Globalization is a complex phenomenon that has a big influence on various fields of human life, including economics, society, and culture. Even though trade between countries has existed since time immemorial, in the 21st-century, globalization has become an integral part of the world’s development. While businesses try to expand on a global scale, and countries’ economies are intertwined in the international network, several outcomes occur out of this process. The purpose of this paper is to analyze and evaluate the impact of globalization on the world economy, whether it is good or bad. To achieve this goal, a comprehensive review of the relevant literature will be conducted. The information will be extracted from both primary and secondary sources. The primary sources will include an interview and a chart, while the secondary sources will consist of scholarly articles and books published from the year 2015 forward. The main argument of this research is that even though globalization offers endless business opportunities, it has a number of effects that negatively influence the resources and the economy.
Primary Source Data
First of all, in order to understand this phenomenon, it is important to define the term “globalization.” Several researchers have conducted a thorough study of this subject. For example, Martell describes globalization as “the intensification of worldwide social relations which link distant localities in such a way that local happenings are shaped by events occurring many miles away”. It is a complex and multidimensional mechanism that allows a local business subdivision to integrate into the global economic system. The biggest companies of the 21st century are no longer limited to one country; they have become more multinational: businesses from several countries exchange resources, money, data, and employees. Nowadays, international relations are becoming more intense not only in politics but in the economy as well. Moreover, globalization has a significant influence on the distribution of not only skilled and unskilled labor but of capital and labor as well, both locally and globally. The tendencies of this process were analyzed by experts, for example, in the research by Chandy and Seidel, where they presented globalization trends in the form of a chart (Figure 1).
The chart above demonstrates how the GDP of the U.S. was changing while the global population was also growing. The diagram includes the analysis of foreign capital stock, merchandise exports, and migrant stock. According to it, it becomes evident that even though the world GDP was high during the 1910s, the global economy is more integrated in the 21st century. However, the researchers also point out that the economy of the U.S. is a relatively closed economy, which is surprising. Nevertheless, the study states that “it accounts for only 11 percent of global trade volumes, which is far below its 24 percent share of global GDP”. In addition, despite the attempts to find evidence of the recession of globalization, Chandy and Seidel did not manage to present any. It means that the trend keeps developing as money, goods, and people continue to move around the world.
Secondary Source Data
It is evident that one cannot talk about globalization without mentioning international companies. Global corporations are defined by the fact that they execute business in at least two countries. They conduct various types of economic activities, for example, foreign investment, managing plants in different countries to avoid transaction costs. An example of an international firm that obtains cost advantages through foreign investments in international plants is Apple Inc.
To understand how companies conduct business internationally, several types of multinational corporations must be indicated: economists usually divide them into four categories. The first type of firm is determined by the fact that it has a strong presence in its home country. Another category is characterized by acquiring cost advantage through the means of buying cheaper resources in other countries, despite being controlled by one central office. The third type is a company that is based on the Research and Development of the parent corporation. The fourth and final category is a transnational business, which includes all features that are peculiar to the corporations that were mentioned above. Since global companies generally combine different approaches to business, sometimes it can be hard to distinguish between these four categories. Nestle S.A. may serve as an example of a big transnational corporation that conducts its financial operations in many countries outside of the headquarters.
Since globalization is a complicated phenomenon, many analysts and businessmen have different views on its impact. For instance, the former Director-General of the World Trade Organization, Pascal Lamy, expressed his point of view in the interview, “Can Europe Civilize Globalization?”. Despite the fact that the concerns about European civilization may recede due to this process, he states that he does not see globalization as a threat. Instead, he sees it as a reality that has to be dealt with in a professional way. Lamy explains his opinion by pointing out the fact that some European countries have managed to gain more benefits than others by means of global trade. As examples, he presents Sweden and Germany, which, during the last decades of the 20th century, conducted structural reforms that allowed them to get profit from international trade.
Moreover, Lamy notes that globalization presents new challenges for businesses. They include promoting “more actively global norms in the environmental and job protection, health protection, than the reduction of trade barriers that have been now largely operated worldwide”4. In other words, the ex-director of WTO believes that this process can have a positive impact on Europe’s economy as it provides opportunities for countries to develop and grow their benefits.
As for other researchers, Burlacu, Gutu, and Matei overview both sides of globalization, pointing out positive and negative impacts. For example, the advantages include reducing the economic isolation of poor countries as they are given the opportunity to sell their goods on the global market and participate in the trade. Moreover, as the economy expands, the information does it as well. It means that access to education becomes more easy and available, which increases the number of professionals who are capable of expanding and developing the business even further. In addition, according to the study, globalization “enhances the speed of commercial, financial, and technological operations”5. It can be seen even nowadays as new products and devices continue to appear on the market every year. Furthermore, globalization ensures the efficiency of the entire economic activity on a global scale.
Other researchers have also pointed out several positive aspects of this process. For example, Parente et al. talk about the sharing economy, which is a new phenomenon. Their study indicated that due to internet globalization, some companies managed to perform business online, which helped them to expand around the world and raise funds. Therefore, globalization allowed firms to achieve worldwide success at an unprecedented pace. Furthermore, Martell et al. elaborated on reasons for how exactly the internalization changed economic activities. The reasons included “the speeding up of global interactions and processes as a result of the development of transport and communications”1. In other words, the spread of resources, ideas, capital, and products accelerated, which allowed businesses to develop quicker.
However, aside from positive results that can come from globalization, researchers also indicate some negative aspects to it. For instance, Burlacu et al. Note that harmful effects include an international security deficit and an increased amount of illegal migrations5. Globalization opened borders for a large number of people to move to other countries illegally. Moreover, it allowed corrupt businessmen to employ these migrants and make them work for a lesser wage, which is a violation of human rights. Moreover, economists believe that nowadays, the export of human resources has risen, which means that some countries have lost intellectual potential5. The other downsides include the deterioration of the environment, which is caused by the rapid growth of the economy.
While rethinking the effects of globalization, Broner and Ventura elaborated on the negative consequences that it can bring to domestic markets. The researchers gathered data from other scholars and concluded that “financial globalization, in addition to providing a new, cheaper source of funding for emerging markets, can have indirect effects by affecting the workings of domestic financial markets”. For example, according to them, with the rise of globalization, the incidence of domestic financial crises also grows. In addition, Mamedov et al. discusses the impact on traditional economies, which, according to the study, will reach a new level of their development. It is difficult to say whether such changes are positive or not since some people may be reluctant to abandon the old economic structures.
Comparative Analysis
As it can be observed, primary sources and secondary sources seem to express various opinions about globalization. First and foremost, most of them seem to agree that this phenomenon is relatively new and only recently began to spread. However, then the standpoints start to differ among experts. While the interview with Lamy demonstrates that the former leader of the World Trade Organization seems optimistic about it, such secondary sources as scholarly articles and books differentiate in positions.
Some researchers identify the internalization of the economy as a beneficial process that can create new opportunities for countries to develop and expand their businesses. However, other studies make a link between globalization and several other problems, such as environmental deterioration, security issues, and the increasing number of domestic crises. The last factor is especially interesting since it contradicts the general assumption that increased international trade opportunities can improve the country’s welfare.
Moreover, the recent events that were caused by the outbreak of coronavirus exposed vulnerabilities in the current globalized economy. Since traveling is restricted, the transportation of resources has become difficult. While big international corporations managed to stay afloat, some local firms were forced to shut down, and the suspension of one company factory can lead to a closing of another. Experts argue that such an intertwined international economic relationship is what caused changes in a global supply chain, and overall, stock declines. The current situation provided proof that globalization may not be that good for the world economy.
While the system offers opportunities for businesses to grow, it also has some loopholes and weak points that seriously damage the economy of not only one country but of the whole world. Moreover, the situation with the pandemic supports the argument made by Broner and Ventura. The outbreak caused domestic market crises in Asian countries, and then in Europe and America, which significantly affected the global economy. Even the help of Widespread Disease Emergency Financing Facility would not be enough to restore all financial damage. As the recession of the international market became apparent, businesses in other countries have also suffered.
In addition, the environmental aspect of globalization is also important since it affects the increasing deficiency of natural resources. While companies are trying to expand their business everywhere, new factories and new plants are built around the world. While new products and new technology continue to appear on the market and the demand grows, more damage is inflicted upon the environment by the constant production.
Moreover, the higher need for transportation means that more fossil fuels are used, causing harm to the climate. There is no doubt that such issues can be resolved with the creation of new technology. However, the process of development is complicated and expensive, which can lead to additional expenditures. It can cause more federal budget deficits and increased government debt; therefore, the economy is also negatively affected by environmental issues of globalization.
Synthesis
For this reason, it can be said that despite all the positive aspects of globalization, it definitely has several downsides. Internationalization brought not only different cultures but the economies of various countries together, allowing businesses to grow and reach financial benefits. Furthermore, it opened opportunities for people to find jobs and expand their profit. Nevertheless, the current system is vulnerable during difficult situations, and if there is a crisis in one country, it tends to spread to others like dominoes, because the economies are deeply connected. Moreover, globalization also causes harm to other fields of human life, which are can also negatively influence not only the financial state of a particular country but the economy of the world as well.
It is evident that more research needs to be conducted as the process of globalization is complex and ongoing. There are several topics that can be further explored while studying the impact of globalization on the world’s economy. For example, one can investigate the methods that can be implemented to minimize the negative consequences of globalization that were described earlier in this paper. In order to obtain the information, one can look through the suggestions of other researchers, analyze them, and select the ones that seem the most effective.
Moreover, as the current situation with the outbreak has a major impact on the international economy, it would be interesting to study the experts’ opinions on how it will affect globalization. A huge amount of relevant information can be gathered from recent interviews, news, and scholarly articles. In conclusion, it would appear that the topic of globalization and its influence is broad and can provide a good starting point for further discussion and analysis.
Bibliography
Chandy, Laurence, and Brina Seidel. “Donald Trump and the future of globalization.”The Brookings Institution, 2016. Web.
Broner, Fernando, and Jaume Ventura. “Rethinking the Effects of Financial Globalization.” The Quarterly Journal of Economics 131, no. 3 (2016): 1497-1542.
Burlacu, Sorin, Corneliu Gutu, and Florin Octavian Matei. “Globalization – Pros and Cons.” Calitatea 19, no. S1 (2018): 122-125.
Lamy, Pascal. “Interview. Can Europe Civilize Globalization?”, The Federalist Debate 28, no. 1 (2015): 60-63.
Mamedov, Oktay, Irina Movchan, Oksana Ishchenko-Padukova, and Monika Grabowska. “Traditional Economy: Innovations, Efficiency and Globalization.” Economics & Sociology 9, no. 2 (2016): 61.
Martell, Luke. The Sociology of Globalization. John Wiley & Sons, 2016.
Parente, Ronaldo C., José-Mauricio G. Geleilate, and Ke Rong. “The Sharing Economy Globalization Phenomenon: A Research Agenda.” Journal of International Management 24, no. 1 (2018): 52-64.
Sułkowski, Łukasz. “Covid-19 Pandemic; Recession, Virtual Revolution Leading to De-globalization?”, Journal of Intercultural Management 12, no. 1 (2020): 1-11.