International trade has been part of the world economy for thousands of years. Despite this long history, the importance of foreign trade was modest until the beginning of the 19th century—the sum of worldwide exports and imports never exceeded 10% of global output before 1800. Then around 1820 started to change quickly. Around that time, technological advances and political liberalism triggered what we know today as the ‘first wave of globalization.
This first wave of globalization came to an end with the beginning of the First World War, when the decline of liberalism and the rise of nationalism led to a collapse in international trade. But this was temporary, and trade started growing again after the Second World War. This second wave of globalization, which continues today, has seen international trade grow faster than ever before. Today, around 60% of all goods and services produced in the world are shipped across country borders. In just a few generations, globalization completely changed the world economy.
Nowadays, The word, Globalization, impacts economic growth which is used to describe the growing interdependence of the world’s economies, cultures, and populations brought about by cross-border international trade in goods and services. The economics of globalization was driven by technology and the flow of capital regarding investment, human capital, and information. It clearly opens up opportunities for economic development.
Types of globalization: Economic, political, cultural
Economic globalization. Here, the focus is on the integration of international financial markets and the coordination of financial exchange. Free trade agreements, such as the North American Free Trade Agreement and the Trans-Pacific Partnership are examples of economic globalization. Multinational corporations, which operate in two or more countries, play a large role in economic globalization.
Political globalization. This type covers the national policies that bring countries together politically, economically, and culturally. Organizations such as NATO and the UN are part of the political globalization effort.
Cultural globalization. This aspect of globalization focuses in a large part on the technological and societal factors that are causing cultures to converge. These include increased ease of communication, the pervasiveness of social media, and access to faster and better transportation.
These three types influence one another. For example, liberalized national trade policies drive economic globalization. Political policies also affect cultural globalization, enabling people to communicate and move around the globe more freely. Economic globalization also affects cultural globalization through the import of goods and services that expose people to other cultures.
Business sectors
Businesses expand to escape market saturation. A positive effect of globalization for businesses is that it erases all borders to Buy and sell on international markets, Capitalize on free trade, Avoids market saturation, Finds better product-market fit, Saves more by reducing tax, Finds new talent, Finds specific talent, and reaches new economies to scale. Globalization has enabled firms to specialize – and increase the intensity of R&D, innovation, and capital in their output. It has made it easier for new companies to start competing with old incumbents. The trade sector has increased the number of people it employs through exports and imports.
Globalization has raised household income and helped to reduce high inflation rates in Western economies, giving consumers more “bang for the buck”. In addition, Globalization has increased real wages by lowering the cost of consumption. Many goods previously affordable to only a few – e.g. a mobile phone or sewing machine – are now standard in most households. Not only given economies but people new opportunities.
Many companies go global or outsource their business operations to reduce their operational cost. Doing this helps in acquiring economic labor and wider resources available in foreign countries. Globalization has stimulated the spread of new technology, helping to make economies greener and more productive. Moreover, it has helped to reduce gender wage discrimination and give new opportunities to women and also it has improved the quality of management in firms and the working conditions for people.
An engine of economic development
Economic growth is the main channel through which globalization can affect poverty. What researchers have found is that, in general, when countries open up to trade, they tend to grow faster and living standards tend to increase. Globalization has also been a key driver of unprecedented economic growth and as a result, we now live in a world with much less poverty. There has had a positive effect on economic growth, contributing to rising living standards and the reduction of extreme poverty across the world.
The greater inequality doesn’t necessarily mean greater poverty. The effect that trade has on less educated laborers in these developing countries depends in part on where they are employed and how mobile they are across sectors. Workers, both educated and less educated, in export-oriented sectors tend to benefit. However, workers who were employed in sectors that were initially shielded by higher tariffs experienced a decline in relative wages as tariffs were eliminated. Many countries, such as Mexico and Colombia, had shielded industries that employed a high share of less educated workers. When the tariffs were eliminated, these unskilled workers were disproportionately affected by declines in industry wages.
Negative effects
Just as globalization has had many positive effects, it has had several negative ones as well. Within industrialized countries, many blue-collar jobs in the manufacturing industry have been sent to other countries. This has led to an increase in unemployment for people without a college degree. It has become increasingly difficult for men and women in the working class to find meaningful employment.
Another major problem is deforestation. The need to grow food for an ever-growing world population has meant the clearing of forest land to make room for agriculture. The clearing of forests has contributed to global warming and has greatly decreased the biodiversity of the planet. The problem of deforestation is especially problematic in tropical countries such as Brazil and Indonesia.
Globalization has many advantages and disadvantages. It opens up the international markets for local enterprises, providing them with expansion opportunities. However, it is a two-way sword since a higher demand for imported products adversely affects local businesses. At times, the nation encounter displacement of a whole industry to a different country, creating a scarcity of products and jobs in the home country. From the corporate perspective, globalization is essential for international business expansion. It fulfills the need for acquiring newer resources available in other countries including labor at cheaper costs. Moreover, it promotes global economic activities, nurtures developing countries, and improves social justice to benefit the world economy.
Published 10/10/2022
By Ashley Jones