Globalisation and economic development: the causes and effects of globalisation and the role of multinationals, the measurement of development beyond GDP, the barriers to development, development strategies, and the roles of the IMF, World Bank and aid.

What this key area is asking

Globalisation and development close the global area by asking how the world economy is becoming more integrated and why some economies remain poor. You must explain the causes and effects of globalisation and the role of multinational companies, how development is measured beyond GDP (the Human Development Index), the barriers that hold poorer economies back, the development strategies available, and the roles of the IMF, World Bank and aid. This is the most evaluative, current-affairs-rich topic in the course and a frequent project choice.

Globalisation: causes and effects

Causes include falling transport and communication costs (containerisation, the internet), trade liberalisation (WTO, trade blocs), financial deregulation and capital mobility, and the spread of multinational companies.

Effects are double-edged:

• Benefits: faster growth and higher incomes, lower prices and more choice, transfers of technology, and economies of scale from larger markets.
• Costs: widening inequality (within and between countries), greater volatility (crises spread quickly), environmental damage, loss of cultural diversity, and a race to the bottom in labour and environmental standards.

Multinational companies

Multinational companies (MNCs) operate across borders and are central to globalisation. For a developing host economy their effects are contested:

• Benefits: foreign direct investment, jobs and incomes; transfers of technology and skills; higher output, exports and tax revenue; infrastructure and multiplier effects.
• Costs: profit repatriation rather than reinvestment; low wages and exploitation of weak standards; capital-intensive methods that create few jobs; crowding out local firms; and bargaining power used to extract tax breaks.

The net effect depends on the terms negotiated and the host government's regulation.

Measuring development beyond GDP

Other indicators include poverty rates, access to clean water and sanitation, and measures of inequality. GDP per capita alone ignores distribution, health and education, so composite measures such as the HDI give a fuller picture of development.

Barriers to development

Key barriers the SQA expects:

• A savings gap: low incomes mean little saving, so little investment (the Harrod-Domar idea), worsened by capital flight.
• Dependence on primary-product exports with volatile and often falling prices and a deteriorating terms of trade.
• A debt burden diverting government revenue to repayments.
• Poor infrastructure, health and education limiting productivity.
• Weak institutions, corruption or conflict, and rapid population growth.

Development strategies and international bodies

Development strategies include:

• Trade-led growth (export promotion or, historically, import substitution).
• Investment in human capital (education, health) and infrastructure.
• Attracting foreign direct investment on good terms.
• Strengthening institutions and reducing corruption.
• Aid and debt relief, and microfinance.

International institutions:

• The International Monetary Fund (IMF) lends to countries with balance-of-payments crises, usually with policy conditions (often controversial structural-adjustment reforms).
• The World Bank lends for long-term development and poverty-reduction projects.
• Aid can be bilateral or multilateral; it can fill the savings gap and fund development, but is criticised for dependency, tied conditions and poor governance.

The right strategy is contested, which makes development a strongly evaluative topic.

Worked example: comparing two countries' development

Why this matters

Globalisation and development is the most outward-looking and evaluative topic in the course, drawing together trade, exchange rates and growth into the big questions of inequality and poverty between nations. It is rich with current examples (trade tensions, climate finance, debt relief, the role of China and multinationals) and is one of the most popular project areas, because it rewards independent research and balanced judgement, exactly the skills the Advanced Higher assesses.

Try this

Q1. Name the three dimensions combined in the Human Development Index. [3 marks]

• Cue. Income (real GNI per capita), health (life expectancy at birth) and education (mean and expected years of schooling).

Q2. Explain one barrier that prevents a developing economy from growing. [2 marks]

• Cue. For example a savings gap: low incomes mean little domestic saving, so little funds for investment, limiting growth; or dependence on volatile primary-export prices that destabilises revenue.