IGCSE Economics 0455

Topic: International Trade and Globalisation

Objective: Causes of changes in globalisation: changes in communication costs

This section explores how changes in the cost of communication have been a significant driver of globalisation. We will examine the historical context, the impact of technological advancements, and the resulting changes in international trade patterns.

The Impact of Communication Costs on Globalisation

Historically, the cost of communicating across long distances was very high. This significantly restricted international trade and economic activity. Advances in communication technology have dramatically reduced these costs, leading to increased globalisation.

Historical Context: High Communication Costs

Before the 20th century, communication relied heavily on physical transport – ships, trains, and messengers. This was slow, expensive, and unreliable. Sending information, negotiating deals, and coordinating production across borders was a cumbersome and costly process. The lack of efficient communication limited the scope of international trade to primarily bulky and high-value goods.

Technological Advancements and Falling Communication Costs

The 20th and 21st centuries have witnessed revolutionary advancements in communication technology, leading to a steep decline in communication costs. Key developments include:

• Telegraph: The invention of the telegraph in the 19th century allowed for near-instantaneous communication over long distances. This significantly reduced the time required for business transactions.
• Telephone: The telephone further improved communication speed and ease.
• Radio and Television: These technologies facilitated the rapid dissemination of information and advertising, fostering greater awareness of international markets.
• Computers and the Internet: The development of computers and the internet has been the most transformative. Email, instant messaging, video conferencing, and online platforms have made communication virtually instantaneous and inexpensive.
• Mobile Phones: Mobile phone technology has extended communication access to a wider range of people and locations.

Effects of Lower Communication Costs on Globalisation

The reduction in communication costs has had a profound impact on globalisation:

• Reduced Transaction Costs: Lower communication costs translate directly into reduced transaction costs for businesses engaged in international trade.
• Increased Information Flow: Businesses can now access real-time information about markets, suppliers, and customers worldwide.
• Facilitated Supply Chain Management: Complex global supply chains can be managed more efficiently through improved communication and coordination.
• Growth of Multinational Corporations (MNCs): MNCs can operate across multiple countries with greater ease, coordinating their activities and managing their global operations.
• Increased Foreign Direct Investment (FDI): Lower communication costs make it easier for companies to invest in foreign countries and manage their overseas operations.

Technology	Approximate Cost (Relative)	Impact on Communication
Messengers/Ships	Very High	Slow, unreliable, expensive
Telegraph	High	Faster, more reliable
Telephone	Moderate	Further improvement in speed and ease
Internet/Email	Low	Instantaneous, inexpensive, global reach
Mobile Phones	Very Low	Accessibility to communication from almost anywhere

In conclusion, the dramatic reduction in communication costs has been a key enabler of globalisation. It has facilitated the flow of information, reduced transaction costs, and enabled businesses to operate on a global scale. This has led to increased international trade, foreign direct investment, and the growth of multinational corporations.