Globalization of the world economy or economic globalization has been especially pronounced after World War II and the Great Depression of the 1930’s in the USA. Technically, globalization on the economic front refers to the integration of product prices, labour wages, interest rates and rates of profit toward developed country standards. The rise in the volume of trade between the developed and the developing countries, increase in cross-border transactions, rise in immigration and transfer of technology are some of the key issues of globalization.
Although some thought about the ill effects of globalization like erosion of sovereignty, the emergence of cross-culture, the accommodation and assimilation of a large number of immigrants to the developed countries of Europe and the USA, inequality in the worldwide distribution of income and environmental degradation persists, globalization has some desirable fallouts which would have been very difficult to achieve otherwise. Reduction of barriers to different countries, both economically and politically, have ensured companies worldwide can reap the advantages of economies of scale by hiring in cheap labour and raw materials which are not produced domestically. China is one such example which has reduced its tariff rate to about 13% at present after its admission to the World Trade Organization (WTO) in 2001. The list of protected goods which was 300 at that time has also been cut down. Globalization has led to increase in production capacity of different companies across the world which now caters to a world consumer base. Large quantities of flow of goods and services from the developed to the developing countries and vice versa have made Indian textiles and Chinese electronic goods more popular across the world. Although Japan experienced the largest gains from trade in the post globalization period, it is currently facing a slowdown along with its once favoured trading partner, the USA. This has also indirectly led to the success of economies within South and South-East Asia who have scaled up their regional cooperation amongst themselves resulting in higher trade volumes. Economic globalization has the concomitant effect of the gains of comparative advantage which leads countries to produce goods they are most efficient in terms of lowest production costs which leads, in turn, to increased volumes of world output.The creation of Multi-National Companies (MNC’s) or Trans National Companies (TNC’s) is one debatable aspect of the globalization. While big companies of the developed world opening shops in the less developed countries have allowed transfers of improved technologies it has even led to exploitation of workers of the third world. Globalization of the world economy has had a major effect in transferring jobs to destinations in South and South East Asia where wage rates are less than half of those in the developed world.
Transfer of technology has facilitated the opening of various turnkey projects in the less developed countries of Asia and Africa. The improved technical skills which come with these technologies help the domestic workers in the long run who can acquire these in the future and develop and manage the sophisticated equipments independently. While countries such as India and China have experienced increased growth rates, rising standards of living and a general reduction of poverty, the gap between the have-nots and the have-lots has grown exponentially. Per capita urban incomes were 2.2 times higher than in rural households in 1990 which increased to 2.6 in 1999 and further to 2.8 in 2000. This has mainly been ascribed to rural unemployed not being able to find jobs owing to their lack of technical skills and education. Globalization has the horrific dimension of the world getting more polarized with the developed or rich nations using international organizations and world legislations to impose Trade Agreements and tax normalization laws in the developing world. It may also lead to a cultural colonization for the third world economies.Notably, the North American Free Trade Agreement (NAFTA) and the South Asian Free Trade Agreement (SAFTA) has been counterproductive on many occasions.
Creation of Export Processing Zones (EPZ’s) and Special Economic Zones (SEZ’s) with huge inflow of Foreign Direct Investment needs to be assessed with respect to specific countries and domestic economic policies which are gradually being too much dependent on the situation prevailing in foreign countries also need to be corrected.
More industrialization and movement of goods and services across the world is emitting huge quantities of greenhouse gases which is causing environmental degradation. With globalization, ecological concerns such as climatic changes, global warming and excessive fishing of oceans can be addressed jointly and effectively by all the nations. Not surprisingly, economic and social integration can promote international peace and harmony among nations.