How Does Globalization Affect the World Economy?

Globalization is changing the world economy, opening up new opportunities for countries worldwide. Some experts see it as a driving force for economic development. Others blame it for the environmental damages we’re facing today. One thing is for sure: this process allows national economies from all around the world to expand across borders and build mutually beneficial relationships.

Businesses worldwide are no longer confined to national borders. They can expand across the globe, diversify their operations and reduce their costs by moving their manufacturing operations to countries that have the cheapest labor resources or better access to raw materials. The booming trade and rising global connectivity helps money to travel further than ever before. Companies are now able to operate across borders and reach more customers, which leads to higher profits and ultimately, economic growth.

With globalization, a company in one country can now sell its products in another country halfway around the world. Furthermore, it can build stores and factories there, invest in commodities and contribute to the local economy. Ford Motor Company, for example, moved its call centers to India. Cisco opened a research and development center in Bangalore. In 2010, Microsoft signed a three-year contract with Infosys Technologies in India to manage its internal IT operations. By outsourcing their services to developing countries, companies can save money and change people's lives. Because of it, poverty rates declined worldwide over the past decades.

Globalization allows people to relocate to wealthier countries and start their own business or find work. This translates into a higher income and more opportunities in life. Additionally, migrants can send money home without paying exorbitant fees. The free movement of information and technology also enables trade unions to fight for workers' rights worldwide. As new policies and regulations were enforced, labor rights increased. Additionally, sensitive issues, such as equal pay and gender equity, are becoming less and less prevalent.

Multinational corporations like Google, IBM and Accenture are constantly expanding and hiring people in the countries where they operate. Others implement exchange programs to offer their employees the chance to work abroad. Boston Consulting Group, Edelman and L.E.K. Consulting are just a few examples. This further accelerates globalization and promotes economic growth.

One of the primary advantages of globalization is the free trade of goods and resources. For instance, a country that specializes in motor vehicles will produce cars and accessories in a location that achieves the lowest costs possible, and sell them on both local and foreign markets. This means that people living in other countries will be able to purchase these vehicles for less. At the same time, they will have access to a wider range of brands and models.

World trade has increased by approximately 7 percent since 1945 following the acceleration of globalization. Countries that export goods pay lower transportation fees and have a competitive edge. The end result is greater wealth equality throughout the world, especially for countries whose economies depend on another country’s economy. China, for example, became a leading manufacturer of goods. Companies from all around the world outsource their production activities to Chinese factories. Their customers have access to affordable goods that they might not be able to purchase otherwise.

Like everything else, globalization has its drawbacks. The free trade of goods, services and information set the world economy into a cycle of income and employment growth. The downside is that it also led to declining money flows and tight credit across local and national economies.

Additionally, G2O countries, such as the UK, Brazil, Germany, France and Japan, which account for over 86 percent of the global economy, added more than 1,200 restrictive trade measures since 2008. This translates into higher taxes and stricter laws for companies that import and export goods.

Another problem is that many nations manipulate their currency to obtain a price advantage. Furthermore, employees in developed countries are losing their jobs due to pay cuts. More and more companies are choosing to outsource work and export jobs as a means to keep the costs low. Large enterprises are now able to exploit tax havens worldwide, which affects the local economy. Other major concerns include ecological damage, unfair working conditions, tax competition, money laundering and job losses.