Globalization and Its Effects on the World Economy

Introduction

Globalization is a phenomenon that has influenced tremendous changes across the world. Globalization is associated with the international integration of social, economic, and political ideologies in the quest of finding the appropriate articulation point that benefits the entire world. Globalization has particularly been promoted by international trade. The presence of developed and developing nations in the international markets has led to the development of a modern culture, which is majorly inclined toward Western culture. Globalization has also forced different nations to develop partnerships with the international community, to provide regional and international platforms that protect the respective nations in international trade.

Globalization has had numerous positive effects on the global economy, but society should be cautious about the associated negative effects. Different regions are facing different repercussions of becoming signatories of international trade treaties. It is apparent that in such agreements, there are always winners and losers. The winners are strong proponents of the promotion of international cooperation between nations, whereas the losers are against the concept. This paper looks into globalization and its positive and negative effects on the global economy.

Negative Effects of Globalization

One of the negative effects of globalization involves the currency parity that is associated with international trade. It is apparent that as private investors continue enjoying the free markets in various international markets like the US market, issues of currency value arise. The performance of a nation’s currency against the dollar is being used to determine the purchasing power of the associated currency. This is especially seen in the developing nations, where the value of their currency is constantly fluctuating, resulting in inflation and lower purchasing power of the citizens. Such a scenario was seen during the rise of international trade. The Asian continent became an integral trading zone for the European nations, as well as the United States, but the value of the respective currencies affected and still affects the balance of trade¹. Globalization opens up free markets, and the benefactors of the trade are not always the deserving parties. For instance, more US dollars would be sold in London than in New York.

Globalization has also been a major cause of the downfall of companies in various local markets, especially in emerging markets. As more international companies gain access to various emerging markets, their deep pockets are helping them to acquire unfair competitive advantages against locally based companies. For instance, international companies in different markets have identified the value of developing production units in nations that have cheaper labor and raw materials. This has facilitated cheaper costs of production for big companies; hence, they can afford to provide consumers with relatively cheaper products. This advantage ensures that the local producers lag in different business industries².

In addition to lowering the competitive power of local companies in the emerging markets, globalization has also been associated with the development of sweatshops in various developing nations. For instance, some multinational companies like Wal-Mart have been associated with developing production units in the developing nations, where labor is extremely cheap. While this might be a good thing for the locals of the associated nations, issues of overexploitation of the desperate employees in these regions are all too common³. In essence, cheap labor only makes the profit margins of the associated nations keeps growing, but wages are constant, or even lower, whereas the intensity of the tasks in the workflow keeps increasing. The developing nations are being exploited by international corporations for labor with minimal returns. Some countries like India have had little accountability in child labor, and there are beliefs that child labor is still eminent in the region. A similar case is present in Latin American countries⁴.

Globalization has increased criminal activities in trade across the world, and it has facilitated the development of strong financial backgrounds for criminals and terrorists. For instance, the free trade policy between Mexico, Canada, and the United States, the North American Free Trade Agreement (NAFTA), has facilitated the infiltration of drug cartels from Mexico into the United States⁵. Similarly, opium farmers and traffickers have had a relatively successful business across the world owing to the free market zones that have developed over the years.

Globalization has also increased the cases of terrorism across the world, and some regions are quite unsafe. Political issues between governments and terrorist groups have led to an increase in the number of innocent lives lost in wars. For instance, the 9/11 attacks and the subsequent retaliation by the United States in Afghanistan and Iraq led to the loss of many lives and the world’s population lives in the fear that the extremist groups might succeed in a similar attack. Terrorist attacks and the associated retaliations lead to the destruction of infrastructure, and the crippling of economies through government sanctions.

While globalization was set to enhance the economic performance of the developing and developed nations, it is apparent that it has led to the rise in poverty among citizens in developing nations. Corruption in governments and the unequal distribution of wealth in the developing nations has resulted in an increase in poverty among citizens. Globalization has been accompanied by the adoption of capitalism across the world, which is an economic principle that promotes inequality. While developing nations are recording an increase in GDP, few individuals are benefiting from the improvements in the global economy⁶.

Globalization has not only facilitated ways for nations and private investors to move around the world. Globalization has enhanced tourism across different nations in the world. However, people seldom consider the negative effects of this development. One of the negative effects of intense tourism is the spread of deadly diseases. For instance, HIV/AIDS is one of the deadly diseases that were introduced to developing nations by tourists from developed nations. The disease has become a menace in the African continent, and many people have died from AIDS. Governments continue spending millions of dollars annually to help citizens to survive with HIV/AIDS⁷. From an economic perspective, such a disease has led to the crippling of human capital, and it has forced people to live in poverty in the developing nations.

Perhaps one of the most adverse effects of globalization is environmental degradation across the world. Globalization led to an increase in the rate of industrialization in different parts of the world, and the reliance on fossil fuels has led to an increase in the rate of global warming. Cities like China have been turned into high pollution zones⁸. The manufacturing processes have a high carbon footprint in different parts of the world, and this has compromised the ability of the environment to sustain a reliable precipitation system. The industrialization has also led to an increase in the rate of depletion of natural resources. The demand for different commodities has forced nations to overexploit the available resources, and the cost of living has been increasing gradually across the globe.

Globalization has led to global economic growth to some level, but it has also resulted in lower rates of GDP growth in some nations, which has resulted in huge national debts. Economic growth across the globe has never been equal, despite the concept of globalization being associated with the provision of equal opportunities for investors. Nations with the appropriate infrastructure like China have seen tremendous growth in GDP, whereas the developing nations are languishing in national debts. World trade is increasing at a faster rate than the corresponding growth in GDP for the respective nations involved in international trade⁹.

Positive Effects of Globalization

One of the positive effects of globalization is the development of specialized economic activities in different nations across the world. Nations do not have to produce every product that the population requires; rather, they engage in international trade. This has facilitated tremendous economic growth in some nations. For instance, South Korea specialized in the telephone industry, and it is currently one of the richest nations in the region. South Korea has positioned itself as one of the drivers of the global economy, with the ability to create employment for the global society. China and Japan have specialized in manufacturing different products. China has particularly become a strategic partner for different global companies because of its ability to produce a large number of units of a product at a relatively cheaper price. This has led to China being one of the fastest-growing economies in the world, and it has a big influence on the global economy.

The open market policy that has been adopted by different nations has led to the enhancement of opportunities for firms in developing nations to tap into the developed economies. This facilitates economic liberation for some of the poorest nations in the world. The symbiotic relationship between the low economy states and the high economy states has led to an enhancement of the quality of life for citizens. For instance, the relationship between the United States, Mexico, and Canada has provided an opportunity for the locals in Mexico to secure employment opportunities in the US and Canada¹⁰. The relationship has also facilitated an open market for commodities produced by the Mexicans. As more low economy states benefit from their developed counterparts, the global economy is growing.

In addition to this, globalization has led to extensive access to human capital for companies across the world. Outsourcing labor has created employment opportunities for people across the world. Globalization has also facilitated faster development and adoption of technology. Different nations and people have adopted technology from various parts of the world in a quest to liberate themselves economically. For instance, large-scale farmers across the world are sharing technology to enhance production levels. Globalization has also ensured that the surplus products in different nations can be exported to other parts of the world. The interdependence between nations is promoting global economic growth¹¹. Businesses in developing nations are gradually becoming strategic partners for multinational companies through the development of supply chain contracts. Developing nations are serving a bigger role in the value chain across the global economy.

Globalization has also influenced the development of a large human capital base across the globe. International students are present in all nations with the best educational systems. For instance, there are numerous international students in the United States and European nations, and this has increased the number of professionals that can drive the economy of the world in the future¹². Education is one of the most important aspects of global economic growth, and the developed nations have heavily invested in quality education, which is available to people across the world.

Conclusion

The concept of globalization entails the international integration of political, social, and economic outlooks in the quest to develop partnerships. From an economic perspective, globalization has both positive and negative effects on the global economy. Economic analysts have always assumed a positive outlook while ignoring some of the negative effects of globalization. The approach assumed in this paper to the analysis of globalization reveals that there are numerous negative effects of the concept. While globalization cannot be stopped at the contemporary level, the global society can start developing viable solutions for the adverse effects of globalization. It is essential to focus on the positive repercussions of globalization on the global economy.

Bibliography

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Footnotes

1. Docquier, Frédéric, and Hillel Rapoport. “Globalization, brain drain, and development.” Journal of Economic Literature 1, no. 1 (2012): 681-730.
2. Livermore, Michael A., and Richard L. Revesz, eds. The globalization of cost-benefit analysis in environmental policy. (Oxford: Oxford University Press), 2013, 34.
3. Docquier, Frédéric, and Hillel Rapoport. “Globalization, brain drain, and development.” Journal of Economic Literature 1, no. 1 (2012): 681-730.
4. Nissanke, Machiko, and Erik Thorbecke. “Globalization, poverty, and inequality in Latin America: findings from case studies.” World Development 38, no. 6 (2010): 797-802.
5. McAnany, Emile G., and Kenton T. Wilkinson, eds. Mass media and free trade: NAFTA and the cultural industries. (Texas: University of Texas Press, 2010), 13-35.
6. Esquivel, Gerardo, and Guillermo Cruces. “The Dynamics of Income Inequality in Mexico since NAFTA [with Comment].” Economía 11, no. 3 (2011): 155-188.
7. Kieh Jr, George Klay, ed. Africa and the new globalization. Farnham: Ashgate Publishing, Ltd., 2013. Print.
8. Livermore, Michael A., and Richard L. Revesz, eds. The globalization of cost-benefit analysis in environmental policy. ( Oxford: Oxford University Press, 2013), 37.
9. McMillan, Margaret, Dani Rodrik, and Íñigo Verduzco-Gallo. “Globalization, structural change, and productivity growth, with an update on Africa.” World Development 63, no. 1 (2014): 11-32.
10. Esquivel, Gerardo, and Guillermo Cruces. “The Dynamics of Income Inequality in Mexico since NAFTA [with Comment].” Economía 11, no. 3 (2011): 155-188.
11. Fujita, Masahisa, and Jacques-François Thisse. Economics of agglomeration: cities, industrial location, and globalization. (Cambridge: Cambridge university press, 2013). 22.
12. McMillan, Margaret, Dani Rodrik, and Íñigo Verduzco-Gallo. “Globalization, structural change, and productivity growth, with an update on Africa.” World Development 63, no. 1 (2014): 11-32.