either owning production plants or land in other countries, or even exports and imports. Many businesses use licensing and franchising to help expand their overseas operations.

Aspect of globalisation

Links for further exploration

Transfer of financial capital and great FDI

FDI – which countries get the most?

Transfers of technology and information

Guardian article on technology transfer

Outsourcing and offshoring

Is the out-sourcing of jobs in cheaper overseas countries now reversing?

Labour migration within and between the world's economies

Interview with economist Ken Rogoff – Where will all of the workers go?

Development of global brands

Top global brands in 2014

Aspects of globalisation
CPD courses

Teaching Behavioural Economics at A Level

This new course supports colleagues delivering the behavioural economics teaching content for the new AQA A Level Economics specification from September 2015.

Learn more ›

Teaching & learning products

AQA AS Economics Worked Answers (2014)

Exemplar A Grade answers to the AQA ECON1 and ECON2 exam papers in summer 2014


OCR Economics Year 1 (AS) Teacher PowerPoint Presentations

This resource comprises a complete collection of editable PowerPoint presentations that are ideal for teaching individual topics for the whole Year 1 (AS) teaching content. Each presentation has a consistent, clear and professional format and maps precisely to the OCR specification teaching content.