Module 3

Economic Globalization

LEARNING OUTCOMES
At the end of this module, you should be able to:
a) learn the essentials of economic globalization;
b) enumerate the actors facilitating economic globalization and
c) determine the advantages and disadvantages of economic globalization.

PRESENTATION
WHAT IS ECONOMIC GLOBALIZATION?
 It is the widespread international movement of goods, capital, services, technology and
information.
 It is also the increasing economic integration and interdependence of national, regional,
and local economies across the world through an intensification of cross-border
movement of goods, services, technologies and capital
 It comprises the globalization of production, finance, markets, technology, organizational
regimes, institutions, corporations, and labour.

While economic globalization has been expanding since the emergence of trans-national
trade, it has grown at an increased rate due to improvements in the efficiency of long-distance
transportation, advances in telecommunication, the importance of information rather than
physical capital in the modern economy, and by developments in science and technology.

The rate of globalization has also increased under the framework of the General
Agreement on Tariffs and Trade and the World Trade Organization, in which countries
gradually cut down trade barriers and opened up their current accounts and capital accounts.
 This recent boom has been largely supported by developed economies integrating with
developing countries through foreign direct investment, lowering costs of doing business, the
reduction of trade barriers, and in many cases cross-border migration.

EVOLUTION OF GLOBALIZATION
International commodity markets, labor markets, and capital markets make up the economy
and define economic globalization. Beginning as early as 6500 BCE, people in Syria were
trading livestock, tools, and other items. In Sumer, an early civilization in Mesopotamia, a
token system was one of the first forms of commodity money. Labor markets consist of
workers, employers, wages, income, supply and demand. Labor markets have been around as
long as commodity markets. The first labor markets provided workers to grow crops and tend
livestock for later sale in local markets. Capital markets emerged in industries that require
resources beyond those of an individual farmer. (Photo below shows a bill of sale of a field
and house from Shuruppak, an Ancient Sumerian city—c. 2,600 B.C.)

TECHNOLOGY
Globalization is about interconnecting people
around the world beyond the physical barrier of
geographical boundaries. These advances in
economic globalization were disrupted by World
War I. Most of the global economic powers
constructed protectionist economic policies and
introduced trade barriers that slowed trade
growth to the point of stagnation.

This caused a slowing of worldwide trade

and even led to other countries introducing
immigration caps. Globalization did not fully
resume until the 1970s, when governments began to emphasize the benefits of trade. Today,
follow-on advances in technology have led to the rapid expansion of global trade.

Three suggested factors accelerated economic globalization: advancement of science and

technology, market oriented economic reforms, and contributions by multinational
corporations. The 1956 invention of containerized shipping, along with increases in ship
sizes, were a major part of the reduction in shipping costs. (Below photo collage shows
American entrepreneur Malcolm Purcell Mclean with his sea-land shipping containers.)
POLICY AND GOVERNMENT
The GATT/WTO framework, which was initiated in 1947, led participating countries to
reduce their tariff and non-tariff barriers to trade. Indeed, the idea of Most Favoured Nation
was essential to the GATT. In order to accede, governments had to shift their economies from
central planning to market-driven, especially after the fall of the Soviet Union.

On 27 October 1986, the London Stock Exchange

enacted newly deregulated rules that enabled global
interconnection of markets, with an expectation of
huge increases in market activity. This event came to
be known as the Big Bang.

By the time the World Trade Organization was

established in 1994 as the baton was passed from the
GATT, it had grown to 128 countries, including Czech
Republic, Slovakia and Slovenia. The year 1995 saw the
WTO pass the General Agreement on Trade in Services,
while the 1998 defeat of the OECD’s Multilateral
Agreement on Investment was a hiccup on the route to
economic globalization.

Multinational corporations reorganized production to

take advantage of these opportunities. Labor-intensive
production migrated to areas with lower labor costs, especially China, later followed by other
functions as skill levels increased. Networks raised the level of wealth consumption and
geographical mobility. This highly dynamic worldwide system had powerful ramifications.

The People’s Republic of

China (2001) and the last
remnants of ex-Soviet bloc
countries like Ukraine (2008)
and Russia (2012) were
admitted much later to the
WTO process after painful
structural reforms.

The Multilateral
Convention to Implement Tax
Treaty Related Measures to
Prevent Base Erosion and
Profit Shifting, which entered
into force on 1 July 2018, is
an effort to harmonize tax
regimes in order to prevent
multi-national firms from
taking advantage of loopholes
like Ireland’s Green Jersey
BEPS tool.
THE ACTORS IN ECONOMIC GLOBALIZATION
Who are the ones involved in the economic globalization?

INTERNATIONAL GOVERNMENTAL ORGANIZATIONS

An intergovernmental organization or international governmental organization (IGO) refers
to an entity created by treaty, involving two or more nations, to work in good faith, on issues
of common interest. IGO’s strive for peace, security and deal with economic and social
questions. Examples include The United Nations, The World Bank and on a regional level
The North Atlantic Treaty Organization, among others.
INTERNATIONAL NON-GOVERNMENTAL ORGANIZATIONS (NGO)
INTERNATIONAL NGOs include charities, non-profit advocacy groups, business
associations, and cultural associations. International charitable activities increased after
World War II and on the whole NGOs provide more economic aid to developing countries
than developed country governments.
BUSINESSES
Since the 1970s, multinational
businesses have increasingly
relied on outsourcing and
subcontracting across vast
geographical spaces, as supply
chains are global and
intermediate products are
produced. Firms also engage in
inter-firm alliances and rely on
foreign research and
development. This is in contrast
to past periods where firms kept
production internalized or within
a localized geography.
Innovations in communications and transportation technology, as well as greater economic
openness and less government intervention have made a shift away from internalization more
feasible. Furthermore, businesses going global learn the tools to effectively interact in a
culturally agile way with people of many diverse cultural backgrounds.
MIGRANTS
International migrants transfer significant amounts of money through remittances to lower-
income relatives. Communities of migrants in the destination country often provide new
arrivals with information and ideas about how to earn money.

In some cases, this has resulted in disproportionately high representation of some

ethnic groups in certain industries, especially if economy success encourages more people to
move from the source country. Movement of people also spreads technology and aspects of
business culture, and moves accumulated financial assets.
WHAT ARE THE ADVANTAGES & DISADVANTAGES OF GLOBALIZATION?

ADVANTAGES
In what sense (or senses) is globalization good for us?

PEACEFUL RELATIONS customers may compromise with the price

Most of the countries have resorted to range but not with the quality of the
trade relations with each other in order to product. Low or poor quality can adversely
boost their economy, leaving behind any affect consumer satisfaction.
bitter past experiences if any.
CHEAPER PRICES
EMPLOYMENT Globalization has brought in fierce
Considered as one of the most crucial competition in the markets.
advantages, globalization has led to the
generation of numerous employment COMMUNICATION
opportunities. Companies are moving Information is easily accessible from
towards the developing countries to almost every corner of the world.
acquire labor force. Circulation of information is no longer a
tedious task, and can happen in seconds.
EDUCATION The Internet has significantly affected the
A very critical advantage that has aided the global economy, thereby providing direct
population is the spread of education. With access to information and products.
numerous educational institutions around
the globe, one can move out from the TRANSPORTATION
home country for better opportunities Considered as the wheel of every business
elsewhere. organization, connectivity to various parts
of the world is no more a serious problem.
PRODUCT QUALITY Today with various modes of
The product quality has been enhanced so transportation available, one can
as to retain the customers. Today the
conveniently deliver the products to a to buy goods and services, comparatively
customer located at any part of the world. at a lower cost.

GROSS DOMESTIC PRODUCT, OR GDP. TRAVEL AND TOURISM

Increase Gross Domestic Product, Globalization has promoted tourism to
commonly known as GDP, is the money great heights. International trade
value of the final goods and services among different countries also helps in
produced within the domestic territory of increasing the number of tourists that
the country during an accounting year. visit different places around the world.

FREE TRADE EXTERNAL BORROWING

Free trade is a policy in which a country With the help of globalization, there is
does not levy taxes, duties, subsidies or opportunity for corporate, national, and
quota on the import/export of goods or sub-national borrowers to have better
services from other countries. There are access to external finance, with facilities
countries which have resolved to free trade such as external commercial borrowing
in specific regions. This allows consumers and syndicated loans.

DISADVANTAGES
In what sense (or senses) does globalization not work for our own good?

HEALTH ISSUES
Globalization has given rise to more health risks and presents new threats and challenges for
epidemics.
 Human Immunodeficiency Virus - Acquired Immune Deficiency Syndrome
(HIV/AIDS). Having its origin in the wilderness of Africa, the virus has spread like wildfire
throughout the globe in no time.

Food Safety. Food items are also transported to various countries, and this is a matter
of concern, especially in case of perishable items.

LOSS OF CULTURE
With large number of people moving into
and out of a country, the culture takes a
backseat. People may adapt to the culture
of the resident country. They tend to
follow the foreign culture more, forgetting
their own roots. This can give rise to
cultural conflicts.

UNEVEN WEALTH DISTRIBUTION

It is said that the rich are getting richer
while the poor are getting poorer. In the
real sense, globalization has not been
able to reduce poverty.

ENVIRONMENT DEGRADATION
The industrial revolution has changed the outlook of the economy. Industries are using
natural resources by means of mining, drilling, etc. which puts a burden on the environment.

DISPARITY
Though globalization has opened new avenues like wider markets and employment, there still
exists a disparity in the development of the economies. Structural unemployment owes to the
disparity created. Developed countries are moving their factories to foreign countries where
labor is cheaply available.

CONFLICTS
It has given rise to terrorism and other forms of violence. Such acts not only cause loss of
human life but also huge economic losses.

CUTTHROAT COMPETITION
Opening the doors of international trade has given birth to intense competition. This has
affected the local markets dramatically. The local players thereby suffer huge losses as they
lack the potential to advertise or export their products on a large scale. Therefore the
domestic markets shrink.

SEATWORK
In not less than two sentences, answer each of the questions below on your notebook.

1. What is economic globalization? Define it in your own words.

2. Who are the actors of globalization? What respective roles do they play in globalization?
3. How is globalization good for us? Discuss two advantages of globalization.
4. What are negative consequences of globalization? Explain three disadvantages and be
able to cite examples.