Economic globalization is the increasing economic integration and interdependence of national, regional and local economies across the world through an intensification of cross-border movement of goods, services, technologies and capital. Whereas globalization is a broad set of processes concerning multiple networks of economic, political and cultural interchange, contemporary economic globalization is propelled by the rapid growing significance of information in all types of productive activities and marketization, and by developments in science and technology.
Economic globalization primarily comprises the globalization of production and finance, markets and technology, organizational regimes and institutions, corporations and labour.
While economic globalization has been expanding since the emergence of trans-national trade, it has grown at an increased rate over the last 20â€"30 years under the framework of General Agreement on Tariffs and Trade and World Trade Organization, which made countries gradually cut down trade barriers and open up their current accounts and capital accounts. This recent boom has been largely accounted by developed economies integrating with less developed economies, by means of foreign direct investment, the reduction of trade barriers, and in many cases cross border immigration.
While globalization has radically increased incomes and economic growth in developing countries and lowered consumer prices in developed countries, it also changes the power balance between developing and developed countries and has an impact on the culture of each affected country. And the shifting location of goods production has caused many jobs to cross borders, requiring some workers in developed countries to change careers.
History
International commodity markets, labor markets and capital markets make up the economy and define economic globalization.
Beginning as early as 4000 BC, people were trading livestock, tools, and other items. In Sumer, an early civilization in Mesopotamia, a token system was one of the first forms of commodity money. Labor markets consist of workers, employers, wages, income, supply and demand. Labor markets have been around as long as commodity markets. The first labor markets provided workers to grow crops and tend livestock for later sale in local markets. Capital markets emerged in industries that required resources beyond those of an individual farmer.
By the early 1900s, it was rare to come across a town that was not influenced by foreign marketsâ€"whether it be in labor, prices, or any other part of business. With advances in ship and rail transport and electronic communications, trade with other parts of the world became much easier. Towns were no longer limited to what they alone could produce and what nearby towns over could trade with them.
These advances in economic globalization were disrupted by World War I. Most of the global economic powers constructed protectionist economic policies and introduced trade barriers that slowed trade growth to the point of stagnation. This caused a slowing of world-wide trade and even led to other countries introducing immigration caps. Globalization didn’t fully resume until the 1970s, when governments began to emphasize the benefits of trade. Today, follow-on advances in technology have led to the rapid expansion of global trade.
Three suggested factors accelerated economic globalization: advancement of science and technology, market oriented economic reforms and contributions by multinational corporations.
A reduction of transportation and communication costs were a key part of the growth of globalization. Since the 1930s, ocean shipping costs fell by half, airfreight by 85%, and telecommunications by 99%.
The GATT/WTO framework led participating countries to reduce their tariff and non-tariff barriers to trade. Governments shifted their economies from central planning to markets. These internal reforms allowed enterprises to adapt more quickly and exploit opportunities created by technology shifts.
Multinational corporations reorganized production to take advantage of these opportunities. Labor-intensive production migrated to areas with lower labor costs, later followed by other functions as skill levels increased.
The 1956 invention of containerized shipping, increases in ship sizes were a major part of the reduction in shipping costs.
Irreversibility
According to prominent Chinese economist Gao Shanguan, economic globalization is an irreversible trend due to the fact that world markets are in great need of science and information technologies. With the growing demands of science and technology, Shanquan states that with world markets take on an "increasing cross-border division of labor".
However, Princeton University professor Robert Gilpin argues that nations' economic policies have mistakenly slowed their own growth by resisting globalization, showing that globalization is not irreversible. Antonio L. Rappa agrees that economic globalization is reversible and cites International Studies professor Peter J. Katzenstein.
Effects
Economic growth and poverty reduction
Economic growth accelerated and poverty declined globally following the acceleration of globalization.
Per capita GDP growth in the post-1980 globalizers accelerated from 1.4 percent a year in the 1960s and 2.9 percent a year in the 1970s to 3.5 percent in the 1980s and 5.0 percent in the 1990s. This acceleration in growth is even more remarkable given that the rich countries saw steady declines in growth from a high of 4.7 percent in the 1960s to 2.2 percent in the 1990s. Also, the non-globalizing developing countries did much worse than the globalizers, with the former's annual growth rates falling from highs of 3.3 percent during the 1970s to only 1.4 percent during the 1990s. This rapid growth among the globalizers is not simply due to the strong performances of China and India in the 1980s and 1990sâ€"18 out of the 24 globalizers experienced increases in growth, many of them quite substantial."
According to the International Monetary Fund, growth benefits of economic globalization are widely shared. While several globalizers have seen an increase in inequality, most notably China, this increase in inequality is a result of domestic liberalization, restrictions on internal migration, and agricultural policies, rather than a result of international trade.
Poverty has been reduced as evidenced by a 5.4 percent annual growth in income for the poorest fifth of the population of Malaysia. Even in China, where inequality continues to be a problem, the poorest fifth of the population saw a 3.8 percent annual growth in income. In several countries, those living below the dollar-per-day poverty threshold declined. In China, the rate declined from 20 to 15 percent and in Bangladesh the rate dropped from 43 to 36 percent.
Globalizers are narrowing the per capita income gap between the rich and the globalizing nations. China, India, and Bangladesh, once among the poorest countries in the world, have greatly narrowed inequality due to their economic expansion.
Multinational corporations
The spread of multinational corporations has accompanied the rise of globalization. One of the many changes they have brought to developing countries is increased automation, which may damage less-automated local firms and require their workers to develop new skills in order to transition into the changing economy, leaving some behind. The necessary education infrastructure is often not present, requiring a redirection of the government’s focus from social services to education.
ECLAC states that in order to create better economic relations globally, international lending agencies must work with developing countries to change how and where credit is concentrated as well as work towards accelerating financial development in developing countries. ECLAC further suggests that the United Nations expand its agenda to work more rigorously with international lending agencies and that they become more inclusive of all nations. Key factors in achieving universal competition is the spread of knowledge at the State level through education, training and technological advancements. Economist Jagdish Bhagwati suggested that programs to help developing countries adjust to the global economy would be beneficial for international economic relations.
Several movements, such as the fair trade movement and the anti-sweatshop movement, claim to promote a more socially just global economy. The fair trade movement works towards improving trade, development and production for disadvantaged producers. The fair trade movement has reached 1.6 billion US dollars in annual sales. The movement works to raise consumer awareness of exploitation of developing countries. Fair trade works under the motto of "trade, not aid", to improve the quality of life for farmers and merchants by participating in direct sales, providing better prices and supporting the community.
Capital flight
Capital flight occurs when assets or money rapidly flow out of a country because of that country's recent increase in unfavorable financial conditions such as taxes, tariffs, labor costs, government debt or capital controls. This is usually accompanied by a sharp drop in the exchange rate of the affected country or a forced devaluation for countries living under fixed exchange rates. Currency declines improve the terms of trade, but reduce the monetary value of financial and other assets in the country. This leads to decreases in the purchasing power of the country's assets.
A 2008 paper published by Global Financial Integrity estimated capital flight, also called illicit financial flows to be leaving developing countries at the rate of "$850 billion to $1 trillion a year." But capital flight also affects developed countries. A 2009 article in The Times reported that hundreds of wealthy financiers and entrepreneurs had recently fled the United Kingdom in response to recent tax increases, relocating to low tax destinations such as Jersey, Guernsey, the Isle of Man and the British Virgin Islands. In May 2012 the scale of Greek capital flight in the wake of the first "undecided" legislative election was estimated at €4 billion a week and later that month the Spanish Central Bank revealed €97 billion in capital flight from the Spanish economy for the first quarter of 2012.
Capital flight can cause liquidity crises in directly affected countries and can cause related difficulties in other countries involved in international commerce such as shipping and finance. Asset holders may be forced into distress sales. Borrowers typically face higher loan costs and collateral requirements, compared to periods of ample liquidity, and unsecured debt is nearly impossible to obtain. Typically, during a liquidity crisis, the interbank lending market stalls.
Inequality
While within-country income inequality has increased throughout the globalization period, globally inequality has lessened as developing countries have experienced much more rapid growth. Economic inequality varies between societies, historical periods, economic structures or economic systems, ongoing or past wars, between genders, and between differences in individuals' abilities to create wealth. Among the various numerical indices for measuring economic inequality, the Gini coefficient is most often-cited.
Economic inequality affects equity, equality of outcome and subsequent equality of opportunity. Although earlier studies considered economic inequality as necessary and beneficial, some economists see it as an important social problem. Early studies suggesting that greater equality inhibits economic growth did not account for lags between inequality changes and growth changes. Later studies claimed that one of the most robust determinants of sustained economic growth is the level of income inequality.
International inequality is inequality between countries. Income differences between rich and poor countries are very large, although they are changing rapidly. Per capita incomes in China and India doubled in the prior twenty years, a feat that required 150 years in the US. According to the United Nations Human Development Report for 2013, for countries at varying levels of the UN Human Development Index the GNP per capita grew between 2004 and 2013 from 24,806 to 33,391 or 35% (very high human development), 4,269 to 5,428 or 27% (medium) and 1,184 to 1,633 or 38% (low) PPP$, respectively (PPP$ = purchasing power parity measured in United States dollars).
Certain demographic changes in the developing world after active economic liberalization and international integration resulted in rising welfare and hence, reduced inequality. According to Martin Wolf, in the developing world as a whole, life expectancy rose by four months each year after 1970 and infant mortality rate declined from 107 per thousand in 1970 to 58 in 2000 due to improvements in standards of living and health conditions. Also, adult literacy in developing countries rose from 53% in 1970 to 74% in 1998 and much lower illiteracy rate among the young guarantees that rates will continue to fall as time passes. Furthermore, the reduction in fertility rates in the developing world as a whole from 4.1 births per woman in 1980 to 2.8 in 2000 indicates improved education level of women on fertility, and control of fewer children with more parental attention and investment. Consequentially, more prosperous and educated parents with fewer children have chosen to withdraw their children from the labor force to give them opportunities to be educated at school improving the issue of child labor. Thus, despite seemingly unequal distribution of income within these developing countries, their economic growth and development have brought about improved standards of living and welfare for the population as a whole.
Tax havens
A tax haven is a state, country or territory where certain taxes are levied at a low rate or not at all, which are used by businesses for tax avoidance and tax evasion. Individuals and/or corporate entities can find it attractive to move themselves to areas with reduced taxation. This creates a situation of tax competition among governments. Taxes vary substantially across jurisdictions. Sovereign states have theoretically unlimited powers to enact tax laws affecting their territories, unless limited by previous international treaties. The central feature of a tax haven is that its laws and other measures can be used to evade or avoid the tax laws or regulations of other jurisdictions. In its December 2008 report on the use of tax havens by American corporations, the U.S. Government Accountability Office was unable to provide a satisfactory definition of a tax haven, but regarded the following characteristics as indicative of it: nil or nominal taxes; lack of effective exchange of tax information with foreign tax authorities; lack of transparency in the operation of legislative, legal or administrative provisions; no requirement for a substantive local presence; and self-promotion as an offshore financial center.
A 2012 report from the Tax Justice Network estimated that between USD $21 trillion and $32 trillion is sheltered from taxes in tax havens worldwide. If such hidden offshore assets are considered, many countries with governments nominally in debt would be net creditor nations. However, the tax policy director of the Chartered Institute of Taxation expressed skepticism over the accuracy of the figures. Daniel J. Mitchell of the US-based Cato Institute says that the report also assumes, when considering notional lost tax revenue, that 100% of the money deposited offshore is evading payment of tax.
Tax havens have been criticized because they often result in the accumulation of idle cash which is expensive and inefficient for companies to repatriate. The tax shelter benefits result in a tax incidence disadvantaging the poor. Many tax havens are thought to have connections to "fraud, money laundering and terrorism." Ongoing investigations of illegal tax haven abuse have produced few convictions. Lobbying pertaining to tax havens and associated transfer pricing has also been criticized. Accountants' opinions on the propriety of tax havens have been evolving, as have the opinions of their corporate users, governments, and politicians, although their use by Fortune 500 companies and others remains widespread. Reform proposals centering on the Big Four accountancy firms have been advanced. Some governments appear to be using computer spyware to scrutinize corporations' finances.
Voices of developing countries
The Economic Commission for Latin America and the Caribbean (ECLAC) has proposed an agenda to support conditions for developing countries to improve their standing in the global economy. However, the advantaged countries continue to control the economic agenda. Lechner and Boli state that the World Bank and the International Monetary Fund must give voice to developing countries.
Cultural effects
Economic globalization may impact culture. Populations may mimic the international flow of capital and labor markets in the form of immigration and the merger of cultures. Foreign resources and economic measures may impact different native cultures and may cause assimilation of a native people. As these populations are exposed to the English language, computers, western music, and North American culture, changes are being noted in shrinking family size, immigration to larger cities, more casual dating practices, and gender roles are transformed.
Yu Xintian noted two contrary trends in culture due to economic globalization. Yu argued that culture and industry not only flow from the developed world to the rest, but trigger an effort to protect local cultures. He notes that economic globalization began after World War II, whereas internationalization began over a century ago.
George Ritzer wrote about the McDonaldization of society and how fast food businesses spread throughout the United States and the rest of the world, attracting other places to adopt fast food culture. Ritzer describes other businesses such as The Body Shop, a British cosmetics company, that have copied McDonald's business model for expansion and influence. In 2006, 233 of 280 or over 80% of new McDonalds opened outside the US. In 2007, Japan had 2,828 McDonalds locations.
Global media companies export information around the world. This creates a mostly one-way flow of information, and exposure to mostly western products and values. Companies like CNN, Reuters and the BBC dominate the global airwaves with western points of view. Other media news companies such as Qatar's Al Jazeera network offer a different point of view, but reach and influence fewer people.
Migration
“With an estimated 210 million people living outside their country of origin (International Labour Organization [ILO] 2010), international migration has touched the lives of almost everyone in both the sending and receiving countries of the Global South and the Global Northâ€. Because of advances made in technology, human beings as well as goods are able to move through different countries and regions with relative ease.
“The geography of contemporary globalization is related closely to the history of colonialism and imperialism even if this is not usually made explicit in globalization theoryâ€. Colonialism created links between various societies across the world that encouraged some people to leave their original countries to work in another country. “Globalization theories have, by and large, neglected race and ethnicity in their accounts of the making of the new global orderâ€. “International migrants facilitate globalization processes by linking together disparate peoples and places into an increasingly single, shared global political-economic context Those who are not separated from their families still have a desire to migrate because “knowledge of living standards and social conditions across countries has become increasingly more available, especially through travel; both the real and symbolic reduction of time and distance have created powerful incentives for people to moveâ€. This impacts women the most because “from a gender perspective, we have witnessed the feminization of most migration flows, especially since the 1990s, with profound transformations in the structure of families and gender roles in the international division of laborâ€. Another reason for individuals to migrate is to make more money. Incomes in developed countries are far higher than in developing countries.
