Economic globalization is the process of creating an economy that connects countries on a worldwide scale. Economic globalization creates commercial links between people, businesses, and governments around the world. The global economy has many parts.
The cross-border flow of goods and services is called international trade. Buyers and sellers around the world are linked by these trade relationships.
Foreign Direct Investment
The investment that a company makes in a foreign country is foreign direct investment (FDI). A US company building a factory in Mexico is an example of FDI. FDI creates commercial ties between two countries. These ties can bring jobs and other benefits to the second country.
Cross-border flows of money link investors from different countries. Computer networks allow investors to buy and sell securities in stock markets around the globe. Currencies such as the US dollar and the Japanese yen are traded.
Other cross-border flows, such as the fl.ow of workers from one country to another, are also a part of globalization. For example, every year millions of workers cross national borders in search of jobs and a better life. New ideas and technologies increase productivity across the globe.
Institutions of Globalization
Globalization is supported by many international organizations. These institutions work to create and maintain positive economic relations between nations. The policies and actions of these organizations are often controversial. The table to the right summarizes the roles of some key international organizations.
|World Bank||Gives loans and grants to poorer countries to help them develop their economies|
|International Monetary Fund (IMF)||Gives loans, advice, and supervision to poorer countries to stabilize (hold steady) currencies, financial institutions, and trading relations with other countries|
|World Trade Organization (WTO)||Establishes and enforces rules to guide and encourage free trade|
|United Nations (UN)||Establishes a forum to discuss and promote global security, economic development, and social progress|
Benefits and Costs of Globalization
The pace of globalization has increased in recent decades. New technologies have helped this growth. Advanced information and communications systems support the flow of services, money, and ideas. Modern transportation systems make it easier for people and goods to move from one country to another.
Supporters argue that globalization creates prosperity. Global trade, for example, enables countries to become more efficient by specializing in the production of goods best suited to their resources. In turn, efficient production encourages countries to export goods for profit. In addition, FDI brings modern machines and equipment, technology, and business skills into poorer regions of the world. Trade and FDI also bring more money into poorer economies by creating jobs. Countries collect more tax revenue when their economies grow. This means better public services can be provided. Finally, by opening national borders, immigrant and migrant workers have access to jobs and other opportunities. Therefore, supporters argue that globalization improves living standards.
Globalization also has its opponents. Globalization, they say, leads to the exploitation of people and the environment. They note that the profits earned through trade and investment benefit mainly the rich-the stockholders in far-away lands and the privileged classes in the poorer host countries. This widens the income gap between rich and poor. In addition, the pursuit of profit can blind companies to the harm they are doing in a host country. Issues include the unjust treatment of workers and the abuse of the environment.
Finally, opponents of globalization point to the negative effects globalization can have on employment in richer countries. When a US company moves its production abroad, for example, the workers in US factories lose their jobs and many supporting businesses close.