IGCSE Economics – Globalisation and Trade Restrictions
International Trade and Globalisation – IGCSE Economics (0455)
1. Globalisation and Trade Restrictions
Globalisation is the increasing integration of world economies through the growth of international trade, investment, migration and the spread of technology. Trade restrictions are government policies that limit this integration. The main types of restrictions are:
Tariffs – taxes on imported goods.
Import quotas – limits on the quantity of a good that can be imported.
Export subsidies – payments to domestic producers to encourage export.
Non‑tariff barriers (NTBs) – standards, licences or bans that make imports more difficult.
These measures affect the level of globalisation by either slowing the flow of goods, services and capital or by encouraging it when restrictions are reduced.
2. Effects of Changes in Globalisation on Income Distribution
When a country becomes more open to international trade, the impact on income distribution can be understood through the following mechanisms:
Factor‑price equalisation – Trade allows each country to specialise according to its comparative advantage. In the long run, the price of a factor (labour, capital, land) tends to move towards a world‑wide level. This can raise the real income of abundant factors and lower it for scarce factors.
Skill‑premium effect – Globalisation often increases demand for skilled labour (which can more easily adapt to new technologies and produce higher‑value goods). The wage differential between skilled and unskilled workers therefore widens.
Changes in consumer surplus – Lower import prices increase consumer surplus, benefiting households that spend a larger share of income on imported goods (typically low‑income households).
Profit redistribution – Owners of capital and land that are used in export‑oriented industries may see higher returns, while owners of capital in protected industries may lose income.
Regional disparities – Areas that specialise in export‑oriented sectors (e.g., coastal manufacturing zones) may experience higher growth than regions reliant on protected, low‑productivity industries.
3. Summary Table – Who Gains and Who Loses?
Group
Effect of Increased Globalisation
Reason
Skilled workers
Higher real wages
Increased demand for skills in export‑oriented, technology‑intensive sectors.
Unskilled workers
Potential wage decline or stagnation
Competition from cheaper imported goods and off‑shoring of low‑skill jobs.
Owners of capital in export sectors
Higher returns on investment
Access to larger markets and economies of scale.
Owners of capital in protected sectors
Lower returns
Loss of tariff protection reduces market share.
Landowners (agriculture)
Mixed impact
Export‑oriented crops benefit, while protection of domestic staples may hurt other landowners.
Consumers (all income groups)
Increased consumer surplus
Lower prices and greater variety of imported goods.
Suggested diagram: A graph showing two countries with different relative endowments of labour and capital. The diagram illustrates how opening to trade moves the wage rate (w) and the rental rate of capital (r) towards a common world equilibrium, narrowing the wage gap between the two countries.
5. Key Points to Remember for Exam Answers
Explain the direction of change (increase or decrease) in each group’s income when globalisation rises.
Link the change to a specific mechanism (e.g., skill premium, factor‑price equalisation, consumer surplus).
Use real‑world examples where possible (e.g., textile factories moving to low‑wage countries, technology firms expanding into emerging markets).
Discuss both short‑run and long‑run effects, noting that some groups may experience temporary losses before adjustments occur.