Positive Effects Of Globalization Economics Essay
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Published: Mon, 5 Dec 2016
To date, the concept of globalization still sparks mixed reactions in the public domain. Skeptics of globalization believe that globalization is bad for economies, and that should be controlled. However, others maintain that it is a great thing to have happened to the world’s nations as thus should be seen as a positive move in the right direction. This essay acknowledges that although there are costs associated with globalization, the resultant benefits clearly outweigh the costs to society. Therefore, this paper contends that efforts to increase globalization should be promoted.
Globalization, according to Schmidt and Weitzel, results from increased international integration (Schmidt and and Weitzel). According to them, globalization results from a host of factors, amongst them technological advancement, political changes, and choice of economic policies. Technological advancement makes production, communication, and logistics and transport much cheaper and faster than before. Economic policies encouraging liberalization and open economies to FDI’s also encourages globalization (Schmidt and and Weitzel). Political changes expose economies that were previously isolated into the international market, promote regional blocs, and support reforms that support the rule of law thus, encouraging investments in infrastructural sector. Globalization brings with it both positive and negative effects.
Positive effects of globalization
The gains from globalization are as a result of its effect on the flow of ideas, information, technologies, capital, finances, goods, services and people. The gains are normally triggered by cross border integrations resulting from globalization, which have several dimensions-economic, social, cultural and political (Nistor). Thus, in the analysis of the benefits from globalization, there are three channels through which the benefits accrue. The channels include (a) movement of capital; (b) trade in goods and services and (c) financial flows. Besides, there is also a channel through movement of people.
Movement of capital
Technological advancement and the resultant infrastructural development, globalization has opened up nations to carry out international trade. The net effect of the economic integration and liberalization has enhanced capital flows between different nations. The capital flows across these countries has served the important role of enhancing the capital base. This was very much evident in the 19th and the 20th centuries. With capital flows, it is possible to distribute the total world savings among countries with high investment potential. The ease of capital flows ensures that growth and development of a country is not constrained by its own domestic savings. For instance, most of the East Asian countries are beneficiaries of foreign capital inflow. Capital flow can take either the form of foreign direct investments (FDI) or portfolio investments. For developing countries, they benefit more from the FDI’s than from portfolio investments and thus, most of them will place restriction to portfolio investments due to their volatile nature. Capital flows increases the rate of growth of countries beyond their domestic potential, a condition that would not otherwise be achieved, except with globalization.
Increased trade in goods and services
Globalization opens up economies to international trade in goods and services, which results in the allocation of resources consistent with their respective comparative advantages. Globalization therefore, promotes specialization thus, enhancing the countries’ productivity. Globalization facilitates the removal of restrictive trade that impedes growth. Technological advancements from globalization allows countries to produce what they are best endowed, in terms of resources, technology and labor. In turn, these countries will benefit from what they cannot produce from elsewhere. Specialization enhances productivity, efficiency and promotes good relations across borders.
One of the major characteristics of the globalization process is a rapidly growing capital market. The growth in both foreign exchange and capital market facilitates the transfer of resources across countries. The most significant outcome of the growth in the flows of capital and foreign exchange markets is the gross turnover in the foreign exchange markets. According to Frankel, the gross turnover is estimated to be about $ 1.5 trillion worldwide, per day (Frankel). The turnover is in the order of 100 times greater than the volume of goods and services traded. Therefore, currency trade has become an end in itself. However, an expansion of the capital markets and foreign exchange markets is a vital prerequisite for effective capital transfer.
Negative effects of globalization
Concerning the impacts of globalization, two major concerns arise on the mention of the phenomena (Nistor). This are often described as fears of globalization. The first and major concern of globalization is that it leads to unequal distribution of income and other resources amongst countries. Secondly, is that globalization infringes on the sovereignty. That globalization makes it difficult for countries to follow their domestic policies (Centre for Economic Policy Research). Most of the explanations given for these concerns are genuine while others are farfetched.
Iniquitous income distribution
This argument is premised on the fact that since globalization places more emphasis on efficiency, the phenomena will in most cases benefit countries that are favorably endowed. Skeptics, though justified to some extent, globalization benefits, as much as they accrue on the most endowed countries as claimed, these countries have had their own fair share of benefits. Developed countries have a head start in terms of technological base, natural as well human resources as compared with the developing nations. The skewed advantage relatively eats away the benefits of developing countries from trade, capital flows, and financial flows as well as specialization benefits. While the benefits from trade benefits all countries, much of the gains accrue to the advanced economies. This is perhaps one of the reasons while provisions for preferential treatment are catered for in today’s trade agreements.
The loss of state autonomy in pursuit of economic policies is another concern raised in regard to globalization. With the increased degree of economic integration, it is true that one country cannot pursue autonomously, policies which are not in consonance with the general worldwide trends. With globalization, some level of sacrifice with regards to national sovereignty becomes inevitable. Hus, with regard to globalization issues, constraints to pursuing domestic policies should be acknowledged.
Further concerns over increased globalization, involve the fear of deteriorating national and international security, cultural erosion, drug trafficking, and other social evils. There is loss of craftsmanship as a result of increased use of technology. Globalization has served to increase dependence of states on other states over essential products that enhancing the economic vulnerability.
The contributions of globalization to the developments witnessed today cannot be ignored. Globalization has led to increased development of the world economies, diffused technological advancements and improved people lives. Its role, in enhancing production, productivity and efficiency as well lowering production costs of economies is well clear. These developments, besides having greater benefits, they have their own negatives. However, a succinct review of the benefits against the costs, it is without a doubt that globalization has made the world a better place. With the relevant measures being put in place to mitigate the costs arising from globalization, this essay concludes that, although there are costs to Globalization, the benefits clearly outweigh the Costs to Society. Therefore, efforts to increase Globalization should be promoted.
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