# Globalisation and its impacts

> IB Economics Higher Level · IB 2025+ Syllabus
> Source: https://www.owlsprep.com/study/ib-economics-hl-u4-globalisation-and-its-impacts/

This sub-topic explores the definition, core drivers and multi-faceted impacts of globalisation on developed and developing economies, covering distributional effects, stakeholder outcomes and implications for growth and development.

**Prerequisites:** [Comparative advantage and international trade](https://www.owlsprep.com/study/ib-economics-hl-u4-comparative-advantage/); [Foreign direct investment (FDI)](https://www.owlsprep.com/study/ib-economics-hl-u4-foreign-direct-investment/)

## Learning objectives

- Define globalisation and identify its core drivers
- Evaluate positive and negative impacts of globalisation across different stakeholder groups
- Analyze how globalisation affects economic growth and development in developed and developing economies
- Apply concepts to exam-style evaluation questions

## Definition and Core Drivers of Globalisation

**Globalisation** — The increasing integration of national economies into a broader global economic system, characterized by free movement of goods, services, capital, labor and technology across international borders.

*Example:* Global electronics supply chains, where components are manufactured in 5+ countries and assembled in one location for global sale.

Globalisation has accelerated dramatically since the 1980s, driven by a combination of policy, technological and institutional changes:

- **Policy drivers**: Trade liberalization, financial market deregulation, privatization, and removal of restrictions on foreign investment.
- **Technological drivers**: Reduced transport costs (containerization), ICT revolution enabling cheap instant cross-border communication, and improved logistics for global supply chains.
- **Institutional drivers**: Expansion of the WTO and regional trade blocs that facilitate cross-border trade and investment.

> **info**
>
> While we focus on economic globalisation here, IB exams may also reference social and political integration in extended response questions.

**Worked example:** Identify two technological drivers and one policy driver of globalisation that enabled the growth of global call centres.

1. First, the two key technological drivers are:
2. 1. High-speed internet and VoIP technology enable cheap, high-quality real-time communication between customers in high-income countries and agents in lower-income countries.
3. 2. Cloud-based data storage allows customer information to be accessed instantly anywhere in the world, with low operating costs.
4. The key policy driver is liberalization of trade in services: many countries relaxed restrictions on foreign ownership of business service firms, allowing multinationals to set up low-cost operations in countries like India and the Philippines.

## Positive Impacts of Globalisation

Globalisation generates net economic benefits for most economies, rooted in the principle of comparative advantage. Key positive impacts include:

- Increased specialization according to comparative advantage, raising global output, lowering consumer prices, and improving allocative efficiency.
- FDI flows to developing countries bring capital, technology transfer, job creation, and tax revenue for host governments.
- Greater competition between domestic and foreign firms reduces monopoly power, encourages innovation, and lowers prices.
- Consumers gain access to a wider variety of goods and services, and producers gain access to larger global export markets.

**Worked example:** Explain one potential positive impact of globalisation on a low-income developing country.

1. Take the example of Vietnam joining the WTO in 2007, which greatly increased its global integration.
2. Reduced tariffs on Vietnamese exports allowed foreign firms to source clothing and electronics from Vietnam, leading to a surge of FDI into export-oriented manufacturing.
3. This FDI created millions of formal sector jobs for low-skilled workers, many moving from low-productivity agriculture into higher-wage manufacturing. This raised average incomes and cut absolute poverty by more than half between 2000 and 2020.
4. Additional tax revenue also allowed the government to invest in public education and healthcare, supporting long-term economic development.

## Negative Impacts of Globalisation

While globalisation creates net overall gains, it also produces significant negative impacts, especially for vulnerable groups and the environment:

- Increased income inequality within and between countries, with gains concentrated among skilled workers and capital owners.
- Risk of labor exploitation and poor working conditions in developing countries, as firms compete for the lowest production costs.
- Environmental degradation: higher transport emissions, and a race to the bottom in environmental standards to attract FDI.
- Increased vulnerability to global economic shocks: recessions in one major economy spread quickly through trade and financial links.
- Erosion of national policy sovereignty: trade agreements can restrict governments' ability to regulate for public interest.

**Worked example:** Explain how globalisation can lead to structural unemployment in a developed country.

1. Consider the US manufacturing sector since the 1990s.
2. Trade liberalization and falling transport costs allowed firms to move manufacturing production from the high-wage US to low-wage countries like China and Mexico.
3. This led to mass closure of manufacturing plants across the US Midwest, leaving many low-skilled manufacturing workers unemployed.
4. Most of these workers were unable to transition to growing high-skill sectors like tech, leading to long-term structural unemployment and persistent wage decline in affected regions.

## Differentiating Impacts Across Stakeholders

Impacts of globalisation vary sharply across different stakeholder groups, which is the most common focus of IB evaluation essays on this topic:

| Stakeholder | Typical Positive Impacts | Typical Negative Impacts |
| --- | --- | --- |
| MNCs | Lower costs, larger consumer markets | Higher regulatory and competitive risk |
| Developed country consumers | Lower prices, more variety | Job insecurity in import sectors |
| Developed country low-skilled workers | Lower prices for consumer goods | Structural unemployment, wage stagnation |
| Developing country low-skilled workers | New formal jobs, higher wages than agriculture | Risk of poor working conditions, low pay |
| Small domestic firms in developing countries | Access to export markets | Increased competition from large MNCs |

**Worked example:** Evaluate the impact of globalisation on two different stakeholder groups in a developing country.

1. First, consider skilled urban workers in Kenya:
2. These workers typically benefit: MNCs setting up operations in Kenya hire skilled local workers for management and technical roles, paying higher wages than most domestic firms, with access to better training and career development.
3. Next, consider small-scale subsistence farmers in rural Kenya:
4. These farmers are often harmed: trade liberalization forces them to compete with heavily subsidized agricultural imports from the EU and US, which are sold at artificially low prices. Most small-scale farmers cannot compete, leading to lost income and farm closure.
5. Overall, gains from globalisation are highly uneven across these two groups, with skilled urban workers capturing most of the benefits in this example.

**Exam command terms**

IB exam questions on globalisation use command terms with specific expectations:

- **Evaluate** — You must cover both positive and negative impacts, and reach a supported overall conclusion *(Evaluate the impact of globalisation on economic development in developing countries.)*

- **Distinguish** — You must clearly outline differences between impacts on two groups or economy types *(Distinguish between impacts of globalisation on developed and developing economies.)*

## Common pitfalls

- **Wrong:** Claiming all residents of developing countries gain, or all lose, from globalisation
  - Why it fails: Impacts are highly uneven within countries, not just between them, so this generalization is incorrect and loses evaluation marks
  - Correct: Acknowledge that some groups gain and others lose within both developed and developing countries, and structure your answer around these differences
- **Wrong:** Confusing globalisation with trade liberalization
  - Why it fails: Trade liberalization is only one driver of globalisation, not the same as the broader process of integration
  - Correct: Clearly define globalisation first, then identify trade liberalization as a key policy driver
- **Wrong:** Leaving out environmental or social impacts in evaluation questions
  - Why it fails: IB mark schemes explicitly reward consideration of multiple types of impact for top marks
  - Correct: Always include environmental and distributional impacts when evaluating globalisation to reach the highest mark band
- **Wrong:** Claiming globalisation always increases inequality between all countries
  - Why it fails: Many middle-income countries (like China, Vietnam) have grown faster than developed countries due to globalisation, reducing the income gap between them
  - Correct: Recognize that globalisation leads to convergence for some countries and divergence for others, depending on domestic policies and institutions
- **Wrong:** Only listing policy drivers of globalisation, ignoring technology
  - Why it fails: Technological change is a core driver of modern globalisation, and missing it costs marks in driver questions
  - Correct: Always include both policy and technological drivers when explaining the acceleration of globalisation since the 1980s

## Cheatsheet

| Category | Key Summary |
| --- | --- |
| Definition | Increasing integration of national economies into a global system |
| Core Drivers | Policy (liberalization), technology (ICT/transport), institutions (WTO/blocs) |
| Positive Impacts | Specialization, FDI/tech transfer, lower prices, competition, larger markets |
| Negative Impacts | Inequality, structural unemployment, environmental harm, shock vulnerability |
| Stakeholder Winners | MNCs, skilled workers, consumers, export-oriented producers |
| Stakeholder Losers | Low-skilled import-competing workers, small domestic firms, subsistence farmers, environment |

## What's next

Globalisation is a core unifying theme in the IB HL Economics global economy unit, and its distributional impacts underpin almost every other topic in this unit. Understanding how globalisation creates winners and losers helps you analyze policy responses like protectionism and regional trade agreements, as well as the recent rise of anti-globalisation populist movements. This knowledge also forms the foundation for evaluating different strategies for economic development, which relies on understanding how global integration interacts with domestic policy to shape development outcomes. Extending your understanding of globalisation will also help you analyze the role of global institutions like the WTO and IMF in the global economy.

- [Economic development and sustainability](https://www.owlsprep.com/study/ib-economics-hl-u4-economic-development-and-sustainability/)
- [Development strategies and foreign aid](https://www.owlsprep.com/study/ib-economics-hl-u4-development-strategies-and-foreign-aid/)
- [Exchange rate systems (HL only)](https://www.owlsprep.com/study/ib-economics-hl-u4-exchange-rate-systems/)

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