Effects of changes in globalisation on economic development

International Trade and Globalisation – Globalisation and Trade Restrictions

Learning Objective

Explain how changes in the level of globalisation affect economic development, using examples from both developed and developing economies.

1. What is Globalisation?

Globalisation is the increasing integration of national economies through the growth of international trade, investment, migration and the spread of technology and ideas.

2. Main Forms of Trade Restrictions

• Tariffs – taxes on imported goods.
• Quotas – limits on the quantity of a good that can be imported.
• Subsidies – financial assistance to domestic producers to make them more competitive.
• Non‑Tariff Barriers (NTBs) – standards, licences, or regulations that make imports more difficult.

3. How Trade Restrictions Influence Globalisation

Trade restrictions reduce the flow of goods, services, capital and ideas, thereby slowing the process of globalisation. Conversely, the removal or reduction of these barriers accelerates globalisation.

4. Effects of Increased Globalisation on Economic Development

1. Higher Economic Growth – access to larger markets allows firms to achieve economies of scale.
2. Technology Transfer – foreign direct investment (FDI) brings new technologies and managerial expertise.
3. Improved Consumer Choice – imports increase variety and can lower prices.
4. Specialisation – countries can focus on producing goods where they have a comparative advantage.
5. Potential Downsides

   • Increased income inequality if gains are concentrated in certain sectors.
   • Dependence on external markets, making economies vulnerable to global shocks.
   • Environmental degradation from higher production and transport.

5. Effects of Reduced Globalisation (Protectionism) on Economic Development

1. Short‑term Domestic Industry Protection – tariffs and quotas can shield nascent industries (infant‑industry argument).
2. Higher Prices for Consumers – reduced competition often leads to higher domestic prices.
3. Reduced Efficiency – firms may lack incentives to innovate.
4. Trade Retaliation – other countries may impose their own restrictions, shrinking export markets.
5. Long‑term Growth Risks – isolation can limit technology transfer and foreign investment.

6. Comparative Impact on Different Economies

7. Key Economic Indicators Affected by Globalisation

Some useful formulas:

• Terms of Trade (ToT): \$\text{ToT} = \frac{\text{Export Price Index}}{\text{Import Price Index}} \times 100\$
• Real GDP Growth (using the expenditure approach): \$\Delta Y = C + I + G + (X - M)\$ where \$X\$ is exports and \$M\$ is imports.

8. Case Study Summaries

China (2000‑2020) – Rapid liberalisation, massive FDI inflows, and export‑led growth lifted hundreds of millions out of poverty, but also created regional income gaps.

United Kingdom (Brexit, 2016‑2022) – Reduction in trade integration led to short‑term uncertainty for exporters, higher import costs, and debates over long‑term growth prospects.

9. Summary Checklist for Exam Answers

• Define globalisation and trade restrictions.
• Explain how each type of restriction affects the flow of goods, services, capital and ideas.
• Discuss both positive and negative effects of increased globalisation on economic development.
• Contrast the impact on developed versus developing economies.
• Use appropriate economic terminology (e.g., comparative advantage, terms of trade, FDI).
• Support arguments with real‑world examples.