表格 1
Globalization
Positive
Impacts of
globalization
on living
standards
(1) Impact on potential economic growth: Globalization can lead to increased investment, technology transfer, and greater specialization, all of which can
expand an economy's production capacity.
(a) Use PPF diagram to show the increase of production capacity.
(b) Explain the funding for increasing investment in low-income countries: international aid, FDI by MNCs, loans (external debts)
(c) Relate it to living standards
(2) Impact on actual economic growth:
(a) If globalization increases foreign investment, it increase AD in the short run.
(b) If globalization increases net export, it increases AD.
(c) Use circular flow of income model to interpret foreign investment and export as injections into the economy.
(d) Use AD/AS analysis to illustrate the consequence on output growth (Never forget the multiplier effect).
(e) Relate it to living standards
(3) Effect on other economic variables:
(a) Employment: Increased production creates jobs, reducing unemployment and underemployment. Discuss both direct employment in new ventures and
indirect employment in supporting industries.
(b) Interest rates: Discuss how capital inflows might affect domestic interest rates. An influx of foreign capital could potentially lower borrowing costs for
domestic firms.
(c) Balance of payments: Analyze how globalisation affects both the current account (through changes in exports and imports) and the capital/financial account
(through investment flows).
(d) Tax revenue: Increased tax revenue can fund public services.
(e) Human capital: Skills and knowledge transfer can improve human capital.
(f) Relate them to living standards
Negative
Impacts of
globalization
on living
standards
(1) Destruction of indigenous industries
(2) Creation of monopolies that exploit consumers
(3) Transfer pricing practices that reduce tax revenue:
(4) Low-skilled job creation while higher positions go to expatriates
(5) Exploitation of resources without respect for local customs
(6) Private capital is often reluctant to allow debt forgiveness when economic trouble affects a country
Benefits of
globalization
for highincome
countries
(1) From international trade
(a) access to a wide range of goods and services
(b) access to cheap consumption goods, raw materials, and intermediate goods produced in low-income countries
(c) imbalance in trade in favor of high-income countries (export high value-added goods, import primary goods, may establish monopoly)
(2) From FDI in low-income countries
(a) Reduce production costs, due to lower costs of factors of production (raw materials, natural resources, labour, and land) in low-income countries.
(b) If profit can be brought home, increase high-income countries NI and tax revenue.
(c) Focus on R&D in home country, promoting innovation and technological advancement.
(d) Easy access to resources in low-income countries.
(e) Tax cuts and subsidies from hosting country.
(f) Exemption from pollution controls, hence lower production costs.
Costs of
globalization
for highincome
contries
(1) Cheaper imports may destroy local competing industries, reduce demand for domestic products
(2) Technology spill-over may benefit other countries, reducing the competitiveness of domestic industry
(3) FDI creates structural unemployment in the home country
(4) Sometimes profit earned abroad cannot be brought home.
Benefits of
globalization
for low-income
countries
(1) From international trade
(a) specialization increases productivity
(b) access to a larger variety of goods, particularly high-tech, high-value added goods the low-income countries cannot produce
(c) the lower price of imports increases CS
(2) From FDI
(a) more investment increases production capacity and productivity
(b) technology transfer enhances productivity
(c) MNCs hire locals, increase employment, hence income
(d) products sold globally, hence increase exports
(e) more production and hence more tax revenue for the hosting country
Costs of
globalization
for low-income
countries
(1) From international trade:
(a) Exports of primary products is vulnerable to supply-shocks, and hence have unstable export revenue.
(b) Low-price imports can easily destroy less competitive local industry
(2) From FDI by MNCs:
(a) MNCs can replace domestic firms
(b) Deplete hosting country's resources
(c) Hosting country cannot benefit from MNCs if they send profit back home
(d) MNCs may influence domestic policy of the hosting country
(e) MNCs may be exempt from pollution and cause environmental problems
(f) Tax cuts offered by the hosting country will not increase its tax revenue.
(g) Increase low-skill employment only.
The problems
of imposing
tariffs
(1) Retaliated by other country
(2) reduce efficiency by generating deadweight loss
(3) consumers will face higher prices, hence reduce consumer surplus
(4) consumers have less choices on the variety of goods
(5) overprotection for inefficient firms will have negative impact on productivity in the long run.
表格 1
Chapter 53: Globalization
Nr
Key Concepts
Key Analysis and Evaluation
1
(1) globalization
(2) living standards
(3) high & low-income
countries
positive and negative impacts of globalization on
living standard for (a) low-income and (b) highincome countries
2
trade blocs
(1) trade creation
(2) trade diversion
3
tariff
impacts of tariff (graphical analysis)
the problems of imposing tariffs
Remarks
Past Paper
Questions
• Jun 2024 P42
Q5
• Nov 2023 P41
Q5
see the
supplementary
material
• Nov 2024 P41
Q5