CBSE-i
CLASS – X ECONOMICS
STUDENTS’ MANUAL
CONTENTSGlobalisation: Its Meaning, causes and outcomes
Capital Formation: It’s meaning, components, need, importance and sources
Capital Movement: It’s meaning need and types
Private Foreign investment: Foreign Direct Investment(FDI) and Foreign Institutional Investment
Stock Market: Basic terms used, working and market fluctuations
INTRODUCTION
McDONALDS’, SONY, COKE and PEPSI - these are some MNCs that the present generation is well aware of. Whereas, NASDAQ, SHANGHAI STOCK EXCHANGE, SAUDI STOCK EXCHANGE, BOMBAY STOCK EXCHANGE – are names that still puzzle students and many of the adults alike.
· The ripple effect of fluctuation in one stock market is felt globally in other stock markets of the world. Isn’t this phenomenon confusing?
· Why do some groups oppose the coming of MNC’s, although they generate more employment, is to be comprehended.
· To what extent does the progress of a country depend upon Foreign Direct Investment is also debatable.
All these issues can be answered logically, once we understand how the world has changed, after the transformation of GATT into WTO and its impact on different countries’ economic policies.
In this unit, apart from understanding conceptual differences between different terminologies, students will be acquainted with issues like Great Depression.
Source: ghoenglish.de /Source: bds-umanities.weebly.com
In the flat world of maps, sharp lines show where one country ends and another begins. The real world is more fluid. People do not have borders the way that parcels of land do.
More Chinese people live outside mainland China than French people live in France, while many South Asians are found in the Middle East. These hundreds of big and small communities of people of one or the other country have been part of the world for a long time.
Today two things that make them more pronounced are,
· First, these groups or communities of people are larger than before.
· Second, thanks to easy availability and accessibility of means of transport and communications, people can now stay in touch with the places they came from.
A century ago, a migrant might board a ship, sail to America and never see his friends and family again. Today he texts his mother while still waiting to clear customs. He can wire his money in minutes. He can follow news from his hometown on his laptop. He can fly regularly to visit relatives or invest his earnings in a business in his hometown.
FIG: AN OVERVIEW OF GLOBALISATION
In order to understand this significant development around the world, let’s look at the following live experiences.
CASE STUDIES1) Soap factory in Nigeria
Chike Obi Igbo, for example, runs a factory in Emugu, Nigeria, making soap and other household goods. He needs machines to churn palm oil and chemicals into soap, stamp it into bars and package it in plastic. He buys Chinese equipment because although he knows it is not as good as European stuff, it is much cheaper.
When he wants to inspect a machine he has seen on internet, he asks an agent from his tribe, who lives in China to go and look at it. After receiving a feedback via e-mail he is in a better position to make a decision.
2) African cotton farmers battling to survive
By Gumisai Mutume
In the small, remote village of Logokourani in western Burkina Faso, cotton is everything. It is the mainstay of that rural community, providing the major, and in some cases the only, source of income for many inhabitants. Cotton pays for health and education. It helps build houses and schools. Not too long ago, when exports of cotton increased in value, production expanded in that part of the country, raising village incomes. Loading bales of cotton in Zimbabwe
Source: www.un.org
But the collapse of the cotton price on the world market -- it has fallen by 54 per cent since the mid-1990s -- threatens the very existence of communities such as Logokourani. "Cotton prices are too low to keep our children in school, or to buy food and pay for health," notes Mr. Brahima Ouattara, a small-scale cotton farmer in Logokourani. "Some farmers are already leaving. Another season like this will destroy our community".
STORY OF SALMA
Source: topnews.in
This is about a graduate Salma and her friend Samaira in India. Both of them while still studying in the University doing their undergraduate course are motivated by their seniors and friends in college to apply for a job in a call center run by US based company in 2006. One day they got a call for walk-in-interview and got selected for voice based service.
Both were very excited as they got a pay package of about $1500 which was considered to be a decent salary. Their odd working hours hardly gave them time to study. They had to leave their studies.
After working for three to four months in night shifts as the company was US based, their health started showing signs of deterioration. Long and odd working hours with work related deadlines gave them promotion but took a toll on their health. After working for a year both were promoted as project leaders. Then one day Salma was shocked to find that her I-Card was denied access at the office-entrance.
Later, she was informed that many like her in the company have been laid off due to slowdown in the U.S. economy.
She had no other option but to sit at home to wait for another job opening.
MEANING OF GLOBALISATION
From all the new channels and means of fast transport and communications people around the world are not only engaging in foreign trade (buying and selling goods and services) but are increasingly making investments in foreign countries.
This greater integration and interconnectedness among economies is what is termed as globalization. Therefore, globalization is not only movement of people, goods and services across boundaries but it also encompasses flow of technology, capital, ideas and culture among nations. For example, a Chinese businessman in South Africa, who senses demand for plastic umbrellas will quickly inform his cousin who runs a factory in China.
It is not that these flows did not exist earlier in the world but what is novel about these flows today are the intensity, frequency and speed with which these flows are carried out.
Globalisation is the result of set of various policies that are aimed at transforming the world towards greater interdependence and integration.
It involves creation of networks and activities transcending economic, social and geographical boundaries. It is turning the world into a global village.
Globalization attempts to establish links in such a way that happenings in Dubai or America or China can be influenced by events happening across seven seas.
Is the world flat?????The United Nations ESCWA (United Nations Economic and Social Commission for Western Asia) says globalization "is a widely-used term that can be defined in a number of different ways.
When used in an economic context, it refers to the reduction and removal of barriers between national borders in order to facilitate the flow of goods, capital, and services and labour... although considerable barriers remain to the flow of labour.
Outcomes of Globalisation
Thomas L. Friedman has examined the impact of the "flattening" of the world, and argues that globalized trade, outsourcing, supply-chaining, and political forces have changed the world permanently, for both better and worse. He also argues that the pace of globalization is quickening and will continue to have a growing impact on business organization and practice.
From all the above three examples you must have gathered the contemporary phenomena of globalisation taking place around you and that the effects are not always what you like. There are certain aspects of these phenomena which you may not like.
Now let’s look at the causes and consequences of globalisation.
CAUSES OF GLOBALISATION
Globalisation is principally caused due to a gamut of economic, technological, socio-cultural, political and biological factors.
· With the invention and development of computers, work done at high cost location can be transferred to low cost location which includes development of software, engineering and designing.
· Further, with the advent of internet telephony, other developments in science and technology, fast means of transport, under sea video cables-dissemination of information has grown exponentially.
Since World war II, under the auspices of GATT(General Agreement on Tariffs and Trade), a number of multilateral and bilateral trade and investment agreements among countries to remove restrictions on free trade are seen as one of the most significant factors contributing to globalisation. The two main international financial institutions like World Bank and IMF have also played an important part in augmenting global exchanges.
WTO (WORLD TRADE ORGANISATION)
Source:onlinepoker.net
As the world trade had undergone number of changes since the commencement of GATT (General Agreement on Tariffs and Trade), share of employment and export in the service sector increased .Therefore, under the leadership of USA developed countries took the initiative of bringing the service sector into trade negotiations.
This is the reason that the Uruguay round of GATT included negotiations on trade in services, trade in investment ,subsidies, intellectual property rights, anti dumping measures were taken besides traditional GATT subjects such as tariff and non tariff barriers on goods.
These negotiations were supposed to be concluded in four years but because of differences in certain critical areas like agriculture, textiles etc. the Uruguay round went on from 1986 to 1994.
The final agreement was signed on 15th April, 1994 at the ministerial conference held at Marrakech, Morocco. This agreement signed in 1994 consists of the following features:
* Establishment of WTO
* Multilateral agreement on trade in goods
* Trade related investment measures(TRIMS)
* General Agreement on Trade in services (GATS)
* Trade Related aspects of Intellectual property rights(TRIPS)
* Dispute Settlement (DSU)
* Reviews of Governments’ policies.
The GATT’S (now WTO) approach of reducing trade barriers was based on two principles:
* Most Favoured Nation principle: which refers to equal treatment a country gives to all its trading partners.
* National Treatment: A country should not discriminate between domestic and imported goods/services.
Another main difference between GATT and WTO is that WTO panel decisions are binding .This means that if one nation makes a complaint to WTO that the other nation’s law are violating the rules laid down in WTO agreement; the WTO can enforce the laws on the country concerned in accordance with WTO standards. Even then if the country fails to comply, WTO authorizes the complaining country to impose trade sanctions.
IMF AND GLOBALISATION:
The International Monetary Fund (IMF) is responsible for promoting international monetary cooperation, exchange stability, expansion of capital investment in the under developed countries, generate higher employment income and to establish multilateral trade and payments.
Economic globalisation is a historical process, driven mainly by invention and innovation, as well as economic policy. This integration of markets has brought about the more effective use of scarce global resources, with enhanced economic growth and increased employment and job quality. For individuals, this has meant higher incomes, more variety for consumers, and better access to education, health care, and other services. Particularly with the development of the emerging Asian economies, globalization has until recently helped dampen price pressures.
Rapid globalization has in many countries also coincided with rising income inequality, although research at the IMF and elsewhere indicates that this mainly reflects the direct impact of technological change on inequality. Trade and foreign investment flows themselves have had neither a clear negative, nor a clear positive, impact on inequality.
Economic and financial globalization and the expansion of world trade have brought substantial benefits to countries around the world. But the current financial crisis has put globalization on hold, with capital flows reversing and global trade shrinking. Some analysts see the drivers of the recent globalization wave getting undermined, with protectionism on the rise.
Even supporters of globalization agree that the benefits of globalization are not without risks—such as those arising from volatile capital movements. The IMF works to help economies manage or reduce these risks, through economic analysis and policy advice and through technical assistance in areas such as macroeconomic policy, financial sector sustainability, and the exchange-rate system
OUTCOMES OF GLOBALISATION THAT ARE FAVOURABLE
Emergence of MNC’s power across the world
World Trade in manufactured goods has increased more than 100 times (from $95billion to $12trillion) since 1955.Till 80’s most developing countries used to consider Foreign Direct Investment (MNC’s) a threat to their sovereignty and security.
The huge size of their investments was sometimes bigger than the budget of some small countries. This also raised the fears that these MNC’s would influence their economic and political affairs. These fears were not baseless as many of these MNC’s belonged to those very nations who had colonised these developing and poor nations during nineteenth century. Moreover, a lot of the multinational corporations were found to be engaged in unfair business practices.
Therefore, before and during 90’s it was mainly MNC’s from US and Europe who had the capacity of making huge investments in different parts of the world, but these investments remained at a low level. It was during the late 90’s and twenty first century that large number of mergers and acquisitions by MNC’s from developed as well as developing world started taking place.These big MNC’s like oil and steel majors Petrobras of Brazil, PetroChina of China, Samsung and LG of Korea, Reliance industries and Tata group of companies from India have launched their various investment projects in different parts of the world. This is further shown in worldwide production markets and increase in international trade of manufactured goods by hundred times since 1955 (from $95 billion to % 1.2 trillion).
But everything about globalization is not as bright as it appears to be. Large numbers of African countries who have remained confined to a limited number of primary commodities have not been successful in reaping benefits of economic integration. As these products are such that there is a tough competition from other developing and developed countries and demand remains largely static therefore these products are susceptible to price fluctuations thus adversely affecting the producers of these products.