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The March Towards Globalization

27 Dec 2016Economics Essays

Numerous disciplines have taken a view on the concept of globalization. The term generally contemplates a delocalization of practice and the setting up of a central world view. Globalization contemplates the breaking down of barriers between different countries and regions in order to effectively administer only a single international community. The trend has been seen to take effect in culture, education, health, and most markedly in economy and business. The concept of globalization has many dimensions, ranging from interdependence of economic activities in different countries to flows of ideas across national borders.

Wan, Lu and Chen (2007) define economic globalization as the exchange of goods and services, and flows of foreign capital. It was contemplated that with the use of a country’s openness, as reflected by their trade practices or GDP ratio, and per capita Foreign Direct Investment (FDI) the extent of globalization in a particular country could be assessed (Wan et al. 2007).

Globalizing policies and debate took root in the 1990s. The two defining traits of globalization as posited then was the prominent role played by economic theory and the free market capitalism ideology in defining economic policies and development strategies as well as the policy of international institutions constituting an institutional framework for governance (Gualerzi 2007).  Gualerzi (2007) also took note of the impact of technology in the discussion of globalization however, technology takes a backseat role in the debate with the two previously mentioned traits defining more the approval or rejection of globalization.

Since the 1990s globalization debates have still not been resolved. In fact, more and more factors are being considered both for and against the principle with no clear view as to determinant of success of either. It has been shown that the free market outcry first requires a level of local liberalization. Gualerzi defines liberalization as the removal of obstacles to the market, in particular trade barriers and government interference in financial and capital markets (2007). It is contemplated that removing such hindrances would result in the attraction of capital inflows and the favorability of free trade.

The former would positively affect productivity and employment while the latter would carry with it the inclination towards specialization in the production of low-cost production goods in domestic national economies (Gualerzi 2007). In the contemplation of economics, a shift towards such an approach favoring specialized products would result in the free movement of factors and goods and greater efficiency in the global market.

Kenichi Ohmae (1990), outlined the process of change associated with the logic of global market by emphasizing the disadvantage of incurring high production costs of a wide range of products as opposed to production of low production cost specialized items. The problem is thus perceived to be that there are too few global products. Instead, global markets are represented in solitary countries, representing segments of domestic markets (Ohmae 1990). It has been put forward that the numerous specific demands present in every domestic market gives rise to the spreading thin of resources. Gualerzi (2007) had this to say:

The costs of successful ideas have gone through the roof, and research and development is now a fixed cost, as it is maintaining a trademark or a distribution network. The recuperation of high fixed costs requires a larger market. This pushes production on a worldscale, and world-scale production goes hand-in-hand with market segmentation at the global level.

In order to maximize limited resources and enable sustainability of market and customer demands, there is a need to analyze the enforcement and application of the model of globalization. With the growing need to preserve resources it is only a matter of time that the market reverts to the above-discussed model.

The current arguments and evidence against globalization however reflect a different state of affairs. Arguments have been made that globalization leads to increase in regional inequality as it marginalizes certain groups of people or particular geographic regions (Hurrell & Woods 2000). This was based on the rationalization that trade increases differences in returns to education and skills. Of particular interest in regional inequality and globalization studies have been the data collected from China and other transitional economies. These economies reported increases in inequality after opening up to the global market (Mazur 2000). The case may be that particular countries with the capacity to join in the competition of the global market emerge successful. However, the success of better positioned countries only serves to place them on a platform above other countries in the particular region (Lu & Wei 2007).

These same observations have been found to disprove the postulate that globalization would lead to the development of regions as a whole. In fact globalization postures to even out the market for all participants instead of improving the station of specific countries entering the field with a firmer grasp of resources and capacities. In this manner the findings challenge theories of regional development, since existing theories emphasize continuation of patterns of trade not the emergence of new growth centers and new core-peripheral structures (Lu & Wei 2007).

Others argue that such regional inequality is in truth inexistent (Ben-David 1993; Wade 2001; Lindert & Williamson 2001). Reports collected from studies have shown that countries experienced lower levels of inequality as a result of opened doors to globalization. The conflicting results have been said to be the effect of differences in measurement of inequality and techniques in analysis. Furthermore, sample coverage, such as a limited sampling of countries, would lead to faulty measurement results (Gaulerzi 2007). It should be further noted that although much negativity is aimed at globalization, the prevalent practices in business and other fields still give way to the methods of globalization.

Globalization may not be reflecting ideal short-term results and in fact may seem to be giving results quite contrary to the professed goals and expectations of the concept. However, the remedy is not simply to scrap the model rather, there should be amendments made to its application. In order to do so, accurate analysis must first be made of faulty presumptions incorporated into the concept of globalization. First, globalizations policies rested on the presumption that markets are perfect and perfectly driven by balancing demand and production levels. The policies put in place should have taken into consideration the vested interests of potential participants. Local markets have to contend with issues such as equality, employment, and pollution. As a result government intervention is needed in order to control for market imbalances that may result from the same (Gualerzi 2007).  Market failure thus results from more externalities than just unemployment and poverty levels.

Furthermore, it should be understood that the pillars of globalization policies have been fiscal austerity, privatization, and market liberalization (Gualerzi 2007). These same pillars have dominated policy formation with increasing pressure on local markets to achieve such levels. The view markedly changed to accommodating these same pillars as more than just foundations but as global market effectors in themselves. It was observed that the pillars became more than just pillars and were viewed as ends in themselves (Stiglitz 2002). Resources were thus exhausted to achieve acceptable levels of liberalization, privatization, and fiscal austerity without consideration as to the actual global performance in the international market. The accomplishment of any of these foundations does not guarantee success in the global market rather these factors are mere means to achieve growth in the global scale (Gaulerzi 2007).

To markets in transition into a market economy, the undue focus given to improving levels of the given factors would detract from the attention needed to be given to the actual application of the local resources and product strengths to achieve competency in the global market. Despite the ongoing debates and changes that globalization is subject to, there is no denying the spread and growth of globalization across countries. Perhaps the greatest strength of globalization is the change that it effects on local cultures making the different markets more homogenous and thus easier to cater to.

Bibliography

  • Ben-David, D. (1993). Equalizing Exchange: Trade Liberalization and Income Convergence. Quarterly Journal of Economics, 108(3), pp. 653–79.
  • Hurrel, A. and Woods, N. (2000). Globalization and Inequality. In R. Higgot ed. The New Political Economy of Globalization. Cheltenham, Edward Elgar.
  • Lindert, P. H. and J. G. Williamson (2001). Does Globalization Make the World More Unequal. NBER Working Paper 8228, NBER, Cambridge, MA.
  • Lu, L. and Wei, Y. D. (2006). Domestic Globalization, New Economic Spaces and Regional Polarisation in Guangdong Province, China. Tijdschrift voor Economische en Sociale Geografie, 98(2), pp. 225-244.
  • Mazur, J. (2000). Labor’s New Internationalism. Foreign Affairs, 81(1), 79-93.
  • Ohmae, K. (1990). The Borderless World: Power and Strategy in the Interlinked Economy. HarperCollins, New York.
  • Wade, R. H. (2001). The Rising Inequality of World Income Distribution. Finance and Development, 38(4).
  • Wan, G., Lu, M., and Chen, Z. (2007). Globalization and Regional Income Inequality: Empirical Evidence from Within China. Review of Income and Wealth, 53(1), pp. 35-59.

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