The impact of globalisation on the UK economy
The main issues arising from globalisation for the UK are:Growth
Assuming the UK maintains its competitiveness, globalisation is likely to increase UK growth in the long term because aggregate demand (AD) is likely to increase through increased exports (X), and aggregate supply (AS) is likely to increase because of higher levels of investment, both domestic and foreign direct investment (FDI). However, growth in the short term may become more unstable as the global economy becomes increasingly interconnected. The recent credit crunch is evidence that unstable growth is a possible consequence of globalisation. Some economists have also argued that globalisation has increased the process of deindustrialisation in the developed countries, including the UK.Employment
Long term, jobs may be destroyed in the manufacturing sector and created in the service sector, hence creating structural unemployment, which could widen the income gap within countries. The net effect of the impact on employment depends upon the speed of labour market adjustment, which itself depends upon mobility and flexibility. Improvements in labour productivity may be needed to close the productivity gap.Prices
Increased competition is likely to reduce the price level, for traded manufactures. Because UK firms can source from around the world costs may be held down, and this may be passed on in terms of reduced domestic and export prices.Trade
The volume of both imports and exports is likely to increase, with trade representing an increasing proportion of GDP. The effect on the balance of payments is uncertain and depends upon relative growth rates, inflation, competitiveness, and the exchange rate.Read more
