Economic globalisation is the integration of the different countries of the world through increased trade and investment flows. In some cases, it is also the result of greater facilities for the movement of labour.
In other words, this type of globalisation refers to the expansion of trade in goods and services between nations. But it also implies greater mobility of financial capital and human capital.
It should be made clear that economic globalisation covers only one aspect of globalisation, a phenomenon that can also apply to the political, technological and social spheres, for example.
Another point to note is that the integration of financial markets plays a very important role in economic globalisation. This is because it expands investment alternatives for agents.
Characteristics of economic globalisation
The process of economic globalisation is characterised by the following factors:
- It facilitates the marketing of products between different countries around the world.
- It increases the consumption of goods and services.
- It encourages specialisation.
- It strengthens international relations as they are used to close deals.
- It entails a strengthening of the industrial fabric of developed and emerging countries.
- It eliminates or reduces marketing barriers between different geographical areas.
- It reduces transport costs by improving communications.
- Globalisation relies on the global financial system to ensure its viability.
Causes and consequences of economic globalisation
One of the causes of the process of economic globalisation is that most countries have established a market economy as their economic model, which allows freedom of enterprise. Subsequently, the economic agreements reached between companies or governments of the world’s nations have also favoured globalisation.
In addition to this, the development of technology has enabled two major advances. The first of these is the automation of a multitude of processes, causing a great reduction in the cost of production of the majority of goods and services consumed today. Secondly, the development of the internet has facilitated the process of communication between people in different geographical areas, simplifying the process necessary to reach a commercial agreement.
It should be noted that other causes of economic globalisation have been war conflicts in which collaboration between countries has been necessary to overcome difficulties. In this way, certain alliances have developed that have facilitated the process of market liberalisation.
In terms of effects, it can be mentioned that economic globalisation has improved people’s quality of life. This is due to greater accessibility to certain goods and services that were previously very expensive or impossible to obtain in one country. In addition, it has also opened up a wide range of business opportunities.
Finally, it should be mentioned that the process of economic globalisation has also given rise to giant multinationals that absorb the largest market share in the sector in which they operate. This results in the small producer or trader being suffocated by the prices at which he competes due to economies of scale.
As part of a process of economic globalisation, countries follow various strategies. The first is the signing of trade agreements that can be signed between two parties (bilateralism) or more (multilateralism). Thus, tariffs are lowered, bureaucratic barriers to transactions are reduced, among other measures.
Another strategy, which goes further, can be to establish economic blocs, such as the European Union (EU). The countries that make up this group share a common set of rules for foreign trade (requirements for imported products, tariff rates, etc.). In addition, half of the EU members (19 out of 28) use the same currency (euro).
It should be noted that nations can also pursue economic globalisation through unilateralism. This means that measures are taken on their own initiative and not on the basis of a trade agreement. This is the case, for example, when a government decides to lower its tariffs on technology imports.
The aim of this tax reduction would be to allow the import of technological products at a lower cost. This would allow consumers to find, for example, computers at a lower price on the market.
Advantages of economic globalisation
The advantages of economic globalisation include the following:
- It allows products and services to be offered in countries that did not have them before.
- It favours the identification of new business opportunities. For example, a company may discover an attractive market niche in a neighbouring country as a result of the signing of a trade agreement.
- It facilitates the exchange of knowledge, e.g. technological knowledge, between companies from different countries. This, through alliances or agreements.
- It allows for cultural exchange. A franchise not only brings its products to another country, but sometimes it also brings a lifestyle into the business model. Imagine, for example, the entry of a coffee shop into a country where coffee is not widely consumed. The company will then have to work to spread the word about the benefits of consuming the aromatic beverage. But another option is to adapt its menu, offering other infusions such as tea. In any case, it is possible to generate an exchange between the company’s culture and that of its new market.
- Investors have more alternatives for placing their money. They can move their money from one country to another in search of higher returns.
At the same time, there are also disadvantages of economic globalisation:
- Not all sectors of the economy are always favoured. Suppose, for example, that a product that is also produced domestically is approved for import. Local firms may then be threatened by low-priced foreign goods.
- Large multinationals, with ample financial resources, would have an advantage in competing with small, nationally-based firms.
- With free capital mobility, there can be a strong outflow or inflow of foreign currency into a country. This may require intervention by the respective central bank to avoid strong exchange rate volatility.
Examples of economic globalisation
Below are some representative examples of economic globalisation:
- Liberalisation of stock exchanges. Thanks to technological advances, it is now possible to participate in the stock market from virtually anywhere in the world.
- Increase in the sale of goods and services. This is one of the most representative examples, since the process of economic globalisation began, the sale of goods and services has increased notably.
- International monetary transactions. International payment platforms have been developed alongside cryptocurrencies that do not depend on the central bank of any country.