Globalization: Causes, Effects and Major Economic Powers
What Is Globalization?
What is globalization? It refers to the process of increasing interdependence of the world’s economies and societies.
Characteristics of the Globalized Economy
- Huge expansion of international trade
- Business concentration — firms merge to become more competitive
- Global organization of production — companies distribute phases of production among different locations to save money. This is called outsourcing.
- Large multinational companies — they have an international dimension and huge resources, so they have influence over governments and economic institutions.
Globalization Factors
- Information society: new information and communication technologies make it possible to organize global production and move capital from one place to another in seconds.
- Cheaper and improved transport: facilitates the flow of goods and people.
- Liberalization policies: implemented by governments to open markets.
- Deregulation of financial markets: facilitates movement of capital between countries.
- Elimination of customs duties and other obstacles to imports: goods and services can be sold more freely across borders.
- Collapse of the communist bloc: former communist countries adopted the capitalist system. As a result, most countries now form a single global market except Cuba and North Korea (they remain dictatorships and communist in their political systems).
Positive Effects of Globalization
- Increase of global wealth
- Strong growth and economic development in some countries, for example China and India
- Social progress, especially in health and education
Negative Effects of Globalization
Developed countries and some developing countries have benefited more. Poorer countries are being marginalized in the global economy.
Inequalities within countries have increased; in general, cities have benefited more than rural areas.
States are less able to control their economies because more and more decisions affecting the economy are now made outside their borders.
Role of International Economic Institutions
- World Bank: to reduce poverty and improve the standard of living worldwide.
- International Monetary Fund (IMF): promotes cooperation between countries’ economies and provides financial assistance and policy advice.
- World Trade Organization (WTO): ensures that international trade is smooth, free, and fair.
Economic Powers
Economic powers: groups of countries that control most of the world’s economic production and trade.
Traditional Powers
USA, Japan and the EU
Emerging Powers
Brazil, Russia, India and China (BRIC)
Regional Powers
Australia, the Asian Tigers, South Africa, and Persian Gulf oil producers
Economically Least Developed Countries
Latin America, South Asia and Sub-Saharan Africa
The United States Economy
The US population has one of the world’s highest per capita incomes. As a result, consumption is very high.
However, two principal weak points are:
- Families have heavy debt due to high consumption.
- The US imports much more than it exports. This results in a trade deficit.
Characteristics of the US Economy
- World-leading companies: many global corporations are based in the United States.
- Entrepreneurial culture: investments are highly valued in US society.
- Investments in research: significant public and private R&D spending.
- Quality universities: education produces a highly skilled labor force.
- Access to natural resources and energy: substantial reserves and infrastructure.
- Attracts foreign investment: the US remains a primary destination for global capital.
- The dollar: the world’s most important currency for trade and reserves.
Japan’s Economy
Japan is the third largest economy in the world after the US and China.
Its economic power is based on high industrial capacity, global exports, a high level of domestic savings, continued public investment, and dominance in some international markets.
The weak points of this economy are:
- Ageing population — high social costs.
- Scarce natural and energy resources — dependence on imports.
Strong Points of the Japanese Economy
- Varied industry
- Robotics and advanced manufacturing
- Exports of manufactured products
- Businesses present in many countries
- Relatively equal distribution of income and a low unemployment rate
The European Union (EU)
The EU is first in volume of trade because it is a large group of countries and is centrally located, which makes transportation easier.
Germany, France and Italy are the largest economies in the EU.
Emerging Economic Powers
Brazil, Russia, India and China (BRIC)
Regional Powers
Australia
- One of the most prosperous developed countries.
- Influence in East Asia and the Pacific.
- Dominance of the services sector.
- Minerals and agricultural products are competitive worldwide.
The Asian Tigers
- Cheap skilled labour produced high-quality, low-cost goods.
- Leaders in some of the most innovative industrial sectors.
The Republic of South Africa
- Rich in natural resources.
- Highest GDP in Africa.
The Oil-Producing Countries
- Their investment decisions have a significant impact on the global economy.
- Their presence is often concentrated in the energy and financial sectors.