We often hear the word globalization in many contexts and repeated frequently as a concept to denote more trade, foreign companies and even the ongoing economic crisis. Before we launch into a full-fledged review of the term and its various manifestations, it is important to consider what exactly we mean when we say globalization.
Globalization is the free movement of goods, services and people across the world in a seamless and integrated manner. Globalization can be thought of to be the result of the opening up of the global economy and the concomitant increase in trade between nations. In other words, when countries that were hitherto closed to trade and foreign investment open up their economies and go global, the result is an increasing interconnectedness and integration of the economies of the world. This is a brief introduction to globalization.
Further, globalization can also mean that countries liberalize their import protocols and welcome foreign investment into sectors that are the mainstays of its economy. What this means is that countries become magnets for attracting global capital by opening up their economies to multinational corporations.
Further, globalization also means that countries liberalize their visa rules and procedures so as to permit the free flow of people from country to country. Moreover, globalization results in freeing up the unproductive sectors to investment and the productive sectors to export related activities resulting in a win-win situation for the economies of the world.
Globalization is grounded in the theory of comparative advantage which states that countries that are good at producing a particular good are better off exporting it to countries that are less efficient at producing that good. Conversely, the latter country can then export the goods that it produces in an efficient manner to the former country which might be deficient in the same. The underlying assumption here is that not all countries are good at producing all sorts of goods and hence they benefit by trading with each other. Further, because of the wage differential and the way in which different countries are endowed with different resources, countries stand to gain by trading with each other.
Globalization also means that countries of the world subscribe to the rules and procedures of the WTO or the World Trade Organization that oversees the terms and conditions of trade between countries. There are other world bodies like the UN and several arbitration bodies where countries agree in principle to observe the policies of free trade and non-discriminatory trade policies when they open up their economies.
In succeeding articles, we look at the various dimensions of globalization and the impact it has had on the global economy as well as in the mobility of people from poverty to middle class status. The point here is that globalization has had positive and negative effects and hence a nuanced and deep approach is needed when discussing the concept. What is undeniable is that globalization is here to stay and hence it is better for the countries in the global economy to embrace the concept and live with it.
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