Globalization and Economic Growth

In business and economics, globalization can be regarded as the process of adverse integration of capital markets, services, technology and goods around the globe, which reduces international barriers of trade and investments in foreign nations. Globalization broadens and deepens international relationships, trade, investment, technology, and portfolio development.

Globalization is mainly driven by increased development in the importance and need for information on production, marketing and science and technology. Over the years, globalization has been centered on fast advancement in science and technology. This paper endeavors to discuss globalization in light of its foundation, its key drivers and its positive and negative impact on world economies.

The current trend in globalization resumed in the 1970s. It has been hastened by advancements in computer networking and technology, both of which have increased access and dispatch of information across the world. Today, reduced transport cost has made globalization grow at a super speed.

For instance, according to Obstfeld & Taylor (2003), the cost of shipping is half as compared to the1930s, cost of telecommunication is only 1% of that rate, and that of freight is 1/6th currently. Countries have also reduced their tariffs and trade barriers though the intervention of World Trade Organization and General Agreement on Tariffs and Trade. In addition, globalization is propelled by Multinational corporations that have opened branches across the world. This has led to the world economic growth.

Globalization has led to economic growth in the world. For example, there was a decrease from 9% to 4.9% of world trade 1929 and 1950 due to disruption of globalization by effects of World War II. Similarly, the world GDP decreased from 17.4% to 4.9% from 1914 to1950. This was due to World Wars’ interference on globalization (Maddison 2001). According to Maddison (2001), the world GDP grew by 3% every year after World War II. Since the level of globalization largely depends on decrease in cost of communication and transport, it is, therefore, reduced for distant countries by global leaders because of flows in finance, technology and capital (Venables 2002). When a country interacts, the level of globalization will also depend on the physical distance from the source of supply to the markets (Redding &Venables 2000).

One of the countries that have benefited from globalization is China. As a developing country, China gained profits from the impact of free movement of goods, information, capital and human labor. Globalization has enabled China to manufacture it products globally, for example, its electronics, machines and accessories.

Globalization has lifted Chinese population from poverty. This is attributed to many transnational companies relocating to China in the 1980s due to its low economic cost then. Following their relocation, many jobs were created for Chinese population.

Most of the people were employed in such industries as technicians, manual workers and even managers. A large part of the population is now employed, and their livelihood has improved greatly since they are now able to afford more spending due to salaries they get from their employers. As a result, the level of poverty in China has reduced rapidly.

Globalization has also enabled China to make its manufactured goods penetrate the world market. The World Trade Organization that replaced GATT has enabled the world trade tariffs to reduce. The Chinese economy has benefited from this due to its low cost of production.

China has a large labor market hence levels of production increase since the cost of labor is low. Due to this, the economy has also been able to tap on local resources reducing the cost of production. China has, therefore, focused on export markets, which has resulted in high levels of economic growth. With globalization, China now records a double economic growth every year (Maddison 2001).

Globalization has also exposed China to a competitive international market. Its local firms have become keen on how to utilize their rare resources in order to maximize profits and compete favorably in the international market. This has reduced waste and also led to technological advancement in pursuit of efficiency and efficacy. Competition has also led to improved quality products that compete favorably in the market.

The population in China has also benefited from globalization. This is because with market’s opening to foreign investors, there is now variety of products in the market from both the local and the international market. For example, due to supply of different items from local and multinational companies, the prices of these goods fall, hence the consumers benefit from increased surplus due to reduced cost of goods. This has improved their livelihoods.

Another country that has benefitted from globalization is India. Although India opened its doors to globalization too late, it has really reaped from it. Due to availability of both skilled and unskilled labor, India is able to produce industrial goods at a low production cost, hence fetching higher profits in the global markets. This has led to economic development which has been occasioned by export markets.

India has also benefited from foreign multinational investment companies that have shifted there in pursuit of low cost of production. These companies have employed millions of its population, hence providing a meaningful livelihood for them.

Most Indians have been employed in these multinational companies as technicians, manual laborers and even as line-managers. With this accumulated capital, investors reinvest their profits increasing product range, jobs, markets, and buying ability, hence the economy grows (Parenti 1995, p.13). This has reduced the level of poverty in a half since the 1970s.

In addition, the World Trade Organization and its impact on reduced tariffs have also opened the world market for Indian industrial products. This has also contributed to its economy growth since the companies can fetch better profit margins owing to the low production cost at home.

On the other hand, some countries have not really benefited from the impact of globalization. Most of the underdeveloped and developing countries, for example, Kenya, do not benefit from globalization and are likely to be bypassed in terms of economic development while the Northern countries gain advantages of special tariffs. The large multinational companies, the capital owners and their personnel invest in the underdeveloped and developing countries in order to receive profits and use the opportunities provided by globalization.

Much of the benefits from the huge outcomes that they receive from the cheap labor and low production cost in Kenya, for example, are shared among them, and the rest are invested in their home countries (Samir 1976, p.60). Globalization has reduced distance in time and advanced the effect of neoliberal market type of economy (Wichterich 2000, p.7)

Globalization has also increased the levels of income inequality in Kenya. This is because market capitals and labor cost have in many cases led to increased lending rates and poor wages. For instance, the average rate of wages in Kenyan agricultural sector reduced from 30.5% in 1999 to 28.4% in 2000 due to globalization (Stark, 2000 p 230).

Kenya was also adversely affected by the economic depression in the western countries as a result of globalization. This is because the capital markets, labor and investments were to a large extent controlled by foreign markets. This is a negative effect of globalization on a developing country. The non-state actors are also able to manipulate the government regardless the prevailing state laws hence they dictate their terms of operation to less wealthier nations (Stark 2000, p.537).

Globalization has also contributed to the spread of communicable diseases in Kenya, for example, HIV/AIDs which had not existed in the country before 1980. Opening Kenyan economy to the world has also predisposed its citizens to such communicable diseases as Ebola, whereas the country has no advanced technological medical equipment to fight against such diseases.

Globalization has also led to fall of some local companies in Kenya due to competition from multinational enterprises. This is because small local companies do not have resources to compete at a global level. Other local companies have registered low profit margins due to such competition, for example, presence of the Coca Cola which is a multinational company has negatively impacted on local beverages companies.

In conclusion, globalization is the process of adverse integration of capital markets, services, technology and goods around the globe, which reduces international barriers of trade and investments in foreign nations. Globalization has resulted in worldwide integration of economies in form of foreign capitals, markets, labor and investments. In most cases, countries with more resources to invest benefit more from cheap labor and low cost of production than countries with limited resources do.

Liberalization of world markets, reduction of communication cost, shipping cost, freight cost and tariffs have greatly promoted globalization. Globalization has negatively affected some countries in that effects of economic recession in one nation may trickle down to the others.

Interest rates may also increase due to economic changes in trade partners. There is also a likelihood of increased spread of communicable diseases across the interrelating nations. It can, therefore, be argued that globalization is irreversible and affects the world economic growth both positively and negatively.

List of References

Maddison, A 2001, The World Economy: A Millennial Perspective, OECD, Paris.

Obstfeld, M & Taylor, A 2003, Global Capital Markets: Integration, Crisis and Growth, Cambridge University Press, Cambridge.

Parenti, M 1995, Against Empire, City Lights Books, San Francisco.

Redding, S & Venables, J 2000, Economic Geography and International Inequality, Centre for Economic Policy Research Discussion Paper 2568.

Samir, A 1976, Unequal Development: An Essay on the Social Formations of Peripheral Capitalism, Monthly Review Press, New York.

Stark, B 2000, “Women and Globalization: The Failure and Postmodern Possibilities of International Law”, 33 Vanderbilt Journal of Transnational Law pp 503-571.

Venables, A 2002, “Geography and International Inequalities: The Impact of New Technologies”, in Annual World Bank Conference on Development Economics 2001.

Wichterich, C 1998, The Globalized Woman: Reports from a Future of Inequality, Zed Books, London.