Understanding Globalization: Trends, Impacts, and Key Concepts
Understanding Globalization
Key Trends in Global Trade
The Doha Round and Challenges to Free Trade
The WTO’s Doha Round, aimed at lowering trade barriers and revising trade rules, faced challenges due to disagreements over agricultural subsidies between developed and developing countries. The US and EU’s reluctance to reduce subsidies hindered progress, as it would have allowed developing countries to export food more competitively.
The Rise of Mega-Regional Trade Deals
Mega-regional trade deals, such as the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP), seek deep integration between countries or regions, covering trade liberalization, foreign investment, and labor regulations.
Defining Globalization
Globalization refers to the increasing interaction of people, states, and countries through the growth of international flows of money, ideas, and culture. It is primarily an economic process with significant social and cultural implications.
Forces Driving Globalization
- Technological advancements, particularly the internet, facilitate communication and information sharing.
- The growth of multinational companies expands global economic activity.
- The emergence of global trading blocs promotes regional economic integration.
- The influence of global media connects people across borders.
- Improvements in transportation, such as increased air travel, facilitate the movement of people and goods.
Pros and Cons of Globalization
Pros:
- Free trade reduces barriers, promoting economic growth and job creation.
- Developing countries can benefit from foreign capital and investment.
- Consumers enjoy access to a wider variety of products at lower prices.
- Increased information flow fosters cross-cultural understanding.
Cons:
- Globalization can exacerbate income inequality between and within countries.
- Job losses in developed countries can occur as companies relocate to lower-cost locations.
- Multinational corporations may exploit developing countries’ resources and labor.
- The rapid spread of diseases becomes a concern.
The Middle Income Trap
The middle-income trap describes a situation where a country’s economic development stagnates after reaching a certain income level. Overcoming this trap requires finding new markets, fostering innovation, and investing in infrastructure and education.
International Factor Movements
International factor movements involve the flow of labor, capital, and other factors of production across borders. Key forms include immigration/emigration, capital transfers (international borrowing and lending), and foreign direct investment (FDI).
Cross-Border Technology Flows
Cross-border technology flows involve the transfer of technology from its origin to wider distribution, contributing to global innovation and economic growth.
Transnational Corporations
Transnational corporations (TNCs) operate in multiple countries, making decisions from a global perspective and utilizing local resources. They often engage in FDI by establishing subsidiaries or acquiring assets in foreign countries.
Brain Drain
Brain drain refers to the emigration of highly skilled workers from their home countries, often seeking better opportunities and living standards elsewhere.
The Smile Curve and Global Value Chains
The smile curve illustrates how value creation in global value chains is concentrated at the upstream (research, design) and downstream (marketing, branding) ends, while manufacturing often contributes less value. This concept highlights the importance of innovation and branding in today’s global economy.
Foreign Direct Investment (FDI) and Dunning’s Eclectic Theory
FDI involves a company investing in business interests in another country. Dunning’s eclectic theory identifies three advantages that motivate FDI: ownership advantages (e.g., trademarks, technology), location advantages (e.g., resources, low wages), and internalization advantages (e.g., control over production).
Growth of FDI since the 1990s
FDI has grown significantly since the 1990s due to factors such as technological advancements, improved communication and transportation links, and easier access to resources.
Balance of Payments
The balance of payments records a country’s economic transactions with the rest of the world. A deficit occurs when imports exceed exports, while a surplus indicates the opposite. The balance of payments comprises the current account (trade in goods and services), the capital account (financial transactions), and the financial account (international ownership of assets).
National Income and Foreign Trade
Foreign trade is a component of national income, which represents the total income earned within a country. National income is calculated as consumption + investment + government spending + exports – imports.
Exchange Rates
Exchange rates determine the value of one currency in terms of another. There are three main types of exchange rate systems: free-floating, fixed, and hybrid.
Factors Influencing Exchange Rates
- **Inflation rates:** Higher inflation typically leads to a depreciation of the currency.
- **Interest rates:** Higher interest rates can attract foreign investment, increasing demand for the currency.
- **Current account balance:** A deficit can put downward pressure on the currency.