Factors Contributing to Increased Globalisation (Edexcel A Level Business): Revision Note

Trade liberalisation

• Trade liberalisation is the removal or reduction of barriers to trade between different countries

• Trade liberalisation can happen in several ways

  • Reducing or eliminating tariffs

    • Tariffs are taxes on imported goods

  • Removing quotas

    • Quotas are limits on the quantity of goods that can be imported

  • Cutting subsidies

    • Subsidies are government support that gives domestic producers an advantage over foreign competitors

  • Signing trade agreements

    • Countries negotiate deals to lower barriers between them, either bilaterally (between two countries) or by joining a trading bloc

Example

The UK officially joined the CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) in December 2024, becoming the first European member of the 12-country trade bloc

Over 99% of current UK exports to CPTPP member countries are now eligible for tariff-free trade

Evaluation of trade liberalisation

Influences on globalisation

• There are many reasons for the increasing levels of globalisation

• The context of an individual country determines which of these reasons has had the greatest impact on its economy

Example

The USA has lost numerous manufacturing sectors as production has moved to lower-cost countries such as India and China

Reasons for increased globalisation

Political change

• Changes in the government of a country can influence the country's attitude to trade

  • E.g. China joined the World Trade Organisation in 2001, which led to a significant increase in its exports

Reduced cost of transport and communication

• Economies of scale due to innovation in containerisation on large ships have reduced business costs

• Technological advancements due to the internet/mobile technology have made it easier for buyers and sellers to connect with one another 

Increased significance of global companies

• A transnational company is a business that operates in more than one country

• These businesses will have their headquarters in one country but have branches in other countries

  • E.g. Nike has its headquarters in Oregon, United States. As of 2022, it has 1,046 retail stores throughout the world

• With increasing numbers of transnational companies operating globally, there is increased pressure on countries to engage in free trade

Increased investment flows (FDI)

• Foreign direct investment (FDI) is important for job and wealth creation within an economy

• It allows businesses to establish themselves in countries where they may face trade barriers

Migration (within and between economies) 

• Migration is the movement of people from one location to another

• Migration has led to increased globalisation, as better transportation and deregulation have allowed workers to have more flexibility when looking for work

  • E.g. in 2022, the United Arab Emirates had the highest proportion of immigrants, at 88%

Growth of the global labour force

• The global labour force has grown significantly, especially due to the growth of emerging economies such as India and China

• This has increased globalisation due to the following reasons: 

  • More people working means more income to spend on goods and services, boosting global demand

  • An increased supply of labour leads to falling wages, which is beneficial in reducing business costs

  • More people working generates increased levels of entrepreneurship

Trade liberalisation

• Reducing or removing trade barriers, such as tariffs and quotas, makes it easier and cheaper for businesses to export and import goods across borders, encouraging international trade

• With fewer restrictions, businesses can more easily expand into new markets

• This can lead to stronger economic links between countries and greater global interdependence

Structural change

• Structural change occurs when a country, industry or market changes which sector it primarily operates in

  • For example moving away from agriculture and manufacturing and towards services

• As countries develop, resources and labour shift towards higher-value sectors

• This can make a country a more attractive location for certain types of business and increase its participation in global trade

• Offshoring production to other countries is a common feature of structural change

• It speeds up the process of globalisation by shifting manufacturing towards countries where it can be produced more cheaply

Structural change in the UK

• The UK has undergone significant structural change over the past 35 years

Economic sectors as a share of GDP in the UK 1990-2025

• Services now account for around 73% of UK economic output, while manufacturing accounts for under around 17%, changing the types of goods and services the UK trades internationally