Costs and Benefits of Globalisation

Globalisation is a complex and controversial issue. This is a look at some of the main benefits and costs associated with the greater globalisation of the world economy.

Definition of Globalisation – the process of increased integration and co-operation of different national economies. It involves national economies becoming increasingly inter-related and integrated.

Globalisation has involved:

  • Greater free trade.
  • Greater movement of labour.
  • Increased capital flows.
  • Growth of Multi-national companies.
  • Increased integration of global trade cycle.
  • Increased communication and improved transport, effectively reducing barriers between countries.

Benefits of Globalisation

1. Free Trade Free trade is a way for countries to exchange goods and resources. This means countries can specialise in producing goods where they have a comparative advantage (this means they can produce goods at a lower opportunity cost). When countries specialise there will be several gains from trade:

  1. Lower prices for consumers
  2. Greater choice of goods
  3. Bigger export markets for domestic manufacturers
  4. Economies of scale through being able to specialise in certain goods
  5. Greater competition

See: Benefits of Free Trade

 

2. Free Movement of Labour

Increased labour migration gives advantages to both workers and recipient countries. If a country experiences high unemployment, there are increased opportunities to look for work elsewhere. This process of labour migration also helps reduce geographical inequality. This has been quite effective in the EU, with many Eastern European workers migrating west.

Also, it helps countries with labour shortages fill important posts. For example, the UK needed to recruit nurses from the far east to fill shortages.

However, this issue is also quite controversial. Some are concerned that free movement of labour can cause excess pressure on housing and social services in some countries. Countries like the US have responded to this process by actively trying to prevent migrants from other countries.

3. Increased Economies of Scale.

Production is increasingly specialised. Globalisation enables goods to be produced in different parts of the world. This greater specialisation enables lower average costs and lower prices for consumers.

4. Greater Competition

Domestic monopolies used to be protected by lack of competition. However, globalisation means that firms face greater competition from foreign firms.

5. Increased Investment

Globalisation has also enabled increased levels of investment. It has made it easier for countries to attract short term and long term investment. Investment by multinational companies can play a big role in improving the economies of developing countries.

Costs Of Globalisation

1. Free Trade can Harm Developing Economies.

Developing countries often struggle to compete with developed countries, therefore it is argued free trade benefits developed countries more. There is an infant industry argument which says industries in developing countries need protection from free trade to be able to develop. However, developing countries are often harmed by tariff protection Western economies have on agriculture. Paradox of Free Trade

2. Environmental Costs

One problem of globalisation is that it has increased the use of non renewable resources. It has also contributed to increased pollution and global warming. Firms can also outsource production to where environmental standards are less strict. However, arguably the problem is not so much globalisation as a failure to set satisfactory environmental standards.

3. Labour Drain

Globalisation enables workers to move more freely. Therefore, some countries find it difficult to hold onto their best skilled workers, who are attracted by higher wages elsewhere.

4. Less Cultural Diversity

Globalisation has led to increased economic and cultural hegemony. With globalisation there is arguably less cultural diversity, however it is also led to more options for some people.

5. Tax Competition and Tax avoidance.

Multinational companies like Amazon and Google, can set up offices in countries like Bermuda and Luxembourg with very low rates of corporation tax and then funnel their profits through these subsidiaries. This means they pay very little tax in the countries where they do most of their business. This means governments have to increase taxes on VAT and income tax. It is also seen as unfair competition for domestic firms who don’t use same tax avoidance measures.

The greater mobility of capital, means that countries have sought to encourage inward investment by offering the lowest corporation tax. (e.g. Ireland offers very low tax rate). This has encouraged lower corporation tax, which leads to higher forms of other tax. (see: Tax competition)

See also:

 

26 Responses to Costs and Benefits of Globalisation

  1. ELOISE FLORENCE October 15, 2008 at 2:18 am #

    WHAT IS GLOBALISATION??????

  2. d.bate May 14, 2009 at 2:55 pm #

    well written

  3. tom June 12, 2009 at 3:04 am #

    what r the advantages and disadvantages for the consumer, the worker, and the economy

  4. SpRiNkLe June 21, 2009 at 12:25 pm #

    this is very precise and helpful

    appreciate it

  5. Mayse February 2, 2010 at 12:20 am #

    VERY HELPFUL! :)

  6. Megan December 29, 2010 at 12:30 pm #

    Well wrote and Helpful ;)

  7. Megan December 29, 2010 at 12:32 pm #

    Well wrote and very Helpful ;)

  8. siphiwo mzantsi July 21, 2011 at 8:35 am #

    wold you send me the benefits of globilisation and benefits

  9. alex June 4, 2012 at 2:58 am #

    pretty much wrote my essay for me, thanks

  10. jack September 11, 2012 at 8:05 pm #

    super helpful

  11. Grammar Nazi October 3, 2012 at 5:52 pm #

    Hey.

    You spelt globalization wrong.

    Thanks for your time.

    • YourMam October 18, 2012 at 11:02 pm #

      He spelt it right, ‘Globalisation’ is British-English( Common English). ‘Globalization’ is American-English(only used in the USA).

  12. jazeeba October 21, 2012 at 9:21 am #

    i need some references of where those effective notes were extracted.. is somebody could help me get it :)

  13. susan nguyen October 24, 2012 at 11:51 am #

    it would be nice if you can add more pros and cons that are in depth on a economical side :) it seems quite general but otherwise good

  14. Okoroh Martha December 14, 2012 at 9:08 pm #

    Why is it that the benefits of globalisation are not global

    • Tejvan Pettinger December 17, 2012 at 10:56 am #

      Certainly some countries are in a position to benefit more from globalisation than others. For example, it is argued some developing economies may struggle to diversify away from low wage primary product industries. But, in theory, some of the benefits of globalisation could be shared by any country.

  15. r.p.s.j January 29, 2013 at 11:02 pm #

    thaannkkss GREAT INFO

  16. Danielle May 13, 2013 at 1:35 pm #

    hey guys i’m looking for the benefits of developing countries and developed countries and have had no luck could anyone help?

  17. Dawn May 14, 2013 at 10:15 pm #

    I’ve just been reading a Stiglitz article (he used to be chief in the IMF/World Bank) and “globalization of knowledge” has been one benefit for developing countries. But sadly it depends on the side that you’re on. Economists will reel off the benefits of trade between countries, capital flow and labour flow. Anthropologists and social scientists will explain a lot of inequalities – the rich on a global scale have got richer and the poor, well guess what? yep, not a lot has happened there. Social science will detail (Stiglitz does too) how developed countries have profited off the poor, even via aid agencies and finance institutions such as the World Bank, IMF and WTO, who are supposed to be acting in developing countries best interests.

    I think you can tell what side I’m on. Yes, I study anthropology and doing an essay on development as we speak ;)

    Good luck

    Dawn

  18. letlhogonolo July 31, 2013 at 1:48 pm #

    what are the benefits of globalisation on both develoed and developing

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