37
Here’s a simplified and clear explanation of the content you’ve shared, broken
into sections for better comprehension and retaining all key points:
37.1 Globalisation
Definition:
Globalisation is the process where the world is increasingly interconnected as a
single market. This happens through reduced barriers in buying and producing
goods worldwide, leading to more global brands and multinational companies
(MNCs).
Reasons for Globalisation:
. Reduced Transport Costs:
Advancements in shipping (containerisation), airplanes, and trains
have made moving goods cheaper.
. Advances in Communication:
○ Consumers can shop online globally.
○ Multinational companies can easily manage foreign branches
remotely.
. Removal of Trade Restrictions:
Reduction of tariffs (taxes on imports) and quotas (limits on imports).
Consequences of Globalisation:
● Advantages:
○ More competition leads to lower prices and a wider range of
products for consumers.
○ Firms can produce efficiently by choosing the best locations.
● Disadvantages:
○ Economies are vulnerable to external shocks (e.g., recessions in
one country can impact others).
○ Governments have less control over policies (e.g., fear of losing
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MNCs due to high taxes).
○ Structural unemployment may occur as MNCs relocate.
○ Workers need to adapt and be more occupationally mobile.
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37.2 Role of Multinational Companies (MNCs)
Definition:
MNCs are businesses that produce goods/services in multiple countries.
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Examples include McDonald’s (US), Toyota (Japan), and Tata (India).
Reasons MNCs Operate Globally:
● Lower transport costs by producing near consumers.
● Avoid import restrictions in target countries.
● Access cheaper labor and raw materials.
● Potential grants and incentives from host governments.
Impact of MNCs on Host Countries:
● Positive Effects:
○ Increased employment, output, and tax revenue.
○ Transfer of technology and management practices.
○ Development of infrastructure.
● Negative Effects:
○ Environmental damage and poor safety standards.
○ Pressure on governments for tax breaks.
○ May drive local firms out of business.
○ Profits often go to shareholders abroad, not reinvested locally.
Global Trends:
● MNCs divide their production processes across countries to maximize
efficiency. For example, designing in one country, assembling in
another, and marketing elsewhere.
37.3 Benefits of Free Trade
Definition:
Free trade means no restrictions like tariffs, quotas, or taxes on imports/
exports.
Advantages of Free Trade:
● Efficient resource allocation as countries focus on what they produce
best (comparative advantage).
● Higher global output, employment, and living standards.
● Economies of scale (firms produce more at lower costs).
● Access to better quality, more affordable, and diverse products for
consumers.
37.4 Methods of Protection
Definition:
Protectionism restricts free trade to shield domestic industries from foreign
competition.
Methods of Protection:
. Tariffs:
○ Tax on imports to make foreign goods more expensive than local
ones.
. Quotas:
○ Limits on the quantity of imports (e.g., only 40,000 cars allowed).
. Embargo:
○ Ban on certain imports or trade with specific countries (e.g., for
political reasons).
. Exchange Control:
○ Restricting foreign currency availability to limit imports.
. Quality Standards:
○ Setting high standards for imports to discourage foreign goods or
raise their costs.
. Paperwork:
○ Time-consuming processes for foreign firms may deter them.
. Voluntary Export Restraints (VERs):
○ Agreements between countries to limit exports.
. Subsidies:
○ Government funding to domestic industries to make their goods
cheaper than imports.
. Export Restrictions:
○ Bans on exporting goods to prevent shortages at home.
37.5 Reasons for and Consequences of Protection
Reasons for Protectionism:
. Infant Industries:
○ New industries need protection to grow and compete
internationally. However, some may misuse protection and remain
inefficient.
. Declining Industries:
○ Gradual protection can prevent mass unemployment in industries
that are shrinking.
. Strategic Industries:
○ Essential sectors like agriculture or defense need protection to
ensure self-sufficiency during crises.
. Employment:
○ Reducing imports can help local firms grow and hire more workers.
However, retaliation from other countries could harm exports and
overall trade.
. Low-Wage Competition:
○ Protection is often unnecessary because low wages don’t always
mean low production costs.
. Dumping Prevention:
○ Dumping occurs when foreign firms sell below production cost to
eliminate competition. Protection ensures fair trade.
. Unfair Foreign Competition:
○ Some foreign firms receive subsidies from their governments,
creating an unfair advantage.
Arguments Against Protectionism:
● Leads to higher prices, less choice, and inefficiency.
● Retaliation from other countries can hurt trade and employment.
I’ve explained all points in simpler terms while keeping the information
comprehensive. Let me know if you need further clarification or additional help!
Good luck with your exam, Iva!
