A broad range of processes, opportunities, and problems related to the spread of economic activities among countries around the world are involved in Economic Globalization. Globalization has led to an expansion in the international flow of goods and services, money (investments in portfolios or foreign direct investment through MNCs), and Labor as people travel to jobs. In particular, developments in technology, such as telecommunications and information technology, and transport, have encouraged this process of globalization.
Major Components of Economic Globalization
International Trade
Imports are
committed to a growing share of spending on goods and services, and an
increasing share of what countries generate is sold as exports. At the center
of a country's economy lies the value of the foreign exchange. Countries are
now more interdependent than ever on their manufacturing, importing partners in
the continuously evolving business sector, thereby holding the home country's
economy afloat and safe. China's economy, for instance, relies heavily on the
sale of goods to the United States, and on the consumer base of the United
States that will purchase those items.
Capital Market Flows
In many countries,
particularly in the developing world, investors have gradually diversified
their investments to include foreign financial assets, such as international
bonds, securities, or mutual funds, and more and more borrowers have turned to
foreign sources of funds. Capital market movements often involve migrant
remittances that usually migrate from developed countries to less industrialized
ones. Essentially, the entrepreneur has a variety of outlets to finance a
business.
Foreign Direct Investment (FDI)
FDI is defined as
"investment made in order to gain permanent interest in companies existing
outside the investor's economy “ according to the United Nations. Direct
investment in the development of manufacturing facilities is distinct from
portfolio investment that can take the form of short-term flows of capital such
as loans or long-term flows of capital such as bonds.
Diffusion of Technology
Telecommunications,
IT, and computing advances have minimized the expense of connectivity and have
enabled the cross-border flow of ideas, including scientific expertise and more
foundational values such as democracy and free markets. However, the
exponential development and implementation of information technology are not
equally spread across the globe, often referred to as the "digital
divide”. As a result, this means
that it is more difficult for less developed countries to advance their
industries without the technological system and expertise in place, such as the
Internet, data monitoring, and technical tools currently available in many industrialized
countries.
Migration Patterns
If it is doctors
emigrating to Great Britain from India and Pakistan or seasonal farmworkers
emigrating to the United States from Mexico, Labor is becoming rapidly mobile.
When migrants who have gained education and know-how abroad come home to create
new businesses, migration will support emerging economies. Migration, though,
can also affect the economy by "Brain Drain," the lack of
skilled professionals that are vital to economic development.
Pros and Cons of Economic Globalization
Provide Competitive Advantage
Globalization gives
a strategic edge to industries by helping them to import raw materials where
they are inexpensive. Globalization also offers companies the ability to take
advantage of cheaper Labor rates in emerging nations, while exploiting more
developed economies' technological skills and experience.
More Expertise
With globalization,
in various regions of the world, different parts of a commodity can be
produced. For example, globalization has long been used by the automotive
industry, where multiple parts of a vehicle can be made in different countries.
Businesses may be interested in the manufacture of seemingly basic items such
as cotton T-shirts in many different countries.
Economic Growth
Services are
influenced by globalization too. Many businesses located in one nation have
outsourced their call centers or IT facilities to companies in another country.
In countries where workers are needed, the effect is more jobs, which can have
a positive influence on the national economy and result in a better standard of
living. China is a perfect example of a nation that has greatly benefited from globalization.
Another instance is Vietnam, where globalization has helped boost rice prices
and bring many rural rice farmers out of poverty. Many children from deprived
households quit jobs and attended school as the quality of living improved.
Benefits to Customers
Consumers also
profit. Generally speaking, globalization lowers the cost of development. This
suggests that firms will sell products to customers at a cheaper price. The
main factor leading to improvements in the quality of living is the average
cost of products. Consumers now have access to a broader range of items. This
may lead to better health in some cases by making a more balanced and healthier
diet.
Cons: Negative Impact on Employees
Not all about globalization
is favorable. There are winners and losers in any transition, and people living
in communities who have been relying on outsourced employment elsewhere often
suffer. Effectively, this suggests that employees in the developing world must
deal with lower-cost employment markets; unions and workers will not be able to
protect themselves against the challenge of firms providing a competitor in a
less expensive Labor market the choice between lower wages or losing jobs.
Exploitation of Workers in Developing Countries
In the developed
world, where economies are experiencing a dramatic transition, the situation is
more complicated. Indeed, people's working conditions are deplorable at some
points in the supply chain. Critics also argue that children's job
opportunities in developing countries can increase the negative effects of
child labor and draw children away from school from poor families. In general,
analysts fault globalization's forces for fostering a climate that abuses jobs
in countries that do not provide appropriate safeguards.
Income Disparity & Inequality
Studies also show
that globalization will lead to the difference in income and inequalities
between a society's more educated and less educated members. This suggests that
declining incomes, which are under relentless pressure from globalization, will
impact unskilled workers.
Technological Disruptions
In addition to
economic globalization, the scarcity of an economy is often altered by
technical advancement. Technological development at present largely suggests a
rise in the capital intensity of production. The need for Labor is also
diminishing in highly developed economies. In particular, low-skilled workers
will then be impacted by unemployment and lack of wages. This, in fact, adds to
social tensions with the already described economic implications.
Increase in Social Instabilities
In all
participating countries, economic globalization raises GDP. Around the same
moment, however, the deficiencies in all national economies are also
intensifying. This has an effect on the allocation of wealth. Therefore, globalization
has detrimental impacts on wages for many persons and regions of the countries
affected. This will add to social tensions that are rising and have a negative
effect on economic growth. Populism may also contribute to rising societal
tensions. And this populism, in essence, encourages protectionism with the
detrimental consequences already mentioned on global economic growth.
Growing Debt
A rise in the debt
of governments, corporations, and private households is followed by the growth
of the global supply of capital. This increase comes as no surprise: the goal
of an expansionary monetary policy is for business actors to make acquisitions
of goods funded by credit and thereby to stimulate the economy. This, though,
causes credit bubbles. Non-performing loans have the same immediate economic
implications as a burst bubble, more or less.
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