1 Globalization Information
ECONOMICS MACROECONOMICS
Globalization
REVIEWED BY BEVERLY BIRD AND CAROL KOPP
Updated May 9, 2019
What Is Globalization?
Globalization is the spread of products, technology, information, and jobs across national borders and cultures. In economic terms, it describes an interdependence of nations around the globe fostered through free trade.
On the upside, it can raise the standard of living in poor and less developed countries by providing job opportunity, modernization, and improved access to goods and services. On the downside, it can destroy job opportunities in more developed and high-wage countries as the production of goods moves across borders.
Globalization motives are idealistic, as well as opportunistic, but the development of a global free market has benefited large corporations based in the Western world. Its impact remains mixed for workers, cultures, and small businesses around the globe, in both developed and emerging nations.
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Globalization
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Corporations gain a competitive advantage on multiple fronts through globalization. They can reduce operating costs by manufacturing abroad. They can buy raw materials more cheaply because of the reduction or removal of tariffs. Most of all, they gain access to millions of new consumers.
Globalization is a social, cultural, political, and legal phenomenon.
Socially, it leads to greater interaction among various populations.Culturally, globalization represents the exchange of ideas, values, and artistic expression among cultures.Globalization also represents a trend toward the development of single world culture. Politically, globalization has shifted attention to intergovernmental organizations like the United Nations (UN) and the World Trade Organization (WTO).Legally, globalization has altered how international law is created and enforced.
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KEY TAKEAWAYS
Globalization has sped up to an unprecedented pace since the 1990s, with public policy changes and communications technology innovations cited as the two main driving factors.China and India are among the foremost examples of nations that have benefited from globalization.One clear result of globalization is that an economic downturn in one country can create a domino effect through its trade partners.
The History of Globalization
Globalization is not a new concept. Traders traveled vast distances in ancient times to buy commodities that were rare and expensive for sale in their homelands. The Industrial Revolution brought advances in transportation and communication in the 19th century that eased trade across borders.
The think tank, Peterson Institute for International Economics (PIIE), states globalization stalled after World War I and nations' movements toward protectionism as they launched import taxes to more closely guard their industries in the aftermath of the conflict. This trend continued through the Great Depression and World War II until the U.S. took on an instrumental role in reviving international trade.
Globalization has since sped up to an unprecedented pace, with public policy changes and communications technology innovations cited as the two main driving factors.
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One of the critical steps in the path to globalization came with the North American Free Trade Agreement (NAFTA), signed in 1993. One of NAFTA's many effects was to give American auto manufacturers the incentive to relocate a portion of their manufacturing to Mexico where they could save on the costs of labor. As of February 2019, the NAFTA agreement was due to be terminated, and a new trade agreement negotiated by the U.S., Mexico, and Canada was pending approval by the U.S. Congress.
Governments worldwide have integrated a free market economic system through fiscal policies and trade agreements over the last 20 years. The core of most trade agreements is the removal or reduction of tariffs.
This evolution of economic systems has increased industrialization and financial opportunities in many nations. Governments now focus on removing barriers to trade and promoting international commerce.
Globalization Advantages
Proponents of globalization believe it allows developing countries to catch up to industrialized nations through increased manufacturing, diversification, economic expansion, and improvements in standards of living.
Outsourcing by companies brings jobs and technology to developing countries. Trade initiatives increase cross-border trading by removing supply-side and trade-related constraints.
Globalization has advanced social justice on an international scale, and advocates report that it has focused attention on human rights worldwide.
Disadvantages of Globalization
One clear result of globalization is that an economic downturn in one country can create a domino effect through its trade partners. For example, the 2008 financial crisis had a severe impact on Portugal, Ireland, Greece, and Spain. All these countries were members of the European Union, which had to step in to bail out debt-laden nations, which were thereafter known by the acronym PIGS.
Globalization detractors argue that it has created a concentration of wealth and power in the hands of a small corporate elite which can gobble up smaller competitors around the globe.
Globalization has become a polarizing issue in the U.S. with the disappearance of entire industries to new locations abroad. It's seen as a major factor in the economic squeeze on the middle class.
For better and worse, globalization has also increased homogenization. Starbucks, Nike, and Gap Inc. dominate commercial space in many nations. The sheer size and reach of the U.S. have made the cultural exchange among nations largely a one-sided affair.
Real World Examples of Globalization
A car manufacturer based in Japan can manufacture auto parts in several developing countries, ship the parts to another country for assembly, then sell the finished cars to any nation.
China and India are among the foremost examples of nations that have benefited from globalization, but there are many smaller players and newer entrants. Indonesia, Cambodia, and Vietnam are among fast-growing global players in Asia.
Ghana and Ethiopia had the fastest-growing African economies in the world in 2018, according to a World Bank report.
