the impact of globalisation on the world

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In the process of globalisation, the world has not only witnessed improved economic states and greater standards of living and quality of life, but also the coming together of a large world. Globalisation is not merely an economic phenomenon, but also extends to social and cultural aspects. In the past decade, where globalisation has been most prevalent, there has been growing contact and transfer of social and cultural aspects. While those in opposition to globalisation may claim an “Americanisation” of the world, there has been an undeniable impact of other cultures, such as Asian cultures, on society at large.


Globalisation has affected different economies in different ways. It is generally accepted that high income and newly industrialised economies are the winners of the past decade. This is due to fast economic growth, increased trade and increased investment flows.


However, those of lower income economies do not seem to have gained any real benefit from globalisation. Over the past decade globalisation does not appear to have affect economic growth rates. From 10 to 001, economic growth was .7% for the global economy. However, this rate was .% in the previous decade. In fact, all types of economies had an overall decrease in the rate of economic growth from the 180s to the 10s, excluding middle income economies.


With this it appears that instead of producing international convergence, there is divergence occurring, where there are not actual global trends.





With globalisation there has been changes in trade flows over global markets. Firstly, the composition of international trade has changed, with a greater mix of goods and services trade between countries. Further, there has been an increased importance of manufactured goods in trade � in 10 manufactured goods accounted for 74%, while in 001 they accounted for 78%. This was the only increase in the trade of goods. Also, services were once restricted to a closer, domestic market, however, with the advent of greater uses of technology, services now account for 0% of all global trade.


Secondly, there has been a major shift in the direction of trade. While in 10 high income economies has an 81% share of total global trade, in 001 this share fell to 75%. Conversely, fast growing economies such as in East Asia experienced a rise from 4.5% to % over 10 to 001.


With increased trade flows and foreign investment, transnational corporations (TNCs) play an increasingly significant role in the global economy. This is due to their dominating force in international business.


The globalisation of financial markets has meant an increased reliance on foreign sources of finance for investment. Also, some countries have greater access to foreign funds than ever before. There has been greater roles for foreign direct investment (FDI) contributing toward more economic activity. Between 10 and 001, FDI as a proportion of domestic investment rose from 4% to 17.6% for the global economy. However, increased FDI has mainly benefits for only those with already favourable economic prospects, there has been only a mere ‘trickle down’ affect for low income economies.


Globalisation has caused the removal of restriction on foreign ownership and a development in global capital markets has occurred. This has resulted in the world wide growth of TNCs. TNCs now produce one quarter of gross world product, with TNCs dominating the world’s major manufacturing industries.


Foreign exchange markets (FOREX markets) have become an increasing feature of the global economy. In 001 the average daily turnover of global foreign exchange markets was around $US1. trillion. With 5% of all this foreign exchange turnover seeking short term gains, it has meant that small falls in a currency may destabilise an economy. This is because a countries currency can affect its international competitiveness, inflation rates and interest rates.


Globalisation has meant that rapid and large shifts in the value of exchange rates have become a common feature of the global economy. This has resulted in mild impacts on economies.


Individual economies have their own business cycle, which experience periods of growth and downturn caused by changing levels of aggregate demand. Similarly, the world has begun to experience such an ebb and flow of world economic growth called the international business cycle. It is a general trend that for most countries, as global economic growth is strong, so too is the country’s. This idea can be seen from the economic growth of countries such as Australia, Canada, the UK and the US. All of these four countries experienced a downturn in growth in 15-16, which grew to 18-000 but has since declined from 000-00. However, this notion of an international business cycle is simply a trend and is therefore not a concrete rule. One country that has been an exception to global trends is Japan with poor growth over the 10s.


This integration allows countries to develop faster by specialising in certain types of products and trading. This means faster economic growth levels. This further means that individual economies will benefit from an upturn in global economic growth. Conversely, it also means that a downturn in global economic growth will result in a downturn in economic growth for an individual country.


In terms of the environment, there are both positives and negatives of increased globalisation. Globalisation gives increased opportunity for the best protection to the world’s environment. With globalisation the costs for protection may be shared among countries.


However, gloabalisation has several negative affects. Often low income economies may part-take in economic behaviour with negative environmental consequences, hoping to gain short term export revenue. Examples of this include deforestation for paper, unsustainable fishing practices, excessive pollution caused by manufacturing and increased green house gases from power plants. With increased rates of economic development and growth, there will also be higher levels of pollution, decreased supplies of fossil fuels and increased environmental damage.


From an increase in global trade there is also an increase in the consumption of non-renewable fuels.


Globalisation has seen a widening gap between the wealthier and poorer countries of the world. While poorer economies may have experienced better standards of living, the higher income economies have experienced the most benefit. In the 000 Human Development Report, 845 export processing zones were identified, where 7 million people work. In much of these zones basic worker rights were denied and wages were extremely low. This is a negative impact of globalisation where firms may choose the lowest cost option for their operations. This results in decreased wages due to a competitive market, corporate tax cuts and decreased environmental protection and concern. In turn this has meant a decline in the relative share of economic output going to wages and an increase in relative corporate profit. Nonetheless, TNCs tend to pay higher wages to workers than domestic firms of the same industry do.


There is currently a high level of inequality within developing economies. However, there has been sharp falls in the relative inequality in East Asia and the Pacific, as caused by strong economic growth. However, transition economies particularly in Eastern Europe and Central Asia have seen a relative increase in relative inequality.


Globalisation has placed international financial markets at the fore-front of the world economy. With financial markets shifting large volumes of money from one economy to another, a sudden loss in confidence of that economy can be devastating. This was seen from examples such as Mexico in 15, East Asia in 17, Russia in 18, Brazil in 1 and Argentina in 00. In all this examples, the sudden loss of confidence meant a collapse in exchange rates as large amount of that economies currency was dumped. This resulted in a shocked economy with a recession soon following, causing rising unemployment and increased poverty.


This devasting affect of international financial markets has been a result of better and the increased implementation of technology. Technology such as the internet has made the movement of money simple and fast. This results in sudden and mass movements of money, disrupting an economy.


There is no doubt that government policies have become more similar as a result of globalisation. This has been described in the “Washington Consensus”;


· Fiscal discipline.


· Public spending on education, health and infrastructure investment.


· Tax reform.


· Interest rates determined by market forces.


· Competitive exchange rates.


· Trade liberalisation.


· Openness to foreign direct investment.


· Privatisation.


· Deregulation.


· Legal security for property rights.


This outline also includes low inflation, minimising the role of governments and allowing for foreign ownership.


Most countries run their economies consistently with this outline. This is due to the fact that this is the most effective approach and that adopting other policy approaches has negative effects, including the loss of investor confidence and a fall in the value of the currency.


Globalisation has resulted in a reduced extent that governments can control macroeconomic policies independently. Due to large and rapid financial flows, banks are required to change interest rate levels accordingly, otherwise this money will go to other countries with more attractive interest rates. Further, by constraining fiscal policy the confidence in financial markets is conserved and retained.





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