Effects of Globalization of the Economy - Essay Example

Effects of Globalization of the Economy Globalization can be said to be the increasing interconnectedness among countriesthat is known to impact on the political, social and economic aspect of a country. Globalization has been caused by the reduced barriers between countries thereby allowing world countries to operate like a global village (Friedman 7). The power of globalization on the global economy has been one of the widely discussed and researched subjects. Globalization is characterized by an increase in the cross border trade as well as flow of financial services and capital across countries. Economic globalization or integration has elicited mixed reactions due to the wide-ranging impacts that it has on the world economy. Despite the known advantages of globalization, this trend has also been opposed due to the negative consequences that it has on the world economy. Access to Global Market Those who have supported economic or financial integration of countries have pointed out the benefits of this trend to support their claims. The first advantage of globalization on the economy is that this trend results in the creation of global markets. Bordo, Taylorand Williamson, says that through the merging of the different world markets, a wider global market has been created (Bordo, Taylor and Williamson 31). Globalization has led to the widening and liberalization of the market. This has occurred through the removal of the trade barriers that historically existed. These trade barriers prevented businesses from operating outside their domestic markets. Various corporations have exploited the expanded global market through various internalization strategies such as foreign direct investments and through exporting. This has allowed the businesses to increase their income and profits. Globalization has resulted in a much freer trade between the world countries, which has allowed domestic industries to access the international market. The access to the international market has also allowed these local companies to come up with new products and technologies that are needed and acceptable in the global market. Held however disputes this by indicating that the entry of new companies and businesses to new markets has negatively impacted on the domestic companies (Held 20). When new businesses and multinationals cross the border to exploit the global market, they bring very stiff competition to the local businesses. The competition at times reduces the level of sales of the local and domestic products. This is said to discourage the coming up and growth of the domestic markets. International Institutions and Corporations Due to globalization, businesses that were originally operating in limited markets have expanded their scope of operation. The result of this is that the entities have grown to become multinational corporations. The rise and expansion of these corporations has in turn brought about new trends in the new markets where they move into. Most of these multinationals have high level of automation and high skilled workers. This has increased the efficiency in the market. In addition to this, the growth of multinationals has also provided the governments of the countries where they operate in to be able to increase the taxes are earned from the businesses. The increase in taxes has allowed states and nations to develop. The integration of the financial economy has also resulted in the development of technologies. The multinationals that come into new markets bring new technologies such as the internet, undersea fibers and current managerial tactics. These technologies are then exploited by the local companies and this, in the long run, allows them to boost their efficiency and productivity. Mohr the other hand argues that the growth of multinationals and corporations in the country have forced the local businesses and companies to strive to develop their level of automation and skills to match these corporations (Mohr 56).In some cases, the domestic companies are left behind since they do not have the same financial capabilities like the multinationals. This has resulted in the corporations having monopoly over the local companies with this resulting in unfair competition in the market. According to Friedman it is due to globalization that international institutions have come up (Friedman 2). Institutions like the United Nations Organization, The World Trade Organization, the World Bank and The International Monetary Fund have been set up to try to govern the international or global economy. These institutions have been very vital in regulating the relationship between world countries as they operate in the global economy. The IMF has over the years ensured that the global monetary system is regulated. This has ensured that the monetary system does not shift from time to time. Banerjee and Duflo however say that these institutions have been purposefully set up to benefit specific countries (Banerjee and Duflo 266). The institutions have neglected some of the world economies while at the same time focusing their resourcing in helping develop the economies of specific countries thus promoting economic disparity. Employment Levels Employment is a very imperative indicator of the level of economic development in a country. According to Friedman the globalization of the world economies has had both negative and positive impact on the employment levels in various counties (Friedman 5).Domestic industries have expanded their operations to the global world and this has at time necessitated the need to expand their operations and thus offering more employment opportunities for the locals. Corporations and multinationals that expand their operations into the global market have also been a source of employment to the locals. Lechner and Boli however, argues that the entry of multinationals and foreign companies into the domestic markets only provide employment opportunities for the skilled workers alone (Lechner and Boli 54). When foreign companies enter the domestic market, they come with improved technologies and levels of automaton which with time are spreads to the local companies. In the long run, automation is incorporated even into the manufacturing and agricultural sectors. When this happens, the demand for the unskilled labour is reduced and this causes rising levels of unemployment in the unskilled labour sector. When the governments of the local countries are unable to provide the needed infrastructures to handle this, the country in question may become strained. Globalization, Inequality and Standards of Living According to Lechner and Boli globalization has provided employment opportunities for the locals. This, therefore, increases family income for those who are employed (Lechner and Boli 103). When it happens, the standards of living of these people are raised. Held also indicates that the entry of multinationals into the domestic markets has also necessitated infrastructural development (Held 11). Governments and states are able to raise their income from taxes thus allowing the government to invest in education, health care and transport. In the long run, this has improved the standards of living of the locals. Lechner and Boli the other hand notes than most of the people whose standards of living are improved through globalization are those who are skilled since the global companies normally render those who are not skilled jobless (Lechner and Boli 77). This has in the end resulted in inequality between the skilled workers and the unskilled workers. It is worth remembering that over the few years, the gap between the developed and the developing countries has continued to reduce. This is basically attributed to economic globalization. The developing economies have experienced increased growth due to the widened of the global market. Managing the Cost of the Economic Effects of Globalization Globalization is a phenomenon that appears to be out of control at the moment. It has numerous constructive as well as undesirable impacts of the economy. Countries have been able to exploit the comparative advantages of globalization. However the trend also has also had detrimental impacts on the economy. Despite this being the case, the benefits and advantages of globalization with respect to the economy appears to outweigh the disadvantages. This does not imply that the negatives that it brings should be neglected. The shortcoming of globalization needs to be controlled in order to reduce the cost that it may have on the economy of a county or the entire world economy. This can be done in three ways. The first method that can be used is ensuring that the international economic organizations such as the WTO, World Bank and IMF play their roles in regulating economic globalization. The globalized economy is a free state. This, therefore, requires some form of regulations which needs the active participation of these institutions. Secondly, it is requisite to guarantee that the needs of the less developed countries are considered and guaranteed when coming up with the globalized economic order (Held, 51).Globalization is capable of bringing about a new economic order. When this occurs without guaranteeing the interest of the developing countries, then such countries will not be able to evade the harm and the shortfalls of this new trend. Finally, there is need for direct interventions at various levels. These interventions done by governments are meant to help counter the microeconomic aspects of the trend that are detrimental to the economy. The governments of various countries need to strive to come up with incentives and regulatory mechanisms which are intended to streamline the enterprise system in a particular country. Moreover the government is required to invest more in technology, education and human resources to boost human capital and ensure that no segment of the labour market is neglected. Works Cited Banerjee, Abhijit and Duflo, Esther. "Inequality And Growth: What Can The Data Say?". Journal of Economic Growth8. 3 (2007): 267–99.Print. Bordo, Michael, Taylor, Alan M and Williamson, Jeffrey. Globalization in Historical Perspective. Chicago: University of Chicago Press, 2007.Print. Friedman, Thomas. “Its a Flat World, After All.”NY Times, 4 March 2005. Web. 4 December 2014. Held, David. A Globalizing World? Culture, Economics, Politics. London; New York: Routledge, 2004. Print. Lechner, Frank and Boli, John. The Globalization Reader. New York: John Wiley Sons, 2011.Print. Mohr, Angie. The Effects of Economic Globalization on Developing Countries. Demand Media, 8 Nov. 2013. Web. 4 December 2014 Read More