AQA Specification focus:
‘The consequences of globalisation for less-developed and for more-developed countries.’
Globalisation has reshaped economic structures worldwide, influencing trade, investment, employment, and living standards. Its consequences differ significantly for developed and developing countries, creating both opportunities and challenges.
This chart depicts the remarkable growth in world trade over the past two centuries, illustrating the integration of national economies into a global economic system. It highlights the significant increase in international trade, particularly after World War II, reflecting the effects of globalisation on economic growth. Source
Consequences of Globalisation for Developed Countries
Economic Growth and Efficiency
Developed economies often benefit from increased specialisation and access to wider markets. By focusing on industries where they hold a comparative advantage (producing goods at a lower opportunity cost), these countries can improve efficiency and raise overall output.
Consumer Benefits
Greater product variety and choice.
Lower prices due to competition from global producers.
Higher quality goods from multinational corporations (MNCs) investing in research and development.
Employment and Wages
While globalisation can create jobs in export industries, it may also lead to:
Structural unemployment: industries such as textiles may decline in advanced economies due to cheaper imports.
Wage pressures from competition with low-wage countries.
Inequality
Globalisation often contributes to widening income inequality:
High-skilled workers in developed economies benefit from increased demand.
Low-skilled workers face stagnant wages or job losses.
Political and Economic Influence
Developed countries, through institutions such as the IMF and WTO, often shape the global economic system, reinforcing their economic power. However, reliance on global supply chains can expose them to risks, as seen in financial crises and pandemic disruptions.
Consequences of Globalisation for Developing Countries
Economic Growth and Investment
Developing countries often attract foreign direct investment (FDI) from multinational corporations.
Foreign Direct Investment (FDI): Long-term investment by a company in business operations in another country, such as building factories or acquiring businesses.
FDI supports infrastructure, industrialisation, and technology transfer. For many economies, globalisation has accelerated GDP growth and lifted millions out of poverty, particularly in East Asia.
Employment and Living Standards
Globalisation creates new job opportunities in manufacturing and services.
Workers gain from training and skills development provided by MNCs.
However, poor working conditions, low wages, and labour exploitation remain concerns in export-oriented industries.
Export Growth
Developing countries gain access to global markets, enabling them to specialise in agricultural or manufactured goods. This can generate much-needed foreign currency for imports and debt repayment.
Risks of Dependency
Overreliance on primary product exports can expose economies to commodity price volatility.
Dependence on FDI may limit domestic control over key industries.
‘Race to the bottom’ policies, where countries reduce environmental and labour standards to attract investment, can have long-term costs.
Inequality and Poverty
Globalisation can reduce extreme poverty by generating growth, but:
The benefits are often unevenly distributed.
Urban areas prosper, while rural populations may be left behind.
Wealth gaps within countries may widen, mirroring trends in developed economies.
This diagram illustrates the positive and negative impacts of globalisation on developing countries. It highlights how globalisation can lead to economic growth and improved living standards, while also posing challenges such as income inequality and dependency on foreign investment. Source
Comparative Consequences: Developed vs Developing Countries
Technology and Knowledge Transfer
Developed countries lead innovation, exporting new technologies and management practices.
Developing countries benefit through technology diffusion, but often remain dependent on developed economies for advanced production techniques.
Balance of Payments
Developed countries often run current account deficits due to high imports from developing economies.
Developing countries improve trade balances through manufactured exports, though many remain vulnerable to global demand fluctuations.
Vulnerability to Shocks
Developed countries are heavily integrated into global financial systems, so crises spread rapidly.
Developing countries face volatility in capital inflows, making them more prone to debt crises when global conditions worsen.
Cultural and Social Impacts
Developed economies may see cultural homogenisation and loss of local traditions due to global media.
Developing countries experience rapid urbanisation and lifestyle changes, which can raise aspirations but also strain social systems.
Key Points for Evaluation
Globalisation has raised living standards in many regions but unevenly.
For developed countries, the challenge lies in managing structural adjustment and inequality.
For developing countries, the challenge lies in avoiding overdependence, ensuring sustainable growth, and addressing social issues linked to rapid economic change.
Layered Consequences: Winners and Losers
Winners
High-skilled workers in developed economies.
Emerging economies with competitive industries.
Consumers worldwide benefiting from lower prices and variety.
Losers
Low-skilled workers in developed economies.
Least-developed countries unable to integrate effectively.
Small domestic firms facing competition from global corporations.
Globalisation’s consequences must therefore be understood as complex and multidimensional, creating opportunities for growth but also risks of inequality and dependency across both developed and developing nations.
FAQ
Globalisation often reduces the bargaining power of low-skilled workers in developed countries because firms can outsource production to countries with lower labour costs.
Unions may face challenges in protecting workers, as employers use the threat of relocation to negotiate lower wages or reduced benefits. High-skilled workers, however, may see their bargaining power increase due to global demand for their expertise.
Globalisation can lead to the emergence of a dual economy where modern, globally integrated sectors grow alongside traditional, less productive sectors.
Export-oriented industries, often supported by foreign direct investment, provide higher wages and better conditions.
Rural agriculture or informal sectors may remain underdeveloped, causing a sharp divide between urban and rural incomes.
This duality can exacerbate inequality and limit inclusive development.
Technology transfer occurs when multinational corporations introduce new production methods, skills, and management practices.
This can raise productivity and enhance competitiveness, helping developing countries climb the value chain. However, technology is not always shared widely, and domestic firms may remain dependent on foreign expertise, limiting long-term development.
Governments often adjust policies to attract foreign investment and integrate into global markets.
Tax incentives or relaxed labour laws may be introduced to appeal to multinational corporations.
However, this can restrict government ability to regulate effectively or prioritise domestic development goals.
Globalisation can therefore narrow policy autonomy, with external investors influencing domestic priorities.
Globalisation strengthens interdependence between economies, making them more exposed to global fluctuations.
Developed countries may face financial instability spreading rapidly through integrated capital markets.
Developing countries risk sudden withdrawal of investment or falling export revenues during global downturns.
This interconnectedness means that crises in one part of the world can quickly affect employment, incomes, and government finances elsewhere.
Practice Questions
Identify one positive and one negative consequence of globalisation for developed countries. (2 marks)
1 mark for correctly identifying a positive consequence, e.g. access to cheaper imports, wider consumer choice, efficiency gains.
1 mark for correctly identifying a negative consequence, e.g. structural unemployment, wage pressures for low-skilled workers, income inequality.
Explain two ways in which globalisation can affect income inequality in developing countries. (6 marks)
Up to 3 marks for each explanation (2 x 3 = 6).
1 mark for identifying the effect (e.g. globalisation can reduce poverty through job creation, or globalisation can widen inequality within a country).
1 mark for developing the explanation (e.g. MNCs provide employment opportunities that lift workers out of poverty, especially in manufacturing and services).
1 mark for further development or use of an example (e.g. urban workers benefit more than rural populations, leading to widening regional disparities).
Maximum 6 marks.
