Globalization expands business operations worldwide and is facilitated by communications, technological advancements, and socioeconomic, political, and environmental developments. It gives organizations a superior competitive position and lower operating costs to increase products, services, and consumers. Economic globalization echoes the views of neoliberal and neoclassicist thinkers in which states lose prominence and the world becomes a single global market of individual consumers. These consumers are characterized by their material and economic self-interest – rather than cultural, civic or other forms of identity.
For example, in the wake of NAFTA, the average net weekly pay for maquila workers was $55.77 in 1998—less than $2 more than the average cost for basic needs in the maquiladora trade zone. This occurs if local economic fluctuations end up impacting a large number of countries relying on them. When Russia invaded the country, it threatened food supply chains for countries like Pakistan, Lebanon, and Vietnam that import Ukrainian wheat.
Pros and cons of economic, social and political globalization: is globalization overall positive for our societies?
These include the disappearance of wealth in a particular country and the subsequent drop in the exchange rate, thus resulting in the devaluation of the local currency, inflation, and the loss of purchasing power of the citizens. An analysis by Goldman Sachs revealed that the shortage has affected more than 169 industries in different sectors across the world. Specific impacts include lower production outputs, increases in manufacturing costs and end-use prices, and significant losses. Nevertheless, the issue demonstrates the offshoot of a globally integrated supply chain.
Strategies for Maximizing Benefits of Globalization
The global scale of these companies makes it challenging for new entrants to compete, and their influence can extend to shaping market regulations and policies in their favor. These entities can gain excessive market control, limiting competition and potentially leading to higher prices and fewer choices for consumers. Globalization leads to concerns that countries are over-dependent on foreign markets for essential supplies. A financial problem in one country can lead to investor panic and a loss of confidence, triggering a domino effect that impacts economies worldwide.
The raw correlation between trade and growth
Comparative advantage positive and negative impacts of globalisation is fundamentally the ability of an economy to produce a particular good or service at a lower opportunity cost than other economies, especially its trading partner. It argues that countries engage in trade with one another by exporting goods or services that they have a relative advantage in. If the rules and regulations regarding the protection of the environment are less in underdeveloped countries, other developed countries can manufacture products that may harm the environment. This can cause several environmental problems, including increased pollution, exploitation of natural resources, and waste management issues.
The economic crisis in Argentina, which transpired in 2001, was partly a result of massive capital flight. Globalization has also been instrumental in the creation of multinational companies and the further expansion of businesses to other regional markets. This American fast-food chain has expanded in over 100 countries across more than outlets through a franchising business model. It can introduce new ideas, foods, and traditions from other parts of the world, which can mix with local ways of life. Sometimes, this can lead to local cultures changing or blending with global trends. However, it can also make some local traditions and practices less common as global brands and media become more dominant.
This has also contributed to the increase in speed of transportation of products. It is much easier and faster today, to share information and move across borders, breaking down barriers between countries. In this paper, Autor and coauthors examined how local labor markets changed in the parts of the country most exposed to Chinese competition. They found that rising exposure increased unemployment, lowered labor force participation, and reduced wages.
After completing my post graduation I thought to start a website where I can share management related concepts with rest of the people. Increased greenhouse gas emissions, ocean acidification, deforestation (and other forms of habitat loss or destruction), climate change, and the introduction of invasive species all work to reduce biodiversity around the globe. Globalization provides opportunities for reducing macroeconomic volatility on output and consumption via risk diversification.
- Another specific advantage of economic globalization centers on its role in enabling countries to build and focus on their comparative advantage.
- For example, for China, the figure in the chart corresponds to the “Value of merchandise imports in the US from China” minus the “Value of merchandise exports from China to the US”.
- More isolated countries, like North Korea, didn’t score on the index at all.
- However, he noted that the impacts of economic globalization remain positive albeit limited due to the problems stemming from inconveniences and heterogeneous results.
Hence, another disadvantage of economic globalization is that it eases the process of capital flight. Note that in economics, capital flight occurs money or assets flow out of a country due to localized or internal economic, as well as sociopolitical issues. This scenario highlights the complex positive and negative effects of globalization, as nations grapple with the implications of shifting economic policies and their impacts on employment and wages. The impact of globalization on the economic growth of a nation depends on trade, capital flows, GDP per capita, and foreign direct investment (FDI). Studies have examined the effects of several components of globalization on growth using time-series cross-sectional data on trade, FDI, and portfolio investment. A strong correlation exists between the openness to trade flows and the effect on economic growth and performance.
Sharpen your knowledge of the international business world with Global Business, one of our online business in society courses. If you aren’t sure which course is the right fit, download our free course flowchart. While it’s true that individual countries and regions put policies and practices in place that limit globalization, such as tariffs, it’s here to stay.