Globalization Questionnaire
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What is Globalization, and what are some of the traditional international trade theories that support the concept of globalization?
Globalization is a forward shift in the world economy as a result of advances in telecommunications technology and transportation. A positive forward shift from declining barriers to cross-border trade and merging cultures that help boost each others economies. Two important aspects of globalization include the globalization of markets and the globalization of products.
The globalization of markets is a process in which separate national markets merge into one global marketplace (Hill, 2009). Global markets continue to emerge as a result of converging preferences and tastes of people from other cultures, declining trade barriers, and the standardizing of products from businesses around the world.
The globalization of production occurs when businesses take advantage of goods and services offered around the globe that differ in the cost and quality of production factors like energy, land, capital, and labor (Hill, 2009). When businesses can lower their overhead costs associated with producing a product or improve the products functioning ability, they can compete more effectively in an industry continuing to move forward.
Mercantilism was the first economic system used between the sixteenth and eighteenth centuries (Hill, 2009). The goal of mercantilism was to increase a nations wealth by imposing government regulations, such as tariffs and duties that would limit imports while maximizing exports.
Free trade happens when consumers and businesses can buy from other countries or sell to other countries goods and services without the governments influence by way of imposing quotas, tariffs, or duties.
Adam Smith developed a theory in 1776 explaining why unrestricted free trade benefits countries. Countries differ in how they produce goods, and those doing so most efficiently have an absolute advantage. Absolute advantage means the ability to use fewer resources to produce a good than another country. This theory suggests countries that have an absolute advantage should produce it and trade that good for other goods produced more efficiently in another country. By engaging in trade, both countries would benefit.
Some, including David Ricardo looked at Smiths theory wondering what could occur if one country in the production of all goods had absolute advantage (Hill, 2009). This brought to light his theory of comparative advantage. The comparative advantage theory agrees with that of the absolute advantage theory, however; the difference between the two is in labor productivity. Because of this difference, the theory of comparative advantage believes that countries can benefit even if that means buying goods from another country that it could produce more efficiently itself. This would allow both countries to realize economic gains as consumers consumed more goods.
List the major drivers of globalization and provide three examples of each.
Declining barriers to the free flow of goods, services, and capital since the end of World War II, and technological changes are two factors underlying the trend toward greater globalization (Hill, 2009). Prior to World War II, trade barriers existed toward foreign trade. Trade barriers in the form of tariffs imposed to those importing manufactured goods. Reasoning behind this was to protect companies within their borders from foreign competition. The result of barriers like this and others did not work as countries just began to raise barriers against each other depressing world demand.
In the aftermath of World War II, the advanced industrial nations of the West proposed an agreement to remove those barriers preventing the free flow of goods, services, and capital among nations. This agreement is the General Agreement on tariffs and Trade, (GATT) and as a result of this agreement, Hill (2009) stated, “Average tariff rates have fallen significantly since 1950 and now stand at about 4 percent” (p. 11). Advances in technology have been the result of lowering trade barriers.
The development of the microprocessor has been the most important innovation increasing the level of information businesses can process. As a result, microprocessors can take information passed through channels like the Internet, Satellite, and World Wide Web, (WWW) encode, transmit, and decode that information at an instant. The cost of global communication is declining as is the cost of the microprocessor. Even a phone call overseas has drastically come down in price.
Microprocessors allowed the rapid growth of the Internet and WWW. Companies rely on the WWW to reach customers anywhere in the world enabling them significantly to increase their profits. Not only has the WWW helped to increase a businesss customer base, it also allows that business to locate the best vendor of materials for a product and place an order for those parts overseas. For example, a clothing store selling to the public has opened up in a section