Globalization describes interdependence among world economies. It constitutes the movement of people, goods and services, culture, technology, and ideas across international borders. Globalization has positive and negative economic impacts.
Globalization promotes international trade and economic growth. It allows nations to export goods they produce efficiently and import those they lack absolute advantage. For example, developing countries ship agricultural products to developed countries while the latter exports technology products to the former. It is cost-intensive and time-consuming for developing countries to design and assemble technology products. On the other hand, it is expensive to produce agricultural products in developed nations due to high labor costs. Globalization allows countries to exploit each other’s strengths, promoting trade across international and regional borders.
Globalization spurs production and economic growth. Through globalization, countries share ideas, technology, and knowledge, helping economies intensify production and increase exports. Technology exchange has empowered nations in Asia and Africa to strengthen manufacturing in previously challenging areas, such as automobiles, smartphones, aircraft, and infrastructure. Technology transfer lowers goods prices, allowing people to save money and invest more. For example, purchasing a vehicle in countries that do not build cars locally is expensive due to taxes and import duties. Equipping such countries with technology and skills to manufacture cars domestically reduces the money individuals spend on vehicle purchases.
Furthermore, globalization creates employment. Growing international trade increases the demand for goods and services in foreign markets. For example, the emerging markets in Asia and Africa increase the demand for Western goods, including cars, smartphones, clothes, and technology. Companies such as automobile and technology firms in the U.S hire more people to increase production and match the growing demand in the new markets. Globalization also creates employment when companies relocate factories into low labor-cost countries. For example, many U.S companies moved into China to exploit the country’s cheap labor. At the time, unemployment was an issue in China, and creating jobs improved the locals’ living standards. Nowadays, China has moved up the economic ladder and is utilizing the same approach in Africa.
On the downward, globalization is criticized for causing unemployment in countries with high labor costs. The primary goal of any business is to maximize profits and protect shareholders’ wealth, meaning that managers will use all possible strategies to cut costs. One way businesses cut costs is by ceasing production in a high labor cost country and moving into countries with cheap labor. Moreover, a company may decide not to relocate but outsource cheap foreign labor, causing locals to miss employment because they demand higher wages than migrant workers. The situation might force locals to accept low wages, leaving them without savings and disposable income. Such adversely impact the economy by reducing investment and spending.
Another globalization’s drawback is that it undercuts smaller businesses. Globalization allows large companies to enter foreign markets, disrupting competition, prices, and goods quality. Foreign companies, especially those in the West, are technologically advanced and likely to manufacture goods or deliver services at a lower price than businesses in Asia and Africa. For example, the road construction technology the U.S and China possess is unmatched. Therefore, when a Chinese or American company enters a foreign market, especially in emerging economies, it becomes impossible for local contractors to compete because they cannot deliver the same quality as American or Chinese contractors. Globalization is detrimental to smaller businesses. It promotes the influx of cheap foreign goods, driving local manufacturers out of business.
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