Effects of globalisation (SACE Stage 2 Economics)
“Evaluate the economic, social and environmental effects of globalisation on Australia and developing economies.”
Globalisation is the increasing integration of economies through flows of trade, investment, technology, finance and labour. It can raise growth, lower prices and reduce poverty, but it also creates costs such as structural unemployment, rising inequality, loss of sovereignty and environmental pressure, so its effects must be weighed up rather than assumed.
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What this dot point is asking
You need to define globalisation, describe its main drivers, and evaluate its economic, social and environmental effects on both developed economies such as Australia and on developing economies.
What globalisation is
Globalisation is the growing economic interdependence of countries through the cross-border movement of goods and services, capital, technology, information and people. It has been driven by:
- Trade liberalisation - lower tariffs and free trade agreements.
- Technology - cheaper transport, the internet and global communications.
- Transnational corporations (TNCs) - firms that produce and sell across many countries.
- Financial deregulation - freer flows of investment and capital between countries.
Globalisation is the process by which the world's economies become more closely integrated through increased flows of trade, investment, finance, technology, ideas and labour across national borders.
Economic effects
Benefits include faster economic growth, access to larger markets, the gains from specialisation and comparative advantage, lower prices and wider choice for consumers, transfer of technology and skills, and foreign investment that builds productive capacity in developing economies.
Costs include structural unemployment as protected or uncompetitive industries shrink, greater volatility as shocks spread quickly between economies (as in global financial crises), and pressure on wages in some sectors as production shifts to lower-cost countries.
As trade barriers fell, much of Australian manufacturing (for example, car assembly) could not compete with lower-cost imports and closed. Consumers gained from cheaper goods and the economy shifted resources towards areas of comparative advantage such as mining, education and services. The cost was structural unemployment for displaced workers, who needed retraining and regional support - a clear case of overall gains with concentrated losses.
Social effects
Globalisation can lift millions out of poverty by creating jobs and raising incomes in developing economies, and it spreads ideas, culture and access to information. However, the gains are often unevenly distributed, widening inequality both between and within countries. Concerns also include poor labour conditions in some global supply chains and the erosion of local cultures.
Globalisation tends to increase total welfare, but the gains and losses are unevenly spread. Consumers and competitive export industries gain, while workers in import-competing industries can lose. Recognising that there are both winners and losers is essential for a balanced evaluation.
Environmental effects
Increased global production and transport raise greenhouse gas emissions and resource use, and globalisation can allow polluting industries to shift to countries with weaker regulation. On the other hand, it can spread clean technology and support international agreements to address shared problems such as climate change. The net effect depends on how growth is managed.
Evaluating globalisation
A strong evaluation weighs the gains (growth, lower prices, poverty reduction, technology transfer) against the costs (inequality, structural unemployment, volatility, environmental and sovereignty concerns), and recognises that outcomes differ between developed and developing economies. The policy response is usually not to reverse globalisation but to manage it - through retraining, social safety nets, regulation and international cooperation.
Why this matters
Globalisation ties together the whole Topic 4 - trade, comparative advantage, exchange rates and the balance of payments - into the bigger question of how integration affects living standards. It is a natural focus for the Economic Project, where contemporary issues such as supply-chain disruption, free trade agreements or climate policy can be analysed as effects of globalisation.
The weakest answers either praise globalisation for cheaper goods or condemn it for job losses, without balance. The strongest answers acknowledge it raises total output while distributing gains and losses unevenly, then evaluate specific effects with evidence. Always present both sides and reach a reasoned judgement.
Exam-style questions
Questions in the style of SACE Board exam questions on this dot point, each with a worked answer. They are written by ExamExplained unless tagged "Past paper"; the year shows the paper a question is modelled on.
2020 SACE Stage 2-style20 marks'Participation in the global economy has both positive and negative effects on the domestic economy.' Evaluate this statement with reference to examples.Show worked answer →
A 20-mark Part B essay. Build a balanced evaluation with a clear judgement.
- Define
- Participation in the global economy (globalisation) is integration through trade, foreign investment, technology and labour flows.
- Positive effects
- Access to larger markets and comparative advantage raise exports and growth; cheaper imports lower prices and lift consumer choice and living standards; foreign investment funds capital and jobs; technology transfer raises productivity. Example: Australia's resource and education exports to Asia.
- Negative effects
- Structural unemployment as uncompetitive domestic industries (for example local manufacturing) decline; greater exposure to external shocks and global recessions; rising income inequality; environmental costs; and loss of some economic sovereignty.
- Evaluation and examples
- Weigh the gains in growth and consumer welfare against the distributional and stability costs. Use concrete examples (free-trade agreements, the decline of Australian car manufacturing, the impact of global downturns).
- Judgement
- Conclude that participation is, on balance, beneficial for long-run growth and living standards, but governments must use structural adjustment, retraining and a social safety net to manage the costs to those who lose out.
2019 SACE Stage 2-style5 marksThe government of Country A has removed most restrictions on foreign capital inflow, believing the benefits will outweigh the costs. Evaluate whether or not the government's move to restrict foreign capital inflow will be beneficial to the economy of Country A.Show worked answer →
Five marks: weigh the benefits and costs of foreign capital inflow, then judge.
- Benefits of allowing inflow (costs of restricting it)
- Foreign capital funds business investment, raising productive capacity, employment, productivity and economic growth, and helping develop comparative advantage. Restricting inflow forfeits these gains and may deter investors.
- Costs of allowing inflow (benefits of restricting it)
- Heavy reliance on foreign capital can increase foreign ownership and control of domestic assets, raise the net income deficit on the current account through profit repatriation, and expose the economy to volatile capital flows that can destabilise the exchange rate and financial system. Some restriction can protect strategic industries and reduce this volatility.
- Judgement
- On balance, for a developing economy seeking investment and growth, the benefits of openness usually outweigh the costs, so broad restriction is generally not beneficial; however, targeted, limited controls on strategic sectors or destabilising short-term flows can be justified. A strong answer reaches a clear, supported verdict.
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Sources & how we know this
- Stage 2 Economics subject outline (2025 onwards) — SACE Board
- Stage 2 Economics: external assessment — SACE Board