GLOBALIZATION IN THE WORLD ECONOMY
Introduction
There are a lot of people are talking about globalization, many of whom have strong and often
conflicting views about the subject. Some authors see globalization as a rather positive thing in
the meaning of the consumer society and benefit to shoppers of more things to buy and services
to get in Western world. Other authors and many non-governmental organizations are much
more critical, seeing globalization as colonization of the developing world. Globalization is seen
as a complicated processes, focusing on how events, decisions and activities in one part of the
world can have consequences in other parts of the world.
What Is Globalization?
Globalization is a process of interaction and integration among the people, companies, and
governments of different nations, a process driven by international trade and investment and
aided by information technology. This process has effects on the environment, on culture, on
political systems, on economic development and prosperity, and on human physical well-being
in societies around the world. (Levin Institute)
Globalization is not new, though. For thousands of years, people—and, later, corporations—have
been buying from and selling to each other in lands at great distances, such as through the famed
Silk Road across Central Asia that connected China and Europe during the Middle Ages. The
globalization trend eventually waned and crashed in the catastrophe of World War I, followed by
postwar protectionism, the Great Depression, and World War II. After World War II in the mid-
1940s, the United States led efforts to revive international trade and investment under negotiated
ground rules, starting a second wave of globalization, which remains ongoing, though buffeted
by periodic downturns and mounting political scrutiny. Likewise, for centuries, people and
corporations have invested in enterprises in other countries. In fact, many of the features of the
current wave of globalization are similar to those prevailing before the outbreak of the First
World War in 1914.
This current wave of globalization has been driven by policies that have opened economies
domestically and internationally. In the years since the Second World War, and especially during
the past two decades, many governments have adopted free-market economic systems, vastly
increasing their own productive potential and creating myriad new opportunities for international
trade and investment. Governments also have negotiated dramatic reductions in barriers to
commerce and have established international agreements to promote trade in goods, services, and
investment. Taking advantage of new opportunities in foreign markets, corporations have built
foreign factories and established production and marketing arrangements with foreign partners.
A defining feature of globalization, therefore, is an international industrial and financial business
structure.
Globalization Benefits World Economies
Globalization is playing an increasingly important role in the developing countries. It can be seen
that, globalization has certain advantages such as economic processes, technological
developments, political influences, health systems, social and natural environment factors. It has
a lot of benefit on our daily life. Globalization has created a new opportunities for developing
countries. Such as, technology transfer hold out promise, greater opportunities to access
developed countries markets, growth and improved productivity and living standard. It provides
a net benefit to individual economies around the world, by increasing competition, limiting
military conflicts, and spreading wealth more equally around the world. However, the general
public tends to assume that the costs associated with globalization outweigh the benefits,
especially in the short-term, the consensus among the economists that provides benefit to nation
around the world and therefore should be embraced on the whole governments and individuals.
Some of the benefits of globalization includes:
Foreign Direct Investment. Foreign direct investment (“FDI”) tends to increase at a much
greater rate than the growth in world trade, helping boost technology transfer, industrial
restructuring, and the growth of global companies.
Technological Innovation. Increased competition from globalization helps stimulate new
technology development, particularly with the growth in FDI, which helps improve economic
output by making processes more efficient.
Economies of Scale. Globalization enables large companies to realize economies of scale that
reduce costs and prices, which in turn supports further economic growth, although this can hurt
many small businesses attempting to compete domestically.
Harmful Effects
Non-economists and the wide public expect the costs associated with globalization to outweigh
the benefits, especially in the short-run. Less wealthy countries from those among the
industrialized nations may not have the same highly-accentuated beneficial effect from
globalization as more wealthy countries, measured by GDP per capita etc. Although free trade
increases opportunities for international trade, it also increases the risk of failure for smaller
companies that cannot compete globally. Additionally, free trade may drive up production and
labor costs, including higher wages for more skilled workforce, which again can lead to
outsourcing of jobs from countries with higher wages.
Domestic industries in some countries may be endangered due to comparative or absolute
advantage of other countries in specific industries. Another possible danger and harmful effect is
the overuse and abuse of natural resources to meet new higher demands in the production of
goods. Some of the risks of globalization include:
Interdependence. Globalization leads to the interdependence between nations, which could
cause regional or global instabilities if local economic fluctuations end up impacting a large
number of countries relying on them.
National Sovereignty. Some see the rise of nation-states, multinational or global firms and other
international organizations as a threat to sovereignty. Ultimately, this could cause some leaders
to become nationalistic or xenophobic.
Equity Distribution. The benefits of globalization can be unfairly skewed towards rich nations
or individuals, creating greater inequalities and leading to potential conflicts both nationally and
internationally as a result.
Tariffs & Other Forms of Protectionism
The 2008 economic crisis led many politicians to question the merits of globalization. Since
then, global capital flows fell from $11 trillion in 2007 to a third of that figure in 2012. While
some of that may be cyclical in nature, many countries implemented tariffs and other forms of
protectionism designed to contain risk in their financial systems and make crises less damaging,
although this comes at the cost of forgoing the benefits we’ve seen.
In the U.S. and Europe, new banking regulations were introduced that limited capital flows in
order to reduce the risk of contagion. Tariffs have also been put in place to protect domestic
industries seen as vital, such as the 127% U.S. tariff on Chinese paper clips or Japan’s 778%
tariff on imported rice. In developing countries, these figures are even worse, with Brazil’s tariffs
being some four times higher than America’s and three times higher than China’s.
The Bottom Line
Globalization has impacted nearly every aspect of modern life and continues to be a growing
force in the global economy. While there are a few drawbacks to globalization, most economists
agree that it's a force that's both unstoppable and net beneficial to the world economy. There
have always been periods of protectionism and nationalism in the past, but globalization
continues to be the most widely accepted solution to ensuring consistent economic growth
around the world.
References:
Kuepper. J., "The impact of globalization on economic growth", The balance, Dotdash(June 25,
2019)
Kolb, M.,Devasahayam, M.,Hillebrand, H.,et al (2018). "What Is Globalization? And How Has
the Global Economy Shaped the United States?".Peterson Institute for International Economics.
(October 29, 2018)
Hendrix, Cullen S. 2016. Protectionism in the 2016 Election: Causes and Consequences, Truths
and Fictions. PIIE Policy Brief 16-20. Washington: Peterson Institute for International
Economics
Hufbauer, Gary Clyde, and Sean Lowry. 2012. US Tire Tariffs: Saving Few Jobs at High Cost.
PIIE Policy Brief 12-9. Washington: Peterson Institute for International Economics.
Rodrik, Dani. 1997. Has Globalization Gone Too Far? Washington: Peterson Institute of
International Economics.
Lawrence, Robert Z. 2017. Recent US Manufacturing Employment: The Exception that Proves
the Rule. Working Paper 17-12. Washington: Peterson Institute for International Economics.
Hendrix, Cullen S. 2016. Protectionism in the 2016 Election: Causes and Consequences, Truths
and Fictions. PIIE Policy Brief 16-20. Washington: Peterson Institute for International
Economics.
Globalization
Marvin M. Barro
RATING