IGCSE Economics – Globalisation and Trade Restrictions
International Trade and Globalisation
Topic: Globalisation and Trade Restrictions
Objective: Causes of changes in globalisation – changes in transport costs
Transport costs are a key determinant of the volume and pattern of international trade. A fall in these costs makes it cheaper to move goods across borders, encouraging firms to export and import, and thereby deepening globalisation.
How transport costs affect globalisation
Lower costs increase the profitability of exporting marginally competitive products.
Reductions expand the range of goods that can be traded profitably (e.g., per‑ishable items).
They influence the location of production – firms may relocate to countries with lower labour costs if transport is cheap.
Reduced costs stimulate foreign direct investment (FDI) as firms set up overseas facilities to serve regional markets.
More fuel‑efficient aircraft reduce per‑tonne costs.
Expansion of cargo hubs and dedicated freight airlines.
Infrastructure investment
Modern highways, rail networks and inland waterways lower inland transport costs.
Improved customs and border procedures (e.g., single‑window systems).
Energy prices
Fluctuations in oil prices directly affect shipping and aviation costs.
Shift to alternative fuels (LNG, biofuels) can alter cost structures.
Deregulation and liberalisation
Removal of cabotage restrictions allows foreign vessels to operate on domestic routes.
Open skies agreements reduce air freight barriers.
Quantifying the impact of transport cost changes
The relationship between transport cost (\$TC\$) and trade volume (\$TV\$) can be expressed simply as:
\$TV = f\left(\frac{1}{TC}\right)\$
Where a decrease in \$TC\$ leads to an increase in \$TV\$, holding other factors constant.
Case study: Containerisation
Year
Average cost per TEU (USD)
Key development
1970
1,200
First container ships
1990
600
Standardisation of 20‑ft containers
2010
300
Ultra‑large vessels (20,000+ TEU)
2020
250
Automation in ports
From 1970 to 2020 the cost of moving a twenty‑foot equivalent unit (TEU) fell by roughly 80 %, illustrating how technological progress can dramatically lower transport costs and boost global trade.
Implications for IGCSE students
Understand that transport costs are a variable cost that can shift the comparative advantage of nations.
Be able to explain how reductions in these costs lead to increased imports, exports, and FDI.
Use simple diagrams (e.g., supply‑demand for exports) to illustrate the effect of lower transport costs on export supply.
Suggested diagram: Export supply curve shifting rightward as transport costs fall, showing increased quantity exported at each price level.
Key points to remember
Transport costs encompass shipping, air freight, inland haulage and related logistics.
Technological innovation, infrastructure, energy prices and policy reforms are the main drivers of cost changes.
Lower transport costs expand the range of tradable goods, increase trade volumes, and can alter the location of production.
Students should link transport cost changes to concepts of comparative advantage, trade patterns and globalisation.