1.2 Globalization and its economic impact

Globalization has transformed our world, connecting economies and cultures like never before. From the internet to containerized shipping, technological advances have shrunk distances, enabling the exchange of goods, ideas, and people on a global scale.

This interconnectedness brings both opportunities and challenges. While it can boost economic growth and lower consumer prices, it also raises concerns about job losses, inequality, and environmental impacts. Understanding these trade-offs is crucial in today's global economy.

Understanding Globalization

Definition of globalization

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• Increasing interconnectedness and integration of economies, societies, and cultures worldwide through the exchange of goods, services, ideas, and people
• Driven by advancements in communication (internet), transportation (containerization), and digital technologies that facilitate global connectivity
• Encompasses economic, political, social, and technological dimensions that shape the modern world

Economic impacts of globalization

• Benefits include increased access to foreign markets leading to export growth and job creation (China), inflow of foreign investment stimulating economic development (Singapore), and lower consumer prices due to increased competition and economies of scale
• Challenges involve uneven distribution of benefits with some countries or sectors left behind (Sub-Saharan Africa), increased vulnerability to global economic shocks (2008 financial crisis), potential job losses due to outsourcing (US manufacturing), and environmental concerns like increased carbon emissions from transportation and production

Globalization's Impact on Markets

Globalization in international markets

• International trade has grown through the reduction of trade barriers (NAFTA), emergence of global value chains spanning multiple countries (iPhone production), and greater specialization based on comparative advantage leading to efficiency gains
• International investment has expanded with the growth of foreign direct investment as companies establish operations globally (Coca-Cola), increased portfolio investment in foreign markets (mutual funds), and the rise of multinational corporations with a significant presence in multiple countries (Toyota)
• Labor markets have been affected by increased worker mobility across borders (EU), outsourcing of jobs to countries with lower labor costs impacting developed country employment (call centers in India), and skill-biased technological change favoring high-skilled workers and contributing to income inequality

Technology's role in globalization

• Communication technologies like the internet and mobile phones have enabled instant global connectivity, facilitating cross-border collaboration (Zoom meetings), knowledge sharing, and the rise of e-commerce platforms connecting buyers and sellers worldwide (Amazon)
• Transportation technologies have reduced the cost and time of moving goods and people across borders through containerization revolutionizing shipping efficiency and increased accessibility of air travel for international business and tourism
• Production process and supply chain management innovations have allowed companies to optimize global operations through automation and robotics increasing manufacturing productivity (industrial robots) and digital technologies like the Internet of Things and artificial intelligence transforming industries and creating new opportunities for global growth (smart factories)