ACJC 2009 Prelim Exam H2 Econ / Essay Qn 6/ p1 of 2

2009 ACJC Prelim Exam Econ H2 Essay Question 6

How far do you agree with the common perception that globalisation holds more demerits than merits for a developed economy? [25]

Globalisation Definition:

The integration of national economies into the international economy through trade, foreign direct investment, capital flows, migration, and the spread of technology

Developed Countries: refer to countries like USA,UK, Japan, G8 countries: characterised by high wages, capital intensive, service sector driven and strong 'external wing' present.

Clear evidences are :

volume of trade in goods & services FDI : offshoring & ousourcing actiivity & tranference of technology & skills; financial or

short-term capital flows => more frquent occurrence of financial crisis

Common perception (short term perspective):

Globalisation holds more demerits for Developed countries.

Loss of CA to LDCs which enjoy low cost of production due to cheap labour => FDI => BOP - capital account worsens.

Structural unemployment due to hollowing out of firms from DCs due to high costs. Income disparity due to tax policy changes needed to attract FDI & talent & uneven benefits

to different industry sectors due to dynamic shifts in CA overtime. propensity to incur trade & budget deficits instability of financial markets Imported inflation due to sudden supply side shocks permeate the economy more quickly; eg

of food price inflation in 2007. Greater propensity to incur budget deficit due to CIT & PIT as a result of need to attract FDI

& talent

Long-term Reality

However, these demerits are but transitory challenges faced by DCs that will force them to restructure their economies & introduce policies that will bring positive winds of change that will be beneficial to them in the long run

Benefits for DCs & the world

Efficiency improvements as domestic firms have to compete with foreign firms, either at home or in overseas markets.

Expanding growth capacity of domestic firms Improved access to foreign funds keeps a lid on interest rate levels. Diversification of import sources keeps a lid on countries domestic inflation rates.

Conclusion Globalisation expands markets, improves production capacity, national income and standard of living. BUT, the issue is, whether the benefits of globalisation are evenly spread within and between countries? Or whether the disparity will be a permanent characteristic that is part and parcel of the phenomenon called "globalisation"?

http://en.wikipedia.org/wiki/Tradehttp://en.wikipedia.org/wiki/Foreign_direct_investmenthttp://en.wikipedia.org/wiki/Foreign_direct_investmenthttp://en.wikipedia.org/wiki/Capital_flowhttp://en.wikipedia.org/wiki/Human_migrationhttp://en.wikipedia.org/wiki/Technology

ACJC 2009 Prelim Exam H2 Econ / Essay Qn 6/ p2 of 2

Level Descriptors Marks Knowledge, Application, Understanding and Analysis L3 High L3 (20 21 marks)

Answers come with a clear statement of opinion cognizant of the differences faced even amongst different developed countries

Mid L3 (18 19 marks)

For a holistic approach taken to address the issue from a long term perspective that globalisation will eventually have benefits for developed countries as well

Low L3 (15 17 marks)

Must address "How far" & include trade, capital & labour flows in answer

15-21

L2 High L2 (13 14 marks) For a balanced discussion of both merits and demerits but without a clear statement of "how far"

OR Mid L2 (12 marks)

For a balanced discussion with no reference to developed countries OR

Low L2 (10 11 marks) For an explanation that explains well the demerits or merits of globalisation only with explicit reference to developed countries

10-14

L1 Superficial outline/listing of some merits of globalisation without significant discussion or explicit reference to developed countries.

OR For a gpish answer with limited relevant ideas to the given context,

containing a significant amount of gross conceptual errors.

1-9

Allow up to 4 additional marks for evaluation E2 For evaluations containing well-supported economic analysis 3-4 E1 For judgments that are not explained /supported 1-2