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"?

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

Level Descriptors
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

L2

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

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

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.
Allow up to 4 additional marks for evaluation
For evaluations containing well-supported economic analysis
For judgments that are not explained /supported

E2
E1

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

Marks
15-21

10-14

1-9

3-4
1-2