Political & Economic Decision Making (Edexcel A Level Geography)

Politics & Economics of Globalisation

• Globalisation can be viewed as a threat so governments sometimes try to protect themselves from global flows such as Foreign Direct Investment (FDI) from TNCs
• International Organisations work with countries to encourage them to consider the idea of a global economy differently

 The Role of International Organisations in Globalisation

National Governments Role

• National governments play a vital role in globalisation when they implement strategies to encourage the growth of TNCs, for example:
• Free trade blocs
• Special Economic Zones (SEZs)
• Tax Incentives
• Free-market liberalisation
• Privatisation
• Business start-ups

Free Trade Blocs

• Free Trade Blocs allow governments to trade freely with neighbouring countries and allies which brings many benefits:
• Companies grow as they gain access to more customers
• A bigger market increases demand of products and services
• Smaller companies can merge to form TNCs reducing production costs

Free Trade Blocs

Government Policies

•  The growth of TNCs can be encouraged through a range of government policies:
• Free-market liberalisation – lifting restrictions for companies and banks reducing the costs for TNCs to locate and operate in these countries
• Privatisation – allowing companies to take over important national services e.g., railway and energy supply to reduce government spending. This is attractive to TNCs as they would gain a stake in vital services
• Encouraging business start-ups – aims to increase profits for businesses by using strategies such as low business taxes and changes in the law, for example the UK became more attractive to TNCs when Sunday trading was introduced in 1994

The Spread of Globalisation

• Changing attitudes in regions outside of Europe has contributed to the increase of globalisation in recent decades
• There are three approaches that have played a vital role:
• Special Economic Zones (SEZs) – the industrial areas, near the coast, where favourable conditions have been created to attract TNCs
• Government subsidies - an incentive for TNCs to locate in these countries as costs will be reduced
• Changing attitudes to FDI – countries working to attract FDI to increase their global presence, for example Saudi Arabia changed its official weekend to Friday-Saturday to be more in line with other countries to be able to participate in the global market
• China’s ‘Open Door Policy’
• Introduced in 1978 to begin opening up to FDI whilst remaining under a one-party rule
• Rapid urbanisation occurred with over 300 million people leaving rural areas which lead to an increase in low-wage factories in urban areas
• SEZs were created which attracted TNCs, leading to rapid economic growth
• China is the world’s largest economy but is still not entirely open to global flows
  
  

China’s Special Economic Zones