economics essay on globalisation

Globalization: An Economic Perspective Essay

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Introduction

The concept of globalization, causes of globalization, critique of globalization, trade and redistribution, income inequality, positive effects of globalization.

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Globalization is a hotly debated phenomenon associated with a slew of theories purporting to account for its adverse, negligent, or beneficial effects on a wide range of topics such as earnings inequality, standards of living, environment, cultures, societies, job security, and domestic production potential among others. Globalization refers to the tendency of capital, goods, services, workers, innovations, and information to move across borders, thereby increasing levels of integration in the world and changing patterns of economic growth. Unfortunately, people’s understanding of the link between the trend and many aspects associated with it is still highly partial.

Therefore, both the resistance and championing of globalization has taken shape at cultural and governmental levels. In the late 1980s, many Americans were extremely optimistic about the phenomenon. 1 However, in the early 1990s, when the World Trade Organization was established in an attempt to facilitate economic liberalization, the anti-globalization movement emerged. 2

Those who oppose globalization often complain about the widening economic gap between countries, rampant materialism, deterioration of democracy, job losses, and unfair working conditions among others. 3 Proponents of globalization argue that its benefits include, but are not limited to, increased competition, lowering consumer prices, economic growth, the proliferation of democracy, cultural enrichment, technological advancement, and dissemination of information. 4

This paper aims to explore numerous characteristics of globalization, its points of contestation, and acclaim. The paper attempts to show that both drawbacks and benefits of the international flow of knowledge, investment funds, and labor depend on what aspects of the phenomenon are examined.

Given the vague status of the term globalization, it is necessary to define what it is and what it is not before proceeding with the exploration of the phenomenon. The term, which was popularized by Levitt in 1983, should not be confused with the concept of globalism that refers to “aspirations for an end state of affairs wherein values are shared by or about all the world’s five billion people.” 5 Neither does globalization describe the world in which states engage in interaction with each other without losing their autonomy. For example, the existence of the European Union, which is a supranational project, requires the partial dissolution of autonomy of its member states; therefore, the union exhibits characteristics of both internationalization and denationalization. 6

It means that globalization is not a project that seeks to dismantle the nation-state system. Also, the creation of a supra-national government cannot be considered a part of the process commonly referred to as globalization. Finally, the global development, which has been instigated by the policies aimed at the deregulation of financial transactions as well as the elimination of some restrictions on international trade, does not aim at equitable dissemination of its costs and benefits among participating parties. After all, free trade cannot be equated with fair trade. 7 It is hard to deny that this point automatically renders some criticism of globalization invalid.

It can be established with a high level of certainty that globalization is a transformational process. Furthermore, this process is closely linked with the concepts of internationalization and regionalization. The most interesting part of this connection is that strengthening of national activities on both international and regional levels can result in the promotion of globalization. It has to do with the fact that internationalization and regionalization “facilitate a decoupling from the national arena.” 8 Therefore, it can be argued that globalization is an inevitable feature of the modern world.

After having established what globalization is, it is necessary to consider its key causes. The following factors have often been named as major contributors to the promotion of globalization: neoliberalism, financial liberalization, liberalization of capital transactions, the New Industrial Revolution, and the collapse of the Soviet Union. 9 Neoliberalism has been pointed to as the main factor responsible for the evolution of globalization. The concept refers to the deliberate attempt of governments to liberalize capital movement, reduce spending, and promote laissez-faire economics. The movement aims to eliminate government interference with the market and opposes discretionary economic policies.

Also, distinguished scholars of neoliberalism such as Hayek and Friedman have wanted to get rid of as many regulations as possible, thereby showing their respect for individual freedom. 10 Both Thatcher and Reagan have shown their support for what they have considered being a social philosophy, thereby helping neoliberalism to enter mainstream economic thought. Financial liberalization, the aim of which is to dismantle international regulation has helped to “widen the scope for procurement of capital and investment.” 11 Financial liberalization activities have resulted in the dilution of the Glass-Steagall Act. Furthermore, the movement has led to the emergence of hedge funds and private equity funds as well as a dramatic increase in the use of securities.

Liberalization of capital transactions is a movement that was initiated by the International Monetary Fund (IMF) in the 1990s after the collapse of the Breton Woods system. 12 Through foreign direct investment, the movement has stimulated economic development in Brazil and India. It should be mentioned that liberalized capital markets can result in numerous inefficiencies stemming from asymmetric information problems. The New Industrial Revolution is another cause of globalization. The revolution started in the 1980s with the creation of the IT industry. 13 The rapid growth of the industry has offered unique possibilities for outsourcing. The collapse of the Soviet Union was another major stimulus for the evolution of globalization.

It is beyond the scope of this paper to take an integrated approach to analyze globalization. Therefore, while discussing the points of contention with globalization, it is necessary to omit the social and environmental implications of the process and instead focus on foreign trade and income inequality that often results in the emergence of political conflict and populist backlash.

The contentious nature of globalization stems from its redistributive implications. 14 The Stolper-Samuelson theorem, which stipulates that under the conditions of free-trade, in an economy with two products and two factors of production, a factor used for the production of importable goodwill inevitably undergoes a reduction of its earnings. 15 Therefore, to anyone familiar with the theory, it is clear that under competitive conditions, trade liberalization always results in losses of varying magnitude. Furthermore, when it comes to the magnitude of the redistributive effects of the liberalization of trade, it always increases with the dissolution of trade barriers, thereby leading to smaller efficiency gains.

The distributional predictions of the Stolper-Samuelson theorem can be evidenced in the consequences of the North American Free Trade Agreement (NAFTA) for the US labor markets. Hakobyan and McLaren, who have measured the effects of the agreement by analyzing industry-specific census data, argue that American regions without tariff protection have experienced a steeper decline in wages than those localities that have been protected by tariffs. 16 Furthermore, the authors point to the fact that unskilled workers have suffered the most—the growth of their wages has reduced by 8 percent. 17 When it comes to the industry effect of the agreement, unprotected industries exposed to the trade with Mexico have contracted by 17 percent. 18

Trade-poverty nexus has often been presented by opponents of globalization. This connection can be subdivided into three major components: trade-induced growth, trade-induce shifts in prices and income, and trade-induced patterns of employment. 19 There is no disputing the fact that open markets facilitate the spread of information, new technologies, and capital goods, which results in the emergence of the economies of scale and increased competitiveness. As a result of the more effective distribution of resources, poverty in urban areas tends to increase. Castilho, Menendez, and Sztulman who have looked at the effects of agricultural trade across Brazilian states in the period from 1987 to 2005 argue that trade liberalization favors the growth in poverty in rural areas. 20 Furthermore, the authors argue that the ever-increasing integration of Brazilian states into world markets has resulted in the rise in poverty levels. 21

A cross-country comparison of income inequality performed with the help of Gini indices shows that globalization has resulted in substantial income differences on both regional and country levels. According to Jaumotte, Lall, and Papageorgiou, “while inequality has risen in developing Asia, emerging Europe, Latin America, the Newly Industrialized Economies, and the advanced economies over the past two decades, it has declined in some sub-Saharan African countries.” 22 The authors state that among the largest world’s economies, income inequality has declined only in France, whereas India and China have experienced a sharp increase in the disparities of the income distribution. 23 It means that during the recent phases of globalization, most countries have witnessed a widening gap between the incomes of their citizens.

Proponents of globalization argue that even though the process has not helped to eliminate the problem of income inequality in the developed nations, it has succeeded in reducing income discrepancies between citizens of the developing nations. Globalization has facilitated foreign direct investment (FDI), thereby shifting the pattern of the income distribution among different economies. Numerous studies point to the fact that increasing flows of FDI into nations such as India and China have led to the reduction of inequality gaps in terms of income. 24 It has to do with the fact that FDI flows lead to “a general rise in the capital quantity in the developing countries, which subsequently means that the marginal physical product of labor increases” thereby raising both real and nominal wages. 25

Another point habitually discussed by proponents of globalization is the decrease in the number of people living below the poverty line. According to Sang-Hyup, who investigated the economic benefits of globalization, there has been a reduction of people living on less than $1.25 per day in the period from 1980 to 2005. 26 Furthermore, the developing countries have experienced steeper GDP growth rates than the developed countries since 1996. 27 Therefore, it can be argued that despite substantial differences in sizes of economies between countries affected by globalization, more parties have partaken in the benefits of the process than those that have only experienced its costs. Also, the reduction in global poverty levels suggests that globalization has been a positive force in the lives of extremely poor people in the world.

The promotion of economic growth is another positive effect of globalization. A study on the economic development of the Organization of Islamic Cooperation (OIC) shows that globalization has a positive net effect on growth. 28 The authors of the study attribute this effect of globalization to the increase in the size of global markets as well as a more efficient allocation of resources that allows OIC countries to specialize in economic activities in which they have a comparative advantage. 29

Moreover, the researchers claim that a rapid spread of knowledge has led to increased productivity and technological innovation. 30 It can be argued that the implementation of new technological solutions requires higher levels of spending in the development of human capital, which directly promotes economic growth. Also, the information and financial openness inevitably lead to the creation of stronger financial systems that allow developing countries to benefit from globalization.

Greater mobility of capital, information, workers, goods, and services is linked by proponents of the phenomenon with a positive effect on human well-being. The multi-dimensional effects of globalization in the period from 1970 to 2010 have been explored by Mukherjee and Krieckhaus 31 who argue that “on balance, all forms of globalization positively affect well-being.” Similarly to other proponents of globalization, the authors claim that international treaties lead to the reduction of a conflict whose negative effects diminish human well-being. 32

Furthermore, Mukherjee and Krieckhaus espouse the belief that the IMF and World Bank are not responsible for the poor economic performance of the countries that have been influenced by these international bodies. 33 It is hard to disagree with authors in that the existence of international programs such as the United Nations Development Program (UNDP) and the United Nations Children’s Fund (UNICEF) helps to decrease the amount of misery in the world, thereby improving human well-being.

Globalization is a process that attracts extremely contradictory perspectives. The discussion of the benefits of globalization in this paper has not been sidetracked by the analysis of extremely important but non-economic issues such as climate change, cultural appropriation, and human rights. Instead, the paper has focused on the reshaping of the patterns of global trade, income inequality, economic growth, and poverty.

It can be argued that despite a great deal of emphasis on the unequal distribution of benefits of globalization among participating parties that is often pointed to as a major drawback of the phenomenon by its opponents, the reduction in the prices of goods have benefited consumers across the world. However, it is impossible to deny that during the recent phases of globalization, most developed countries have experienced a widening gap between the incomes of their citizens. This is a negative effect of globalization, which has to be taken into account when assessing the impact of the process on the world economy.

Taking into consideration the fact that globalization is associated with economic growth, it can be argued that it improves the global economy. Furthermore, the process has facilitated the movement of labor across state borders, thereby helping workers to sell their skills in the areas of the world, which are the most appreciative of them. Other positive effects of globalization include, but are not limited to, increased competition, the proliferation of democracy, cultural enrichment, and dissemination of information. However, given many negative factors associated with the phenomenon, it can be concluded that globalization has both positive and negative effects on the world’s economy.

Castilho Marta, Marta Menéndez, and Aude Sztulman “Trade Liberalization, Inequality, and Poverty in Brazilian States” World Development, August 2 nd , 2012, pp. 821–835.

De la Dehesa Guillermo, What do we Know About Globalization: Issues of Poverty and Income Distribution, Carlton, 2007, pp. 112-115.

Dignam Alan and Michel Galanis, The Globalization of Corporate Governance, London, 2009, p. 90.

Ekmekcioglu Ercan “The Effects of Globalization on World Income Inequality” International Journal of Academic Research in Business and Social Sciences, April 13 th , 2012, pp. 140-145.

Hany Makhlouf “Facets of Globalization” International Journal of Business and Social Science, January 2 nd , 2014, pp. 59-64.

Hirai Toshiaki, Capitalism and the World Economy: The Light and Shadow of Globalization, Abington, 2015, p. 9.

Hirst Paul, Grahame Thompson, and Simon Bromley, Globalization in Question, Cambridge, 2009, pp. 24-27.

Jaumotte Florence, Subir Lall, and Chris Papageorgiou “Rising Income Inequality: Technology, or Trade and Financial Globalization?” IMF Economic Review, May 21 st , 2013, pp. 271-309.

Mukherjee Nisha and Jonathan Krieckhaus “Globalization and Human Well-Being” International Political Science Review, June 12 th , 2011, pp. 150-170.

“Pros and Cons of Globalization” InternationalRelations . Web.

Samimi Parisa and Hashem Jenatabadi “Globalization and Economic Growth: Empirical Evidence on the Role of Complementarities” PLOS, April 10 th , 2014, 70-94.

Sang-Hyup Shin “A Study on the Economic Benefits of Globalization: Focusing on the Poverty and Inequality Between the Rich and the Poor” International Area Review, September 15 th , 2009, pp. 191-214.

Seay W. “The Birth of the World Economy and Finance.” Econ 491: Virginia Commonwealth University, Summer 2017.

Shushanik Hakobyan and John McLaren “Looking for Local Labor Market Effects of NAFTA” Review of Economics and Statistics, October 16 th , 2016, pp. 728–741.

Willarts Barbara, Alberto Garrido, and Ramon Liamas, Water for Food Security and Well-Being in Latin America and the Caribean: Social and Environmental Implications for a Globalized Economy, Oxon, 2014, p. 121-124.

• “Pros and Cons of Globalization” international relations. Web.
• Alan Dignam and Michel Galanis, The Globalization of Corporate Governance, London, 2009, p. 90.
• W.Seay. “The Birth of the World Economy and Finance.” Econ 491: Virginia Commonwealth University, Summer 2017.
• Alan Dignam and Michel Galanis, The Globalization of Corporate, p. xiv.
• Toshiaki Hirai, Capitalism and the World Economy: The Light and Shadow of Globalization, Abington, 2015, p. 9.
• Toshiaki Hirai, Capitalism, p. 9.
• Guillermo de la Dehesa, What do we Know About Globalization: Issues of Poverty and Income Distribution, Carlton, 2007, pp. 112-115.
• Guillermo de la Dehesa, What do we Know, pp. 112-115.
• Paul Hirst, Grahame Thompson, and Simon Bromley, Globalization in Question, Cambridge, 2009, pp. 24-27.
• Hakobyan Shushanik and John McLaren “Looking for Local Labor Market Effects of NAFTA” Review of Economics and Statistics, October 16 th , 2016, pp. 728–741.
• Barbara Willards, Alberto Garrido, and Ramon Llamas, Water for Food Security and Well-Being in Latin America and the Caribean: Social and Environmental Implications for a Globalized Economy, Oxon, 2014, p. 121-124.
• Marta Castilho, Marta Menéndez, and Aude Sztulman “Trade Liberalization, Inequality, and Poverty in the Brazilian States” World Development, August 2 nd , 2012, pp. 821–835.
• Florence Jaumotte, Subir Lall, and Chris Papageorgiou “Rising Income Inequality: Technology, or Trade and Financial Globalization?” IMF Economic Review, May 21 st , 2013, pp. 271-309.
• Florence Jaumotte, Subir Lall, and Chris Papageorgiou “Rising Income Inequality,” pp. 271-309.
• Ercan Ekmekcioglu “The Effects of Globalization on World Income Inequality” International Journal of Academic Research in Business and Social Sciences, April 13 th , 2012, pp. 140-145.
• Shin Sang-Hyup “A Study on the Economic Benefits of Globalization: Focusing on the Poverty and Inequality Between the Rich and the Poor” International Area Review, September 15 th , 2009, pp. 191-214.
• Parisa Samimi and Hashem Jenatabadi “Globalization and Economic Growth: Empirical Evidence on the Role of Complementarities” PLOS, April 10 th , 2014, 70-94.
• Nisha Mukherjee and Jonathan Krieckhaus “Globalization and Human Well-Being” International Political Science Review, June 12 th , 2011, pp. 150-170.
• Ibid., 156.
• Nisha Mukherjee and Jonathan Krieckhaus “Globalization,” pp. 150-170.
• Globalization of the Chinese Manufactories
• Globalization's Benefits in Kazakhstan
• Women in Developing Countries: Globalization, Liberalization, and Gender Equality
• Benefits of Trade Liberalization Measures on Automobile Industry
• Rebuttal to “No Fair Trade” by Joseph Stiglitz
• Old World Long-Distance Trade and Globalization
• Capitalism and Its Influence on Globalization
• Globalization and Income Inequality Relationship
• Imported Products and Production Transformation
• Globalization, Its Winners and Losers
• Chicago (A-D)
• Chicago (N-B)

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Open Access

Peer-reviewed

Research Article

Globalization and Economic Growth: Empirical Evidence on the Role of Complementarities

* E-mail: [email protected]

Affiliations Faculty of Management, Universiti Teknologi Malaysia (UTM), Johor, Malaysia, Department of Management, Mobarakeh Branch, Islamic Azad University, Isfahan, Iran

Affiliation Applied Statistics Department, Economics and Administration Faculty, University of Malaya, Kuala Lumpur, Malaysia

• Parisa Samimi, 
• Hashem Salarzadeh Jenatabadi

• Published: April 10, 2014
• https://doi.org/10.1371/journal.pone.0087824
• Reader Comments

This study was carried out to investigate the effect of economic globalization on economic growth in OIC countries. Furthermore, the study examined the effect of complementary policies on the growth effect of globalization. It also investigated whether the growth effect of globalization depends on the income level of countries. Utilizing the generalized method of moments (GMM) estimator within the framework of a dynamic panel data approach, we provide evidence which suggests that economic globalization has statistically significant impact on economic growth in OIC countries. The results indicate that this positive effect is increased in the countries with better-educated workers and well-developed financial systems. Our finding shows that the effect of economic globalization also depends on the country’s level of income. High and middle-income countries benefit from globalization whereas low-income countries do not gain from it. In fact, the countries should receive the appropriate income level to be benefited from globalization. Economic globalization not only directly promotes growth but also indirectly does so via complementary reforms.

Citation: Samimi P, Jenatabadi HS (2014) Globalization and Economic Growth: Empirical Evidence on the Role of Complementarities. PLoS ONE 9(4): e87824. https://doi.org/10.1371/journal.pone.0087824

Editor: Rodrigo Huerta-Quintanilla, Cinvestav-Merida, Mexico

Received: November 5, 2013; Accepted: January 2, 2014; Published: April 10, 2014

Copyright: © 2014 Samimi, Jenatabadi. This is an open-access article distributed under the terms of the Creative Commons Attribution License , which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.

Funding: The study is supported by the Ministry of Higher Education of Malaysia, Malaysian International Scholarship (MIS). The funders had no role in study design, data collection and analysis, decision to publish, or preparation of the manuscript.

Competing interests: The authors have declared that no competing interests exist.

Introduction

Globalization, as a complicated process, is not a new phenomenon and our world has experienced its effects on different aspects of lives such as economical, social, environmental and political from many years ago [1] – [4] . Economic globalization includes flows of goods and services across borders, international capital flows, reduction in tariffs and trade barriers, immigration, and the spread of technology, and knowledge beyond borders. It is source of much debate and conflict like any source of great power.

The broad effects of globalization on different aspects of life grab a great deal of attention over the past three decades. As countries, especially developing countries are speeding up their openness in recent years the concern about globalization and its different effects on economic growth, poverty, inequality, environment and cultural dominance are increased. As a significant subset of the developing world, Organization of Islamic Cooperation (OIC) countries are also faced by opportunities and costs of globalization. Figure 1 shows the upward trend of economic globalization among different income group of OIC countries.

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https://doi.org/10.1371/journal.pone.0087824.g001

Although OICs are rich in natural resources, these resources were not being used efficiently. It seems that finding new ways to use the OICs economic capacity more efficiently are important and necessary for them to improve their economic situation in the world. Among the areas where globalization is thought, the link between economic growth and globalization has been become focus of attention by many researchers. Improving economic growth is the aim of policy makers as it shows the success of nations. Due to the increasing trend of globalization, finding the effect of globalization on economic growth is prominent.

The net effect of globalization on economic growth remains puzzling since previous empirical analysis did not support the existent of a systematic positive or negative impact of globalization on growth. Most of these studies suffer from econometrics shortcoming, narrow definition of globalization and small number of countries. The effect of economic globalization on the economic growth in OICs is also ambiguous. Existing empirical studies have not indicated the positive or negative impact of globalization in OICs. The relationship between economic globalization and economic growth is important especially for economic policies.

Recently, researchers have claimed that the growth effects of globalization depend on the economic structure of the countries during the process of globalization. The impact of globalization on economic growth of countries also could be changed by the set of complementary policies such as improvement in human capital and financial system. In fact, globalization by itself does not increase or decrease economic growth. The effect of complementary policies is very important as it helps countries to be successful in globalization process.

In this paper, we examine the relationship between economic globalization and growth in panel of selected OIC countries over the period 1980–2008. Furthermore, we would explore whether the growth effects of economic globalization depend on the set of complementary policies and income level of OIC countries.

The paper is organized as follows. The next section consists of a review of relevant studies on the impact of globalization on growth. Afterward the model specification is described. It is followed by the methodology of this study as well as the data sets that are utilized in the estimation of the model and the empirical strategy. Then, the econometric results are reported and discussed. The last section summarizes and concludes the paper with important issues on policy implications.

Literature Review

The relationship between globalization and growth is a heated and highly debated topic on the growth and development literature. Yet, this issue is far from being resolved. Theoretical growth studies report at best a contradictory and inconclusive discussion on the relationship between globalization and growth. Some of the studies found positive the effect of globalization on growth through effective allocation of domestic resources, diffusion of technology, improvement in factor productivity and augmentation of capital [5] , [6] . In contrast, others argued that globalization has harmful effect on growth in countries with weak institutions and political instability and in countries, which specialized in ineffective activities in the process of globalization [5] , [7] , [8] .

Given the conflicting theoretical views, many studies have been empirically examined the impact of the globalization on economic growth in developed and developing countries. Generally, the literature on the globalization-economic growth nexus provides at least three schools of thought. First, many studies support the idea that globalization accentuates economic growth [9] – [19] . Pioneering early studies include Dollar [9] , Sachs et al. [15] and Edwards [11] , who examined the impact of trade openness by using different index on economic growth. The findings of these studies implied that openness is associated with more rapid growth.

In 2006, Dreher introduced a new comprehensive index of globalization, KOF, to examine the impact of globalization on growth in an unbalanced dynamic panel of 123 countries between 1970 and 2000. The overall result showed that globalization promotes economic growth. The economic and social dimensions have positive impact on growth whereas political dimension has no effect on growth. The robustness of the results of Dreher [19] is approved by Rao and Vadlamannati [20] which use KOF and examine its impact on growth rate of 21 African countries during 1970–2005. The positive effect of globalization on economic growth is also confirmed by the extreme bounds analysis. The result indicated that the positive effect of globalization on growth is larger than the effect of investment on growth.

The second school of thought, which supported by some scholars such as Alesina et al. [21] , Rodrik [22] and Rodriguez and Rodrik [23] , has been more reserve in supporting the globalization-led growth nexus. Rodriguez and Rodrik [23] challenged the robustness of Dollar (1992), Sachs, Warner et al. (1995) and Edwards [11] studies. They believed that weak evidence support the idea of positive relationship between openness and growth. They mentioned the lack of control for some prominent growth indicators as well as using incomprehensive trade openness index as shortcomings of these works. Warner [24] refuted the results of Rodriguez and Rodrik (2000). He mentioned that Rodriguez and Rodrik (2000) used an uncommon index to measure trade restriction (tariffs revenues divided by imports). Warner (2003) explained that they ignored all other barriers on trade and suggested using only the tariffs and quotas of textbook trade policy to measure trade restriction in countries.

Krugman [25] strongly disagreed with the argument that international financial integration is a major engine of economic development. This is because capital is not an important factor to increase economic development and the large flows of capital from rich to poor countries have never occurred. Therefore, developing countries are unlikely to increase economic growth through financial openness. Levine [26] was more optimistic about the impact of financial liberalization than Krugman. He concluded, based on theory and empirical evidences, that the domestic financial system has a prominent effect on economic growth through boosting total factor productivity. The factors that improve the functioning of domestic financial markets and banks like financial integration can stimulate improvements in resource allocation and boost economic growth.

The third school of thoughts covers the studies that found nonlinear relationship between globalization and growth with emphasis on the effect of complementary policies. Borensztein, De Gregorio et al. (1998) investigated the impact of FDI on economic growth in a cross-country framework by developing a model of endogenous growth to examine the role of FDI in the economic growth in developing countries. They found that FDI, which is measured by the fraction of products produced by foreign firms in the total number of products, reduces the costs of introducing new varieties of capital goods, thus increasing the rate at which new capital goods are introduced. The results showed a strong complementary effect between stock of human capital and FDI to enhance economic growth. They interpreted this finding with the observation that the advanced technology, brought by FDI, increases the growth rate of host economy when the country has sufficient level of human capital. In this situation, the FDI is more productive than domestic investment.

Calderón and Poggio [27] examined the structural factors that may have impact on growth effect of trade openness. The growth benefits of rising trade openness are conditional on the level of progress in structural areas including education, innovation, infrastructure, institutions, the regulatory framework, and financial development. Indeed, they found that the lack of progress in these areas could restrict the potential benefits of trade openness. Chang et al. [28] found that the growth effects of openness may be significantly improved when the investment in human capital is stronger, financial markets are deeper, price inflation is lower, and public infrastructure is more readily available. Gu and Dong [29] emphasized that the harmful or useful growth effect of financial globalization heavily depends on the level of financial development of economies. In fact, if financial openness happens without any improvement in the financial system of countries, growth will replace by volatility.

However, the review of the empirical literature indicates that the impact of the economic globalization on economic growth is influenced by sample, econometric techniques, period specifications, observed and unobserved country-specific effects. Most of the literature in the field of globalization, concentrates on the effect of trade or foreign capital volume (de facto indices) on economic growth. The problem is that de facto indices do not proportionally capture trade and financial globalization policies. The rate of protections and tariff need to be accounted since they are policy based variables, capturing the severity of trade restrictions in a country. Therefore, globalization index should contain trade and capital restrictions as well as trade and capital volume. Thus, this paper avoids this problem by using a comprehensive index which called KOF [30] . The economic dimension of this index captures the volume and restriction of trade and capital flow of countries.

Despite the numerous studies, the effect of economic globalization on economic growth in OIC is still scarce. The results of recent studies on the effect of globalization in OICs are not significant, as they have not examined the impact of globalization by empirical model such as Zeinelabdin [31] and Dabour [32] . Those that used empirical model, investigated the effect of globalization for one country such as Ates [33] and Oyvat [34] , or did it for some OIC members in different groups such as East Asia by Guillaumin [35] or as group of developing countries by Haddad et al. [36] and Warner [24] . Therefore, the aim of this study is filling the gap in research devoted solely to investigate the effects of economic globalization on growth in selected OICs. In addition, the study will consider the impact of complimentary polices on the growth effects of globalization in selected OIC countries.

Model Specification

Methodology and Data

This paper applies the generalized method of moments (GMM) panel estimator first suggested by Anderson and Hsiao [38] and later developed further by Arellano and Bond [39] . This flexible method requires only weak assumption that makes it one of the most widely used econometric techniques especially in growth studies. The dynamic GMM procedure is as follow: first, to eliminate the individual effect form dynamic growth model, the method takes differences. Then, it instruments the right hand side variables by using their lagged values. The last step is to eliminate the inconsistency arising from the endogeneity of the explanatory variables.

The consistency of the GMM estimator depends on two specification tests. The first is a Sargan test of over-identifying restrictions, which tests the overall validity of the instruments. Failure to reject the null hypothesis gives support to the model. The second test examines the null hypothesis that the error term is not serially correlated.

The GMM can be applied in one- or two-step variants. The one-step estimators use weighting matrices that are independent of estimated parameters, whereas the two-step GMM estimator uses the so-called optimal weighting matrices in which the moment conditions are weighted by a consistent estimate of their covariance matrix. However, the use of the two-step estimator in small samples, as in our study, has problem derived from proliferation of instruments. Furthermore, the estimated standard errors of the two-step GMM estimator tend to be small. Consequently, this paper employs the one-step GMM estimator.

In the specification, year dummies are used as instrument variable because other regressors are not strictly exogenous. The maximum lags length of independent variable which used as instrument is 2 to select the optimal lag, the AR(1) and AR(2) statistics are employed. There is convincing evidence that too many moment conditions introduce bias while increasing efficiency. It is, therefore, suggested that a subset of these moment conditions can be used to take advantage of the trade-off between the reduction in bias and the loss in efficiency. We restrict the moment conditions to a maximum of two lags on the dependent variable.

Data and Empirical Strategy

We estimated Eq. (1) using the GMM estimator based on a panel of 33 OIC countries. Table S1 in File S1 lists the countries and their income groups in the sample. The choice of countries selected for this study is primarily dictated by availability of reliable data over the sample period among all OIC countries. The panel covers the period 1980–2008 and is unbalanced. Following [40] , we use annual data in order to maximize sample size and to identify the parameters of interest more precisely. In fact, averaging out data removes useful variation from the data, which could help to identify the parameters of interest with more precision.

The dependent variable in our sample is logged per capita real GDP, using the purchasing power parity (PPP) exchange rates and is obtained from the Penn World Table (PWT 7.0). The economic dimension of KOF index is derived from Dreher et al. [41] . We use some other variables, along with economic globalization to control other factors influenced economic growth. Table S2 in File S2 shows the variables, their proxies and source that they obtain.

We relied on the three main approaches to capture the effects of economic globalization on economic growth in OIC countries. The first one is the baseline specification (Eq. (1)) which estimates the effect of economic globalization on economic growth.

The second approach is to examine whether the effect of globalization on growth depends on the complementary policies in the form of level of human capital and financial development. To test, the interactions of economic globalization and financial development (KOF*FD) and economic globalization and human capital (KOF*HCS) are included as additional explanatory variables, apart from the standard variables used in the growth equation. The KOF, HCS and FD are included in the model individually as well for two reasons. First, the significance of the interaction term may be the result of the omission of these variables by themselves. Thus, in that way, it can be tested jointly whether these variables affect growth by themselves or through the interaction term. Second, to ensure that the interaction term did not proxy for KOF, HCS or FD, these variables were included in the regression independently.

In the third approach, in order to study the role of income level of countries on the growth effect of globalization, the countries are split based on income level. Accordingly, countries were classified into three groups: high-income countries (3), middle-income (21) and low-income (9) countries. Next, dummy variables were created for high-income (Dum 3), middle-income (Dum 2) and low-income (Dum 1) groups. Then interaction terms were created for dummy variables and KOF. These interactions will be added to the baseline specification.

Findings and Discussion

This section presents the empirical results of three approaches, based on the GMM -dynamic panel data; in Tables 1 – 3 . Table 1 presents a preliminary analysis on the effects of economic globalization on growth. Table 2 displays coefficient estimates obtained from the baseline specification, which used added two interaction terms of economic globalization and financial development and economic globalization and human capital. Table 3 reports the coefficients estimate from a specification that uses dummies to capture the impact of income level of OIC countries on the growth effect of globalization.

https://doi.org/10.1371/journal.pone.0087824.t001

https://doi.org/10.1371/journal.pone.0087824.t002

https://doi.org/10.1371/journal.pone.0087824.t003

The results in Table 1 indicate that economic globalization has positive impact on growth and the coefficient is significant at 1 percent level. The positive effect is consistent with the bulk of the existing empirical literature that support beneficial effect of globalization on economic growth [9] , [11] , [13] , [19] , [42] , [43] .

According to the theoretical literature, globalization enhances economic growth by allocating resources more efficiently as OIC countries that can be specialized in activities with comparative advantages. By increasing the size of markets through globalization, these countries can be benefited from economic of scale, lower cost of research and knowledge spillovers. It also augments capital in OICs as they provide a higher return to capital. It has raised productivity and innovation, supported the spread of knowledge and new technologies as the important factors in the process of development. The results also indicate that growth is enhanced by lower level of government expenditure, lower level of inflation, higher level of human capital, deeper financial development, more domestic investment and better institutions.

Table 2 represents that the coefficients on the interaction between the KOF, HCS and FD are statistically significant at 1% level and with the positive sign. The findings indicate that economic globalization not only directly promotes growth but also indirectly does via complementary reforms. On the other hand, the positive effect of economic globalization can be significantly enhanced if some complementary reforms in terms of human capital and financial development are undertaken.

In fact, the implementation of new technologies transferred from advanced economies requires skilled workers. The results of this study confirm the importance of increasing educated workers as a complementary policy in progressing globalization. However, countries with higher level of human capital can be better and faster to imitate and implement the transferred technologies. Besides, the financial openness brings along the knowledge and managerial for implementing the new technology. It can be helpful in improving the level of human capital in host countries. Moreover, the strong and well-functioned financial systems can lead the flow of foreign capital to the productive and compatible sectors in developing countries. Overall, with higher level of human capital and stronger financial systems, the globalized countries benefit from the growth effect of globalization. The obtained results supported by previous studies in relative to financial and trade globalization such as [5] , [27] , [44] , [45] .

Table (3 ) shows that the estimated coefficients on KOF*dum3 and KOF*dum2 are statistically significant at the 5% level with positive sign. The KOF*dum1 is statistically significant with negative sign. It means that increase in economic globalization in high and middle-income countries boost economic growth but this effect is diverse for low-income countries. The reason might be related to economic structure of these countries that are not received to the initial condition necessary to be benefited from globalization. In fact, countries should be received to the appropriate income level to be benefited by globalization.

The diagnostic tests in tables 1 – 3 show that the estimated equation is free from simultaneity bias and second-order correlation. The results of Sargan test accept the null hypothesis that supports the validity of the instrument use in dynamic GMM.

Conclusions and Implications

Numerous researchers have investigated the impact of economic globalization on economic growth. Unfortunately, theoretical and the empirical literature have produced conflicting conclusions that need more investigation. The current study shed light on the growth effect of globalization by using a comprehensive index for globalization and applying a robust econometrics technique. Specifically, this paper assesses whether the growth effects of globalization depend on the complementary polices as well as income level of OIC countries.

Using a panel data of OIC countries over the 1980–2008 period, we draw three important conclusions from the empirical analysis. First, the coefficient measuring the effect of the economic globalization on growth was positive and significant, indicating that economic globalization affects economic growth of OIC countries in a positive way. Second, the positive effect of globalization on growth is increased in countries with higher level of human capital and deeper financial development. Finally, economic globalization does affect growth, whether the effect is beneficial depends on the level of income of each group. It means that economies should have some initial condition to be benefited from the positive effects of globalization. The results explain why some countries have been successful in globalizing world and others not.

The findings of our study suggest that public policies designed to integrate to the world might are not optimal for economic growth by itself. Economic globalization not only directly promotes growth but also indirectly does so via complementary reforms.

The policy implications of this study are relatively straightforward. Integrating to the global economy is only one part of the story. The other is how to benefits more from globalization. In this respect, the responsibility of policymakers is to improve the level of educated workers and strength of financial systems to get more opportunities from globalization. These economic policies are important not only in their own right, but also in helping developing countries to derive the benefits of globalization.

However, implementation of new technologies transferred from advanced economies requires skilled workers. The results of this study confirm the importance of increasing educated workers as a complementary policy in progressing globalization. In fact, countries with higher level of human capital can better and faster imitate and implement the transferred technologies. The higher level of human capital and certain skill of human capital determine whether technology is successfully absorbed across countries. This shows the importance of human capital in the success of countries in the globalizing world.

Financial openness in the form of FDI brings along the knowledge and managerial for implementing the new technology. It can be helpful in upgrading the level of human capital in host countries. Moreover, strong and well-functioned financial systems can lead the flow of foreign capital to the productive and compatible sectors in OICs.

In addition, the results show that economic globalization does affect growth, whether the effect is beneficial depends on the level of income of countries. High and middle income countries benefit from globalization whereas low-income countries do not gain from it. As Birdsall [46] mentioned globalization is fundamentally asymmetric for poor countries, because their economic structure and markets are asymmetric. So, the risks of globalization hurt the poor more. The structure of the export of low-income countries heavily depends on primary commodity and natural resource which make them vulnerable to the global shocks.

The major research limitation of this study was the failure to collect data for all OIC countries. Therefore future research for all OIC countries would shed light on the relationship between economic globalization and economic growth.

Supporting Information

Sample of Countries.

https://doi.org/10.1371/journal.pone.0087824.s001

The Name and Definition of Indicators.

https://doi.org/10.1371/journal.pone.0087824.s002

Author Contributions

Conceived and designed the experiments: PS. Performed the experiments: PS. Analyzed the data: PS. Contributed reagents/materials/analysis tools: PS HSJ. Wrote the paper: PS HSJ.

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Globalization and Economic Growth

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• Ishak Demir 7 , 10 ,
• Mehmet Canakci 8 &
• Taha Egri 9  

Part of the book series: Encyclopedia of the UN Sustainable Development Goals ((ENUNSDG))

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Economic Growth , Integration and growth , Economic development.

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Globalization, or the increased interconnectedness and interdependence of peoples, companies, institutions and countries. It is generally understood to include two inter-related elements: the opening of international borders to increasingly fast flows of goods, services, finance, investment, people, information, ideas and technology; and the changes in institutions and policies at national and international levels that facilitate or promote such flows (WHO 2020 ). Globalization process has impacts on economies, prosperity, development of societies, political systems, environment, and cultures around the world.

Economic globalization can be defined as the increasing interdependence of world economies as a result of the growing scale of cross-border trade of commodities and services, flow of international capital and wide and rapid spread of technologies. It reflects the continuing expansion and mutual...

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Demir, I., Canakci, M., Egri, T. (2021). Globalization and Economic Growth. In: Leal Filho, W., Azul, A.M., Brandli, L., Lange Salvia, A., Wall, T. (eds) Decent Work and Economic Growth. Encyclopedia of the UN Sustainable Development Goals. Springer, Cham. https://doi.org/10.1007/978-3-319-71058-7_90-1

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Globalisation and Inequality (Revision Essay Plan)

Last updated 1 May 2018

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Here is an answer to the following question: "Evaluate the extent to which globalisation inevitably leads to a rise in income inequality in one or more countries of your choice."

Essay On Globalisation And Inequality (Download a pdf version of this essay)

Globalisation is a process through which countries, businesses and people become more inter-connected and inter-dependent via an increase in trade in goods and services, cross-border investment and labour migration from one nation to another. Income and wealth inequality can be measured in various ways including the Gini coefficient and the Palma Ratio. The latter is a good indicator of the depth of inequality since it tracks incomes flowing to the top ten percent of households and divides by the incomes for the bottom forty percent. In South Africa, that figure is 7.1 whereas for Germany the Palma Ratio is just over 3.

One way globalisation can increase inequality is through the effects of increasing specialisation and trade. A rise in trade-to-GDP ratios signifies an increase in the volume and value of trade between countries and regions. Although trade based on comparative advantage has the potential to stimulate economic growth and lift per capita incomes, it can also lead to a rise in relative poverty. For example, if a country can now import cheaper steel from elsewhere, then there will be a contraction in domestic supply and a fall in employment and real incomes in that industry. This can lead to higher rates of structural unemployment and a decline in real living standards. Real wages come under downward pressure and inequality can increase. We see this in regions of the UK for example where de-industrialisation has taken place leading to much higher rates of long-term unemployment and a worsening of economic and social deprivation. In the United States, the share of national income claimed by the top 1% of the population climbed from 11% in 1980 to 20% in 2014, compared to just 13% for the entire bottom half of the population. 

However, one could argue that the benefits of globalisation can be used to offset this. If trade generates faster GDP growth, then the government will see an increase in tax revenues which might then be used to fund capital investment in public goods and merit goods and services including finance for re-training programmes and improvements to infrastructure in economically-depressed areas. Much depends on whether a government has sufficient resources and political will to implement an active regional and industrial policy to improve employment prospects for those negatively affected by globalisation.

Globalisation might also increase inequality because it usually leads to higher profits for multinational corporations such as Apple, Google and Facebook which feed into generous pay-outs for senior executives and increasing dividends for shareholders. Multinationals matter - they generate 10 percent of the world’s annual GDP and more than 50 percent of the value of world trade. One of the hot political and economic issues of the age has been the ability of businesses operating in more than one country (a transitional company) to use shadow pricing and other forms of legal tax avoidance to reduce their liability to pay tax and thereby increase the return to those with an equity stake. Because of tax avoidance, national governments do not generate the revenues needed to pay for public services and welfare systems - both of which can have a progressive effect on the final distribution of income. The UK government has estimated that, in 2017, multinational businesses managed to avoid paying nearly £6 billion in tax revenues. Oxfam estimates that tax avoidance costs developing countries $170 billion a year whereas $100 billion could provide an education for 124 million children and pay for healthcare services that could prevent the deaths of at least six million children annually.

In evaluation, there are steps that governments can take to increase their tax take. This can range from introducing country-by-country financial reporting so that it becomes clearer where the profits are being made, to introducing restrictions on interest rates charges from one subsidiary of a TNC to another. There are also moves to reduce the amount of intra-company loans made by TNCs which can shift profits to countries with lower corporation tax. In the US, they have introduced a one-off tax on the off-shore cash held by US businesses after it was found that US companies had built up almost $2.6tn in untaxed cash held offshore. Developing countries can also improve their governance so that multi-nationals investing pay a proper rent for the ownership of land and are less vulnerable to corruption from elected officials.

A third way in which globalisation can create increased inequality is by increasing the demand for and returns to higher-skilled work and lowering the expected earnings of people in relatively low-skill and low-knowledge occupations. One of the driving forces of foreign direct investment is that resources tend to flow where the unit cost of production is lowest. This is the case with light manufacturing for example where a lot of investment is flowing to countries such as Vietnam, Bangladesh, Ethiopia and Indonesia. FDI creates more formal employment and incomes for people employed in these sectors but perhaps at the expense of similar workers in higher-income countries whose skills are no longer in such demand. They are therefore at greater risk of unemployment and persistent relative poverty; many have been pushed into poorly paid jobs in services linked to the Gig Economy. People affected often feel that they have been left behind by the forces of globalisation and their votes may have been a factor behind the Brexit outcome and the election of Trump who has adopted a “protectionist approach” to trade policy since becoming President.

That said, it could be argued that it is technological progress – which has raised demand for skilled workers relative to unskilled workers – rather than trade and globalisation which has had most impact on these workers. Often the people who lose jobs as a result of technology are not the ones who get the new ones and the result can be hysteresis in the labour market with deep pockets of long-term unemployment and hit relative poverty. Automation threatens many jobs - ranging from fork-lift drivers to workers in farming and production lines. The onus is on government to implement and fund the right supply-side policies designed to improve the human capital of people affected including lifting investment in human capital and entrepreneurship.

Final reasoned comment

In conclusion, it is not inevitable that globalisation increases inequality of income and wealth. We have seen big changes in the workforce and in earnings between different groups but in my view, these are not solely the consequence of globalisation. One paradox of globalisation is that it has probably reduced inequality between countries but increased it within nations. What matters is how governments respond to the challenge of improving access to knowledge and skills and in making sure that the benefits from cross-border trade and investment provide enough tax revenues to pay for high quality and affordable public services. In this way, more of the positives from globalisation can be turned into a ‘public good’ rather than a ‘public bad’.

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3 (page 38) p. 38 C3 The economic dimension of globalization

• Published: May 2020
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Economic globalization refers to the intensification and stretching of economic connections across the globe. ‘The economic dimension of globalization’ gives a brief history of the emergence of the global economic order. Towards the end of the Second World War, the Bretton Woods Conference laid the foundations for institutions such as the International Monetary Fund, the World Bank, and World Trade Organization. In the 1980s, rising neoliberalism led to the deregulation of financial transactions. Significant developments include the internationalization of trade, the increasing power of transnational corporations, and the enhanced role of international economic institutions. We have recently experienced setbacks like the 2007–10 recession and the slowdown of the Chinese economy.

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Is globalization an engine of economic development?

All people living in today's world have experienced some of the benefits of globalization: the expansion of foreign trade has meant that vaccines and antibiotics produced in a handful of countries have been widely used all over the world to eradicate diseases and treat deadly infections. Since 1900, life expectancy has increased in every country in the world , and global average life expectancy has more than doubled .

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 .

Yet these achievements are the product of multiple forces, and globalization is only one of them. The increasing potential of governments to collect revenues and redistribute resources through social transfers has been another important factor contributing to improved standards of living around the world. Neither free market capitalism nor social democracy alone has been responsible for economic development. On the contrary, they often work together.

In this blog post, we discuss in more detail the evidence behind these claims.

The rise of globalization

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 things 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 after the Second World War, trade started growing again. 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 our entry on International Trade you find more details regarding the particular features that characterize the first and second waves of globalization.)

The chart here shows the remarkable growth of foreign trade since 1800. The series shows the value of world exports in constant prices—world exports have been indexed, so that values are relative to the value of exports in the year 1913.

The broad trend in this chart is striking: Trade followed an exponential path. Other metrics of trade, such as the share of imports and exports in global output , tell the same story.

In just a few generations, globalization completely changed the world economy.

The correlation between globalization, economic growth and poverty reductions

In the period in which international trade expanded, the average world income increased substantially and the share of the population living in extreme poverty went down continuously.

GDP per capita is a common metric used for measuring national average incomes. By this measure, average incomes followed a similar growth pattern to international trade. For thousands of years, global GDP per capita had a negligible growth rate: technological progress in the preindustrial world produced people rather than prosperity . Over the course of the 19th century, however, alongside the first wave of globalization, this changed substantially. In this period, economic growth started accelerating and global GDP per capita has been growing constantly over the last two centuries—with the exception of lower growth rates during the years between the two world wars. (You can read more about these trends in our entry on Economic Growth .)

Regarding extreme poverty, the available evidence shows that up until 1800, the vast majority of people around the world lived in extreme deprivation , with only a tiny elite enjoying higher standards of living. In the 19th century we began making progress and the share of people living in extreme poverty started to slowly decline. This trend is shown in the chart here. As we can see, today, two hundred years later, the share of people living in extreme poverty is less than 10%. This is an achievement that would have been unthinkable to our ancestors. 1

The stark trend in the incidence of poverty is particularly remarkable if we consider that the world population increased 7-fold over the same period. In a world without economic growth, such an increase in the population would have resulted in less and less consumption for everyone. And yet, as the chart shows if you switch to the 'absolute' view, the exact opposite happened: in a time of unprecedented population growth, we managed to lift more and more people out of poverty.

Living with less than 1.90 dollars per day is difficult by any standard—the term 'extreme poverty' is appropriate. However, recent estimates show that no matter what global poverty line you choose, the share of people below that poverty line has declined . (In our entry on Global Extreme Poverty you can find more evidence supporting this important historical achievement.)

The link between globalization and absolute poverty

The fact that trade and average incomes followed similar upward trajectories in a period of unprecedented poverty reduction is of course not proof of a causal relationship. However, both evidence and theory suggest that what we observe is more than an accidental correlation.

Trade facilitates efficiency gains that are materialized in aggregate economic growth. From a conceptual point of view, international trade contributes to economic growth by allowing nations to specialize, in order to produce goods that they are relatively efficient at producing, while importing other goods. There is substantial empirical evidence backing this causal mechanism .

If trade leads to growth in average incomes, what does this mean for poverty? In a much-cited 2002 academic article, David Dollar and Aart Kraay empirically showed that on average, the income of the poorest grew one-for-one with average national incomes over the last four decades of the 20th century. 2 This means that trade has helped raise the incomes of the poor as much as it has helped raise average incomes. More recent articles have confirmed the original findings from Dollar and Kraay. 3

When taken together, the evidence thus tells us that globalization has contributed to reducing poverty around the world.

The link between globalization and inequality

That globalization is good for the poor is a statement that is true on average . In some countries and in some periods the poor did better than average, and sometimes they did worse.

Looking at the long-run average effect is very helpful to form an opinion regarding broad trends. However, these broad trends are not necessarily informative about how trade has affected the distribution of incomes generally; nor about how trade has affected specific groups of people in specific periods.

The same economic principles that suggest we should lend serious consideration to the efficiency gains from trade, suggest that we should do likewise for the distributional consequences from trade. If globalization generates growth by allowing countries to specialize in the production of goods that intensively use locally abundant resources, it is natural to expect that differences in the way resources are endowed will translate into differences in the way benefits are reaped.

If we take a look at the data, we observe that the process of globalization and growth that led to historical achievements in poverty reductions went along with a substantial increase in global income inequality .

The chart shows this by comparing the global income distribution at three points in time: 1800, 1975, and 2015. We can see that the world today is both much richer and more unequal than it was in 1800.

There are two forces that can drive global income inequality : within-country differences in incomes, and between-country differences in incomes. Which of the two is driving the trend we observe in this chart? The evidence suggests that it is the latter—global inequality increased in the period 1800-1975 because the countries that industrialized earlier grew faster.

In 1800, only a few countries had achieved economic growth while the majority of the world still lived in poverty. In the following century, more and more countries achieved sustained economic growth, and the global income distribution became much more unequal: there was a clear divergence between early-industrialized countries (where extreme forms of poverty were virtually eradicated) and the rest of the world. In the following decades and up until today, early-industrialized countries have continued growing, but the biggest changes have taken place at the bottom of the distribution. Today, global income inequality is lower than it was in 1975. But still, despite the ‘catch-up growth’ in recent decades, our world today is both much richer and more unequal than it was in 1800.

So, what does the data tell us about globalization? Over the last century, the gains from international trade were substantial and generally equally distributed within countries, but global inequality increased because for a long period early-industrialized countries had larger gains to distribute among their citizens.

The distribution of the gains from trade

The above conclusion that globalization has not had substantial effects on global inequality may seem paradoxical to some people—there is substantial evidence of growing inequality in many countries, including countries that have vehemently pursued trade liberalization. A notable case in point is the US, where income inequality has been on the rise in the last four decades, with incomes for the bottom 10% growing much more slowly than incomes for the top 10% . (You can read more about these within-country trends in our entry on Income Inequality .)

How can we reconcile these two empirical facts? In a recent article, Elhanan Helpman provides an answer informed by a meta-analysis of the available evidence: factors such as automation, technological changes, and market frictions, have contributed to the rise of inequality more than growth in international trade has. 4

If this is the case, then why has the view that globalization is bad for the working class captured the political debate in rich countries? Part of the answer has to do with the fact that people are misinformed about the evidence. But another important reason is that, while globalization may not have been the prime cause of growing inequality within many rich countries, it remains true that there are specific groups of people who have not reaped many of the benefits from globalization in recent years.

Daniel Trefler published a paper in 2004 showing that the 1989 free trade agreement between the US and Canada temporarily increased (for about three years) the level of unemployment in Canada. 5 And David Autor and colleagues published another much cited article in 2013 showing that imports from China had diverging effects on employment across various geographical zones in the US, with employment declining more in zones where industries were more exposed to import competition from China. 6

These effects on specific groups are real and need to be taken into account, even if they do not imply that ‘globalization is bad for the poor’. Public policies should protect and compensate workers whose earnings are adversely affected by globalization. And as a matter of fact, public policies in rich countries have done this to some degree in the past. As painful as job losses are for the affected workers, it is thanks to unemployment benefits and other safety-net policies that we do not observe unemployment leading to widespread extreme poverty in rich countries.

Which way forward?

Has globalization been an engine of economic development? The answer is yes. Globalization has had a positive effect on economic growth, contributing to rising living standards and the reduction of extreme poverty across the world.

Can we conclude from this that we should strive for a ‘hyper-globalized’ world economy in which there is completely free trade with no room for public policy and regulation? The answer is no.

The point is that the worldwide historical achievements that we can attribute to globalization are not independent of other factors, including the potential of governments to redistribute resources. Indeed, as the last chart here shows, the process of globalization that we have experienced in the last couple of centuries took place at the same time as governments increased their potential for taxing and redirecting resources through public policies, particularly social transfers.

How much integration in global markets would be optimal? I would be skeptical of anyone who offers a definitive answer. But it seems unlikely that the optimal degree of integration is either of the two extremes—neither ‘hyper-protectionism’ nor ‘hyper-globalization’ is likely to be the answer.

Policies aimed at liberalizing trade, and policies aimed at providing social safety nets, are often advocated by different groups, and it is common for these groups to argue that they are in conflict. But both economic theory and the empirical evidence from the successful fight against extreme poverty suggests this is a mistake: globalization and social policy should be treated as complements rather than substitutes.

The data in the chart here measures ‘extreme poverty’ as defined by the World Bank; people are considered to live in extreme poverty if they have to get by with less than 1.90 ‘international dollars’ per day. International dollars are a hypothetical currency that corrects incomes for differences in price levels in different countries as well as for inflation (explained by us here ).

Dollar, David, and Aart Kraay. "Growth is Good for the Poor." Journal of economic growth 7.3 (2002): 195-225.

See, for example, Dollar and Kraay (2004), "Trade, growth, and poverty." The Economic Journal 114.493 (2004) ; and Dollar, Kleineberg and Kraay (2014), "Growth, inequality, and social welfare : cross-country evidence." Policy Research Working Paper.

Helpman, Elhanan. Globalization and Wage Inequality. No. w22944. National Bureau of Economic Research, 2016.

Trefler, Daniel. "The long and short of the Canada-US free trade agreement." The American Economic Review 94.4 (2004): 870-895.

David, H., David Dorn, and Gordon H. Hanson. "The China syndrome: Local labor market effects of import competition in the United States." The American Economic Review 103.6 (2013): 2121-2168.

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Journal of Economic Literature

Inequality and globalization: a review essay.

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Costs and benefits of globalisation

Globalisation is a complex and controversial issue. This is a look at some of the main benefits and costs associated with the greater globalisation of the world economy.

Definition of Globalisation The process of increased integration and co-operation of different national economies. It involves national economies becoming increasingly inter-related and integrated.

Globalisation has involved :

• Greater free trade.
• Greater movement of labour.
• Increased capital flows.
• The growth of multi-national companies.
• Increased integration of global trade cycle.
• Increased communication and improved transport, effectively reducing barriers between countries.

Summary of costs/benefits

Benefits of globalisation

1. Free trade is a way for countries to exchange goods and resources. This means countries can specialise in producing goods where they have a comparative advantage (this means they can produce goods at a lower opportunity cost). When countries specialise there will be several gains from trade:

• Lower prices for consumers
• Greater choice of goods, e.g food imports enable a more extensive diet.
• Bigger export markets for domestic manufacturers
• Economies of scale through being able to specialise in certain goods
• Greater competition

See: Benefits of Free Trade

2. Free movement of labour

Increased labour migration gives advantages to both workers and recipient countries. If a country experiences high unemployment, there are increased opportunities to look for work elsewhere. This process of labour migration also helps reduce geographical inequality. This has been quite effective in the EU, with many Eastern European workers migrating west.

Also, it helps countries with labour shortages fill important posts. For example, the UK needed to recruit nurses from the far east to fill shortages.

• However, this issue is also quite controversial. Some are concerned that the free movement of labour can cause excess pressure on housing and social services in some countries. Countries like the US have responded to this process by actively trying to prevent migrants from other countries.

See also: free movement of labour

3. Increased economies of scale

Production is increasingly specialised. Globalisation enables goods to be produced in different parts of the world. This greater specialisation enables lower average costs and lower prices for consumers.

4. Greater competition

Domestic monopolies used to be protected by a lack of competition. However, globalisation means that firms face greater competition from foreign firms.

5. Increased investment

Globalisation has also enabled increased levels of investment. It has made it easier for countries to attract short-term and long-term investment. Investment by multinational companies can play a big role in improving the economies of developing countries.

Costs of globalisation

1. Free trade can harm developing economies

Developing countries often struggle to compete with developed countries, therefore it is argued free trade benefits developed countries more. There is an infant industry argument which says industries in developing countries need protection from free trade to be able to develop. However, developing countries are often harmed by tariff protection, that western economies have on agriculture. Paradox of Free Trade

2. Environmental costs

One problem of globalisation is that it has increased the use of non-renewable resources. It has also contributed to increased pollution and global warming. Firms can also outsource production to where environmental standards are less strict. However, arguably the problem is not so much globalisation as a failure to set satisfactory environmental standards.

3. Labour drain

Globalisation enables workers to move more freely. Therefore, some countries find it difficult to hold onto their best-skilled workers, who are attracted by higher wages elsewhere.

4. Less cultural diversity

Globalisation has led to increased economic and cultural hegemony. With globalisation there is arguably less cultural diversity; however, it is also led to more options for some people.

5. Tax competition and tax avoidance

Multinational companies like Amazon and Google, can set up offices in countries like Bermuda and Luxembourg with very low rates of corporation tax and then funnel their profits through these subsidiaries. This means they pay very little tax in the countries where they do most of their business. This means governments have to increase taxes on VAT and income tax. It is also seen as unfair competition for domestic firms who don’t use the same tax avoidance measures.

The greater mobility of capital means that countries have sought to encourage inward investment by offering the lowest corporation tax. (e.g. Ireland offers very low tax rate). This has encouraged lower corporation tax, which leads to higher forms of other tax. (see: Tax competition )

• Impact of globalisation
• The winners and losers from globalisation
• The effects of globalisation for developed and developing countries
• What is globalisation?
• What is globalisation? at Guardian

36 thoughts on “Costs and benefits of globalisation”

thaannkkss GREAT INFO

hey guys i’m looking for the benefits of developing countries and developed countries and have had no luck could anyone help?

I’ve just been reading a Stiglitz article (he used to be chief in the IMF/World Bank) and “globalization of knowledge” has been one benefit for developing countries. But sadly it depends on the side that you’re on. Economists will reel off the benefits of trade between countries, capital flow and labour flow. Anthropologists and social scientists will explain a lot of inequalities – the rich on a global scale have got richer and the poor, well guess what? yep, not a lot has happened there. Social science will detail (Stiglitz does too) how developed countries have profited off the poor, even via aid agencies and finance institutions such as the World Bank, IMF and WTO, who are supposed to be acting in developing countries best interests.

I think you can tell what side I’m on. Yes, I study anthropology and doing an essay on development as we speak 😉

what are the benefits of globalisation on both develoed and developing

• Pingback: Benefits and Problem with Globalization | Tae haeng Lee

hey I am looking for how globalization affect reduction of cost

Hello, I am wondering if there are any disadvantages to consumer because of globalization. of course there are numerous advantages. can anyone please answer me. I would be grateful. thanks

if it were cheaper for a firm to produce/manufacture a good somewhere else can cause loss of jobs for people working for the firm. major multinational firms paying less tax in another country and not in the country they are earning will cause the government rely more heavily on smaller firms and consumers to gain tax mula.

Are those the only advantages of globalization on an economy?

what is the cost and benefits of globalisation on less developed countries?

Imagine thinking you are qualified to help people learn about globalization but not even knowing how to spell it.

We use British-English not American-English

How is less cultural diversity a cost of globalisation. Wouldn’t cultures spread worldwide from globalisation

no, globalization makes it easier than ever to access foreign culture, including food, movies, music, and art. This free flow of people, goods, art, and information is the reason you can have Thai food delivered to your apartment as you listen to your favorite UK-based artist or stream a Hollywood movie.

Once they get back they will be there and they are going on a walk in and the other is the same way as you can see the sun and earth is earth sun sky earth sun sun sky sun earth earth

A very useful piece of work

Love economics guys, absolutely love it, keep up this page, its greaaaaaaaaaatttttttt!!!!!!!!!!!!!!

Comments are closed.

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Essay on Globalisation

List of essays on globalisation, essay on globalisation – definition, existence and impact (essay 1 – 250 words), essay on globalisation (essay 2 – 250 words), essay on globalisation – in india (essay 3 – 400 words), essay on globalisation – objectives, advantages, disadvantages and conclusion (essay 4 – 500 words), essay on globalisation – for school students (class 6,7,8,9 and 10) (essay 5 – 600 words), essay on globalisation (essay 6 – 750 words), essay on globalisation – for college and university students (essay 7 – 1000 words), essay on globalisation – for ias, civil services, ips, upsc and other competitive exams (essay 8 – 1500 words).

The worldwide integration of people, services and interests is what globalisation is all about. Since the last decade, there has been a tremendous focus on globalisation with everyone trying to have a reach at even the remotest locations of the world. This has probably been possible due to the advancement in technology and communication.

Audience: The below given essays are especially written for school, college and university students. Furthermore, those students preparing for IAS, IPS, UPSC, Civil Services and other competitive exams can also increase their knowledge by studying these essays.

The word ‘Globalization’ is often heard in the business world, in corporate meetings, in trade markets, at international conferences, in schools, colleges and many other places. So what does globalization symbolize? Is it a new concept or did it exist earlier? Let’s see.

Definition:

Globalization refers to the integration of the world nations by means of its people, goods, and services. The statement – ‘ globalization has made the world a small village ’ is very true.

Countries inviting foreign investment, free trade and relaxation in the visa rules to allow seamless movement of people from one country to another are all part of globalization.

In a nutshell, globalization has reduced the distance between nations and its people.

Many among us refer to the current period that we live in as ‘The Era of Globalization’ and think that the process of globalization has started only recently. But the real fact is that globalization is not a new phenomenon . The world was moving towards globalization from a very long time. The term globalization was in existence since mid-1980s. But it was only from the early 21 st century that globalization picked up momentum due to the advancements in technology and communication.

Impact of Globalization:

Globalization has more positive outcomes than the negative ones. The impact of globalization on the developing countries such as India, China and some African countries are overwhelming. Foreign investments have created a lot of employment opportunities in the developing countries and have boosted their economy. Globalization has also enabled people to interchange their knowledge and culture.

Conclusion:

Although the world is not completely globalized, we can very well say that globalization is the best way to achieve equality among nations.

In simple words, globalization means the spreading of a business, culture, or any technology on an international level. When the boundaries of countries and continents matter no more, and the whole world becomes one global village in itself. Globalization is an effort to reduce the geographical and political barriers for the smooth functioning of any business.

There are four main factors that form the four pillars of globalization. These are the free flow of goods, capitals, technology, and labors, all across the world. Although, many of the experts that support globalization clearly refuse to acknowledge the free flow of labor as their work culture.

The international phenomenon of global culture presents many implications and requires a specific environment to flourish. For instance, it needs the other countries to come to a mutual agreement in terms of political, cultural, and economic policies. There is greater sharing of ideas and knowledge and liberalization has gained a huge importance.

Undoubtedly, globalization helps in improving the economic growth rate of the developing countries . The advanced global policies also inspire businesses to work in a cost-effective way. As a result, the production quality is enhanced and employment opportunities are also rising in the domestic countries.

However, there are still some negative consequences of globalization that are yet to be dealt with. It leads to greater economic and socio-cultural disparities between the developed and the developing countries. Due to the MNC culture, the small-scale industries are losing their place in the market.

Exchanges and integration of social aspect of people along with their cultural and economic prospects is what we term as Globalization. It is considered as a relatively new term, which has been in discussion since the nineties.

Initial Steps towards Globalization:

India has been an exporter of various goods to other countries since the earlier times. Hence Globalization, for India, is not something new. However, it was only around in the early nineties that India opened up its economy for the world as it faced a major crisis of severe crunch of foreign exchange. Since then, there has been a major shift in the government’s strategies while dealing with the PSUs along with a reduction in the monopoly of the government organisations perfectly blended with the introduction of the private companies so as to achieve a sustainable growth and recognition across the world.

The Measurement of Success:

The success of such measures can be measured in the form of the GDP of India which hovered around 5.6% during the year 1990-91 and has been now around 8.9% during the first quarter of 2018-19. In fact, in the year 1996-97, it was said to have peaked up to as high as 77.8%. India’s global position is improved tremendously due to the steady growth in the GDP thus furthering the impact of globalization on India. As on date, India is ranked as the sixth biggest economy in the world. This globalization leading to the integration and trade has been instrumental in reducing the poverty rate as well.

However, given the fact that India is the second most populated country of the world, after China, this growth cannot be considered as sufficient enough as other countries such as China have increased their growth rates at much faster pace than India. For instance, the average flow of FDI in India, over the past few years has been around 0.5% of the GDP while for countries such as China it has been around 5% and Brazil has had a flow of around 5.5%. In fact, India is considered among the least globalized economy among the major countries.

Summarily, there has been a tremendous increase in the competition and interdependence that India faces due to Globalization, but a lot is yet to be done. It is not possible for a country to ignore the developments and globalization occurring in the rest of the world and one need to keep the pace of growth at a steady rate or else you may be left far behind.

The twentieth century witnessed a revolutionary global policy aiming to turn the entire globe into a single market. The motive of globalization can broadly define to bring substantial improvement in the living condition of people all around the world, education, and shelter to everybody, elimination of poverty, equal justice without any race or gender consideration, etc. Globalization also aims to lessen government involvement in various development activities, allowing more direct investors/peoples’ participation cutting across border restrictions thus expected to reap reasonable prosperity to human beings.

Main Objectives of Globalization:

The four main aspects of globalization are; Capital and Investment movements, Trade and Transactions, Education and Spread of knowledge, along with Migration and Unrestricted Movement of People.

In simpler terms, globalization visualizes that one can purchase and sell goods from any part of the world, communicate and interact with anyone, anywhere in the world and also enables cultural exchange among the global population. It is operational at three levels namely, economic globalization, cultural globalization, and political globalization. Right from its inception, the impact of globalization has both advantages and disadvantages worldwide.

Advantages of Globalization:

As the word itself suggests, this policy involves all the nations across the globe. The lifting of trade barriers can have a huge impact especially in developing countries. It augments the flow of technology, education, medicines, etc., to these countries which are a real blessing.

Globalization expects to create ample job opportunities as more and more companies can extend their presence to different parts of the world. Multinational companies can establish their presence in developing countries. Globalization gives educational aspirants from developing and underdeveloped countries more quality learning opportunities. It leads not only to the pursuit of best higher education but also to cultural and language exchanges.

Globalization also enhances a faster flow of information and quick transportation of goods and services. Moreover one can order any item from anywhere merely sitting at home. Another plus point of globalization is the diminishing cultural barriers between nations as it offers free access and cultural interactions . Also, it has been observed that there is a considerable reduction of poverty worldwide due to globalization . In addition to this, it also enables the effective use of resources.

Disadvantages of Globalization:

Globalization turned out to be a significant threat to the cottage and small-scale industries as they have to compete with the products of multi-national companies. Another dangerous effect of globalization is the condition of weak sections of the society, as they are getting poorer and the rich are getting richer. The situation leads to the domination of economically rich countries over emerging countries and the increase of disparity.

The actions of multi-national companies are deplorable and always facing criticism from various social, government and world bodies as they are incompetent in offering decent working conditions for the workers. Irrational tapping of natural resources which are instrumental in causing ecological imbalance is another major accusation against multi-national companies.

Globalization is also blamed to have paved the way for human trafficking, labor exploitation and spread of infectious diseases too. In addition to all these, if any economic disaster hit a country and if they subsequently suffer from economic depression, its ripples are felt deeply in other countries as well.

Despite all its disadvantages, globalization has transformed the entire globe into a single market irrespective of its region, religion, language, culture, and diversity differences. It also leads to an increase in demand for goods, which in turn calls for more production and industrialization. Our focus should be to minimize the risks and maximize the positive outcome of global policy, which in turn can help for a sustainable long-standing development for people all around the world.

Introduction:

Globalization is the procedure of global political, economic, as well as cultural incorporation of countries . It lets the producers and manufacturers of the goods or products to trade their goods internationally without any constraint.

The businessman fetches huge profit as they easily get low price workforce in developing nations with the concept of globalization. It offers a big prospect to the firms who wish to deal with the global market. Globalization assists any nation to contribute, set up or amalgamate businesses, capitalize on shares or equity, vending of services or products in any country.

How does the Globalization Work?

Globalization benefits the international market to the entire deliberate world like a solitary marketplace. Merchants are spreading their extents of trade by aiming world as a worldwide community. In the 1990s, there was a limit of importing some goods that were already mass-produced in India such as engineering goods, agricultural products, toiletries, food items, etc.

But, in the 1990s the rich countries pressurize the WTO (World Trade Organization), World Bank (affianced in improvement financing activities), and IMF (International Monetary Fund) to let other nations spread their trades by introducing market and trade in the deprived and emerging countries. The process of liberalization and globalization in India began in the year 1991 below the Union Finance Minister Mr. Manmohan Singh.

After numerous years, globalization has fetched major uprising inside the Indian marketplace when international brands arrived in India such as KFC, PepsiCo, Mc. Donald, Nokia, IBM, Aiwa, Ericsson, etc., and began the delivery of an extensive variety of quality goods at low-cost rates.

The entire leading brands presented actual uprising of globalization at this time as a marvellous improvement to the economy of an industrial sector. Rates of the quality goods were also getting low owing to the cut-throat war happening in the marketplace.

Liberalization and globalization of the businesses in the Indian marketplace is submerging the quality of imported goods but influencing the local Indian businesses badly in large part causing the job loss of illiterate and poor labors. Globalization has remained a goldmine for the customers, but it is also a burial ground for the small-scale manufacturers in India.

Positive Influences of Globalisation:

Globalization has influenced the education sectors and students of India predominantly by making accessible the education material and enormous info on the internet. Association of Indian universities with the overseas universities has fetched a massive modification in the education business.

The health industries are too influenced enormously by the globalization of health observing electronic apparatuses, conventional drugs, etc. The trade globalization in the agricultural sector has provided a range of high-quality seeds possessing disease-fighting property. But, it is not beneficial for the underprivileged Indian agriculturalists owing to the reason of expensive seeds as well as agricultural equipment.

Globalization has given an enormous rebellion to the occupation sector by increasing the growth of trades related to the handloom , cottage, artisans and carving, carpet, jewellery, ceramics, and glassware, etc.

Globalization is definitely required by the people and nation to progress and turn into an established society and country. It benefits in expanding our visualization and thoughts. It also aids in endorsing the philosophy that we fit in a huge crowd of persons, i.e., the humankind. Once the two nations congregate, they flourish by sharing their beliefs, thoughts, opinions, customs, and behaviors. People come to know new things and also acquire a chance to discover and get acquainted with other values.

Globalization has provided many reasonably priced valued goods and complete economic welfares to the emerging nations in addition to the employment. But, it has also given growth to the crime, competition, terrorism, anti-national activities, etc. Thus, along with the pleasure it has supplied some grief too.

Globalization is a term that we hear about every now and then. Question is; do we really know what it is all about? Globalization is defined as the process of integration and interaction among people, cultures and nations who come together in order to get things done easily through contact. Globalization began with the migration of people from Africa to different parts of the world. Global developments have been achieved in various sectors through the different types of globalization. The effects of globalization have been felt in every part of the world and more people continue to embrace it. Globalization has some of its core elements that help in the process.

Types of Globalization:

Globalization does not just transform a sector unless the strategies are related to that specific sector. The first type of globalization is financial and economic globalization whereby interaction takes place in the financial and economic sectors especially through stock market exchange and international trade. The other type is technological globalization which involves the integration and connection of different nations through technological methods like the internet. Political globalization transforms the politics of a nation through interactions with adoption of policies and government that cut across other nations. Cultural globalization is basically the interaction of people from different cultures and sharing. Ecological globalization is the viewing of the earth as one ecosystem and sociological globalization is on equality for all people.

Elements of Globalization:

Globalization works with characteristic elements. Trade agreements is one of the components that significantly benefits the economic and financial globalization. These trade agreements have been designed to promote and sustain globalization by preventing barriers that inhibit trade among nations or regions. Another element is capital flow that is concerned with the measures of either a decline or a rise in domestic or foreign assets. Migration patterns is a socio-economical and cultural element that monitors the impacts of immigration and emigration actively. The element of information transfer involves communications and maintains the functioning of the markets and economies. Spread of technology is an element of globalization that facilitates service exchanges. Without these elements, globalization would have faced many challenges, which would even stagnate the process of globalization.

Impacts of Globalization:

The impact of globalization is felt differently among individuals but the end result will be either positive or negative. Globalization has impacts on the lives of individuals, on the aspects of culture, religions and education. The positive impacts of globalization include the simplification of business management through efficiency. In business, the quality of goods and services has increased due to global competition. Foreign investment has been facilitated by globalization and the global market has been able to expand. Cultural growth has been experienced through intermingling and accommodation. Interdependence among nations has developed and more people have been exposed to the exchange program between nations. Improvement of human rights and legal matters has improved through media and technology sharing. Poverty has been alleviated in developing countries due to globalization and also employment opportunities are provided. Through technology, developments have been positively influenced in most parts of the world.

Although globalization has positive impacts, the negative impacts will remain constant unless solutions are sought. One of the negative effects of globalization is job insecurity for some people. Through globalization, more innovations are achieved, for e.g., technology causes automation and therefore people get replaced and they lack jobs. Another negative impact is the frequent fluctuation of prices of commodities that arises from global competitions. On the cultural side, the fast food sector has become wide spread globally, which is an unhealthy lifestyle that was adopted due to globalization. Also, Culture has been negatively affected for people in Africa because they tend to focus more on adopting the western culture and ignore their cultural practices.

Possible Solutions to the Negative Impacts of Globalization:

Globalization has impacted the society negatively and some of the solutions might help to mitigate the impacts. When adopting cultures from other people, it is important to be keen on the effects of the culture on the people and the existing culture being practiced. For example, Africans should not focus more of the western culture such that they ignore their own culture.

In conclusion, it is evident that globalization results in both negative and positive consequences. The society should embrace the positive and mitigate the negative impacts. Globalisation is a dynamic process which involves change, so flexibility among people is a must.

The buzzword befitted to describe the growth of Modern Indian economy is ‘Globalization’. But what exactly is Globalization? Globalization can be defined as integrating the economy of a country with the rest of the countries of the world. From the Indian perspective, this implies encouraging free trade policies, opening up our economy to foreign direct investment, removing constraints and obstacles to the entry of multinational corporations in India, also allowing Indian companies to set up joint ventures abroad, eliminating import restrictions, in-short encouraging Free Trade policies.

India opened its markets to Global Trade majorly during the early Nineties after a major economic crisis hit the country. New economic reforms were introduced in 1991 by then Prime Minister Shri. P V. Narasimha Rao and Finance Minister at the time, Dr. Manmohan Singh. In many ways, the new economic policies positively contributed to the implementation of the concept of Globalization in India.

It’s Impact:

1. Economic Impact :

Globalization in India targets to attract Multinational Companies and Institutions to approach Indian markets. India has a demography with a large workforce of young citizens who  are in need of jobs. Globalization has indeed left a major impact in the jobs sector. Indian companies are also expanding their business all over the world. They are driving funds from the bigwigs of the Global economy.

The Best example in today’s time is OYO Rooms, a budding Indian company in the hospitality sector. OYO Rooms recently made headlines when it declared to raise a fund close to $1 Billion from Japan’s Soft Bank Vision Fund. Globalization has also led the Indian Consumer market on the boom. The Giant of FMCG (fast-moving consumer goods) sector WALMART is also enthusiastic and actively investing in the India market.

2. Socio-Cultural impact on the Indian Society:

The world has become a smaller place, thanks to the social networking platforms blooming of the internet. India is a beautiful country which takes immense pride in “Unity in Diversity” as it is home to many different cultures and traditions. Globalization in India has left a lasting impression on the socio-cultural aspect of Indian society.

Food chains like McDonald’s are finding its way to the dining tables. With every passing day, Indians are indulging more and more in the Western culture and lifestyle. But Globalization in India has also provided a vibrant World platform for Indian Art, Music, Clothing, and Cuisine.

The psychological impact on a common Indian Man: The educated youth in India is developing a pictorial identity where they are integrating themselves with the fast-paced, technology-driven world and at the same time they are nurturing the deep roots of Indian Culture. Indians are fostering their Global identity through social media platforms and are actively interacting with the World community. They are more aware of burning issues like Climate Change, Net neutrality, and LGBT rights.

Advantages:

India has taken the Centre Stage amongst the Developing Nations because of its growing economy on the World Map. Globalization in India has brought tremendous change in the way India builds its National and International policies. It has created tremendous employment opportunities with increased compensations.

A large number of people are hired for Special Economic Zones (SEZs), Export Processing Zones (EPZs), etc., are set up across the country in which hundreds of people are hired. Developed western countries like USA and UK outsource their work to Indian companies as the cost of labour is cheap in India. This, in turn, creates more employment. This has resulted in a better standard of living across the demographic of young educated Indians. The Indian youth is definitely empowered in a big way.

Young lads below the age of 20 are now aspiring to become part of global organizations. Indian culture and morals are always strengthening their roots in modern world History as the world is now celebrating ‘International Yoga Day’ on 21st June every year. Globalization in India has led to a tremendous cash flow from Developed Nations in the Indian market. As a positive effect, India is witnessing the speedy completion of Metro projects across the country. Another spectacular example of newly constructed High-end Infrastructure in the country is the remarkable and thrilling ‘Chenani-Nashri Tunnel’, Longest Tunnel in India constructed in the State of Jammu and Kashmir. Globalization has greatly contributed in numerous ways to the development of Modern India.

Disadvantages:

As there are so many pros we cannot turn a blind eye to the cons of Globalization which are quite evident with the Indian perspective. The worst impact is seen in the environment across Indian cities due to heavy industrialization. Delhi, the capital of India has made headlines for the worst ever air pollution, which is increasing at an alarming rate.

India takes pride in calling itself an Agriculture oriented nation, but now Agriculture contributes to fragile 17% of the GDP. Globalization in India has been a major reason for the vulnerable condition of Indian Farmers and shrinking Agriculture sector. The intrusion of world players and import of food grains by the Indian Government has left minimal space for Indian farmers to trade their produce.

The impact of westernization has deeply kindled individualism and ‘Me factor’ and as a result, the look of an average Indian family has changed drastically where a Nuclear family is preferred over a traditional Joint family. The pervasive media and social networking platforms have deeply impacted the value system of our country where bigotry and homophobia are becoming an obvious threat.

One cannot clearly state that the impact of Globalization in India has been good or bad as both are quite evident. From the economic standpoint, Globalization has indeed brought a breath of fresh air to the aspirations of the Indian market. However, it is indeed a matter of deep concern when the Indian traditions and value system are at stake. India is one of the oldest civilizations and World trade has been the keystone of its History. Globalization must be practiced as a way towards development without compromising the Indian value system.

Globalisation can simply be defined as the process of integration and interaction between different people, corporations and also governments worldwide. Technology advancement which has in turn advanced means of communication and transportation has helped in the growth of globalisation. Globalisation has brought along with it an increase in international trade, culture and exchange of ideas. Globalisation is basically an economic process that involves integration and interaction that deals also with cultural and social aspects. Important features of globalisation, both modern and historically are diplomacy and conflicts.

In term of economy, globalisation involves services and goods, and the resources of technology, capital and data. The steamship, steam locomotive, container ship and jet engine are a few of the many technological advances in transportation while the inception of the telegraph and its babies, mobile phones and the internet portray technological advances in communications. These advancements have been contributing factors in the world of globalisation and they have led to interdependence of cultural and economic activities all over the world.

There are many theories regarding the origin of globalisation, some posit that the origin is in modern times while others say that it goes way back through history before adventures to the new world and the European discovery age. Some have even taken it further back to the third millennium. Globalisation on a large-scale began around the 1820s. Globalisation in its current meaning only started taking shape in the 1970s. There are four primary parts of globalisation, they are: transactions and trade, investments and capital movement, movement and migration of people and the circulation of knowledge and information. Globalization is subdivided into three: economic globalisation, political globalisation and cultural globalisation.

There are two primary forms of globalisation: Archaic and Modern Globalisations. Archaic globalisation is a period in the globalisation history from the period of the first civilisations until around the 1600s. Archaic globalisation is the interaction between states and communities and also how they were incepted by the spread by geography of social norms and ideas at different levels.

Archaic globalisation had three major requirements. First is the Eastern Origin idea, the second is distance, the third is all about regularity, stability and inter-dependency. The Silk Road and trade on it was a very important factor in archaic globalisation through the development of various civilisations from Persia, China, Arabia, Indian subcontinent and Europe birthing long distance economic and political relationships between them. Silk was the major item from China along the Silk Road; other goods such as sugar and salt were also traded.

Philosophies, different religious beliefs and varying technologies and also diseases also moved along the Silk Road route. Apart from economic trade, the Silk Road also was a means of cultural exchange among the various civilisations along its route. The cultural exchange was as a result of people’s movement including missionaries, refugees, craftsmen, robbers, artists and envoys, resulting in religions, languages, art and new technologies being exchanged.

Modern globalisation can be sub-divided into early modern and Modern. Early modern globalisation spans about 200 years of globalisation between 1600 and 1800. It is the period of cultural exchange and trade links increasing just before the modern globalisation of the late 19 th century. Early modern globalisation was characterised by Europeans empires’ maritime of the 16 th and 17 th centuries. The Spanish and Portuguese Empires were the first and then we had the British and Dutch Empires. The establishment of chartered companies (British East India Company and the Dutch East India Company) further developed world trade.

Modern Globalisation of the 19 th century was as a result of the famed Industrial Revolution. Railroads and steamships made both local and international transportation easier and a lot less expensive which helped improve economic exchange and movement of people all over the world, the transportation revolution happened between 1820 and 1850. A lot more nations have embraced global trade. Globalisation has been shaped decisively by the imperialism in Africa and in Asia around the 19 th century. Also, the ingenious invention in 1956 of the shipping container has really helped to quicken the advancement of globalisation.

The Bretton Woods conference agreement after the Second World War helped lay the groundwork for finance, international monetary policy and commerce and also the conception of many institutions that are supposed to help economic growth through lowering barriers to trade. From the 1970s, there has been a drop in the affordability of aviation to middle class people in countries that are developed. Also, around the 1990s, the cost of communication networks also drastically dropped thus lowering the cost of communicating between various countries. Communication has been a blessing such that much work can be done on a computer in different countries and the internet and other advanced means of communications has helped remove the boundary of distance and cost of having to travel and move from place to place just to get business done.

One other thing that became popular after the Second World War is student exchange programmes which help the involved students learn about, understand and tolerate another culture totally different from theirs, it also helps improve their language skills and also improve their social skills. Surveys have shown that the number of exchange students have increased by about nine times between 1963 and 2006.

Economic globalisation is differentiated from modern globalisation by the information exchange level, the method of handling global trade and expansionism.

Economic Globalisation:

Economic globalisation is just the ever increasing interdependence of economies of nations worldwide caused by the hike in movement across borders of goods, services, capital and technology. Economic globalisation is basically the means of increasing economic relationships between countries, giving rise to the birth of a single or global market. Based on the worldview, Economic globalisation can be seen as either a negative or positive thing.

Economic globalisation includes: Globalisation of production; which is getting services and goods from a source from very different locations all over the world to gain from the difference in quality and cost. There is globalisation of markets; which is the coming together of separate and different markets into one global market. Economic globalisation includes technology, industries, competition and corporations.

Globalisation today is all about less developed countries and economies receiving FDI (Foreign Direct Investment) from the more developed countries and economies, reduction in barriers to trade and to particular extent immigration.

Political Globalisation:

Political globalisation is going to on-the-long-run drop the need for separate nation or states. Institutions like the International Criminal court and WTO are beginning to replace individual nations in their functions and this could eventually lead to a union of all the nations of the world in a European Union style.

Non-governmental organisations have also helped in political globalisation by influencing laws and policies across borders and in different countries, including developmental efforts and humanitarian aid.

Political globalisation isn’t all good as some countries have chosen to embrace policies of isolation as a reactionary measure to globalisation. A typical example is the government of North Korea which makes it extremely difficult and hard for foreigners to even enter their country and monitor all of the activities of foreigners strictly if they allow them in. Citizens are not allowed to leave the country freely and aid workers are put under serious scrutiny and are not allowed in regions and places where the government does not want them to enter.

Intergovernmentalism is the treatment of national governments and states as the major basic factors for integration. Multi-level governance is the concept that there are many structures of authority interacting in the gradual emergence of political globalisation.

Cultural Globalisation:

Cultural globalisation is the transmission of values, ideas and meanings all over the world in a way that intensify and extend social relations. Cultural globalisation is known by the consumption of different cultures that have been propagated on the internet, international travel and culture media. The propagation of cultures helps individuals to engage in social relations which break regional boundaries. Cultural globalisation also includes the start of shared knowledge and norm which people can identify their cultures collectively; it helps foster relationships between different cultures and populations.

It can be argued that cultural globalisation distorts and harms cultural diversity. As one country’s culture is inputted into another country by the means of globalisation, the new culture becomes a threat to the cultural diversity of the receiving country.

Globalisation has made the world into one very small community where we all interact and relate, learn about other cultures and civilisations different from ours. Globalisation has helped improve the ease of doing business all around the world and has made the production of goods and services quite easy and affordable. Globalisation isn’t all good and rosy as it can be argued that Globalisation is just westernisation as most cultures and beliefs are being influenced by the western culture and belief and this harms cultural diversity. Nevertheless, the good of globalisation outweighs the bad so globalisation is actually a very good thing and has helped shape the world as we know it.

Economics , Globalisation

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Home / Essay Samples / Social Issues / Globalization / The Effects of Globalization: A Comprehensive Analysis

The Effects of Globalization: A Comprehensive Analysis

• Category: Economics , Social Issues
• Topic: Globalization , Indian Economy

Pages: 3 (1463 words)

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History of Globalization

Features of globalization.

• It leads to greater interaction between different populations in social terms.
• Culturally, globalization represents the exchange of ideas, values and artistic expression between cultures and even a trend towards the development of a single world culture.
• Globalization has paid political attention to intergovernmental organizations such as the United Nations and the World Trade Organization.
• Legally, globalization has changed the creation and enforcement of international law.

Factors That Led to Globalization

Globalization on the example of indian economy.

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