What caused globalisation?

Readers Question: Evaluate the significance of the factors which have contributed to globalisation.

Since the Second World War greater globalisation was caused by lower trade barriers, technological advances, transport improvements, multinational corporations, market reforms, and greater political cooperation. These forces reduced the cost of moving goods, money, people, and information across borders.

Globalisation is not a new phenomenon. The world economy has become increasingly interdependent for a long time. However, between 1970 and 2020 the process of globalisation accelerated. In recent years, the growth of globalisation has slowed, even gone into retreat.

Main reasons that have caused globalisation

Improved transport, making global travel easier. For example, there has been a rapid growth in air travel, enabling greater movement of people and goods across the globe.
Containerisation. From 1970, there was a rapid adoption of the steel transport container. This reduced the costs of inter-modal transport, making trade cheaper and more efficient.
Improved technology which makes it easier to communicate and share information around the world. E.g. internet. has enable greater outsourcing of work to lower labour cost countries. For example, to work on improvements on this website, I will go to a global online community, like fivvr.com. There, people from any country can bid for the right to provide a service. It means that I can often find people to do a job relatively cheaply because labour costs are relatively lower in the Indian sub-continent.
Growth of multinational companies Global brands (Apple, Toyota, Unilever, Amazon) expanded operations worldwide. They have profit incentive to find lowest costs, so they have shifted labour intensive production to developing economies, and shifted higher value production to US/Europe.s
Growth of global trading blocks which have reduced national barriers. (e.g. European Union, NAFTA, ASEAN)
Reduced tariff barriers which encourage global trade. Often this has occurred through the support of the WTO.
Average US tariff rate fell consistently from 1934. The peak in 2025 is Trump’s tariffs, though these are likely to fall back.
Firms exploit gains from economies of scale. This is an essential feature of new trade theory. Basically, there is an incentive to get bigger to become more efficient, but this requires greater specialisation and trade. The iPhone is not made in one country but different components are produced around the world, approximately 35 countries are part of process.
Global trade cycle. Economic growth is global in nature. This means countries are increasingly interconnected. (e.g. recession in one country affects global trade and invariably causes an economic downturn in major trading partners.)
Improved mobility of capital. Relaxation of capital controls allowed money to move globally in milliseconds. Before the end of Bretton Woods in the 1970s, many countries had capital controls which limited amount of foreign currency you could buy. Banks and investors could invest anywhere with few restrictions, linking financial markets around the world.
Increased mobility of labour. People are more willing to move between different countries in search for work. Global trade remittances now play a large role in transfers from developed countries to developing countries.
Cultural and social drivers. Greater migration, tourism and global media have led to greater shared experience.
Growth of China and India. Market-based reforms in China were a key part of the acceleration of globalisation, with China coming to dominate manufacturing, leading to US and Europe specialising in high-end manufacturing and services.

Evaluation of globalisation

There is a growing backlash to globalisation With the EU and US concerned that good manufacturing jobs have been lost to cheaper imports from China. It has led to new trade war, tariffs and a desire to reshore production closer to home.
The post-war period was generally peaceful, but Russia’s invasion of Ukraine combined with Middle East conflict has forced countries to rely less on global supply chains.
Probably the most significant factor behind globalisation is multinationals seeking greater speicliasiont, economies of scale and lower costs by moving production around the world. But, this couldn’t have been done without many technological advances
Increased free trade is important. However, there are various trade barriers still in existence, and this has not stopped the growth of globalisation.
There has been a backlash against globalisation as people look for local alternatives to multinational products. Think global, but local. But, despite niche markets there is always strong demand for buying established brand names.
It is hard to precisely define globalisation there are different interpretations of what we actually mean, therefore, there are different factors that explain it.

Video on Causes of globalisation

Growth of exports

Is globalisation irreversible?

Probably not. The history of humanity is one of globalisation. The factors that have been behind globalisation in the past, are likely to continue. However, it is possible to change certain factors. For example, there has been recent increase in tariff barriers and efforts to restrict immigration. Also, countries are worried about relying on imports from ‘unreliable’ countries. But, this is only a partial block to the process of globalisation. In terms of growth of trade as % of world GDP, it may be we have reached a plateau at just under 30% of GDP.

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Tejvan Pettinger

Tejvan Pettinger. Author of “Cracking Economics” “What Would Keynes Do?” – studied PPE Oxford University (1995-99) and works as an economics teacher and writer.

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