“Analyze the impact of
globalization on economic growth, quality of life, and external stability of
global economies”
Globalization, an important characteristic within the contemporary economic
environment, has resulted in significant changes to individual nations in terms
of economic development strategies undertaken by national governments. The term
globalization refers to the integration of local and international economies
into a globally unified political economic and cultural order, and is not a
singular phenomenon, but a term to describe the forces that transform an economy
into one characterized by the embracement of the freer movement of trade,
investment, labor and capital. The drive for globalization has resulted in
greater economic growth globally, through the opening up of barriers to
international trade, yet this increase in world output is often associated with
detrimental effects in relation to the stability of a national economy, being
susceptible to the ups and downs of the international business cycle and also
both positive and negative effects on the standards of living or quality of life
with in a nation.
It is often difficult to categories an economy as being globalized, yet there
are several key indicator that suggest economic management decisions undertaken
by the govt have come as a result of globalization. The main evidence to suggest
the globalization of nations has been the growth in global markets, changes in
global consumption patterns, the establishment of intergovernmental agreements
as well as the rise of transnational corporations. Globalization has been
essentially driven by the breaking down of economic barriers between nations
over recent decades that have resulted in greater worldwide economic growth.
This economic liberalization has been spurred on by the global trend towards the
deregulation of national economies as well as reforms to encourage greater
competitiveness with in the global markets. As a result of the microeconomic
reforms, globally there has been a general reduction of restrictions on trade,
capital flows and foreign investments. In addition to this, technological
advancements over the last half century have contributed to this “economic
liberalization” where as a result of this technology growth, transport costs
have reduced dramatically, making trade more cost efficient. Communication costs
have also reduced through advancements in telecommunications and e-commerce
resulting in escalated movements in international finance. Through these
increases in trade and financial flows, countries have experienced increased
level of economic growth over time that has contributed to the world standards
of living. The global population now has greater access to the wider varieties
of consumer goods and services, aided by the development of international
markets and the ease of transactions permitted by technological advancements.
It is estimated that global economy grew, on average, by 2.5% per annum during
the late 1990s. This was fuelled by a growth in trade of over 7% per annum, and
growth in foreign investment levels of over 23%. It is clear that globalization
has brought about greater rates of economic growth in most nations, as proven by
the highly successful NIC’s in Asia, known as the “Asian Tiger” economies,
however, while the global economy has grown in total the benefits have varied
significantly between economies. Where high income and newly industrialized
countries have achieved growth rates of around 3% and 7% respectively, low
income countries achieved growth of only 2%. Economic activity in transitional
economies fell during the 1990s by an average of 2.7% per annum, showing that
globalization has not resulted in more equal standards of living.
However, the standard of living, or quality of life Is not simply a measure of
the level of economic growth or change in real GDP, but it is a measure that
takes into account the literary levels, education, health care, technological
change and mortality rates. An example of a quality of life indicator is the
Human Development Index (HDI) which measures changes in those factors as a
result of globalization. Over the last few decades, the HDI of the world’s
richest countries have increased as a result of globalization, where growth and
development has been attributed to these economies through willingness to
embrace market liberalization. However, the HDI of the poorer nations have grown
at a slower rate to the richer nation’s which, as some economists put it, shows
that globalization is another word for the continual plundering of the poorer
and weaker nations by the rich and powerful economies. It has been strongly
argued that the benefits of competition go only to those who can compete, and
poor countries have to negotiate on unequal terms. In addition, the forces of
globalization take no account for social injustices, with Asian sweat shops
being a prime example.
Trade growth has contributed significantly to changes in living standards and
economic growth of global economies, but its impacts have differed between
different economies. While the increases in global imports and exports have come
as a result of falling protectionist policies, it has advantaged mainly
producers of manufactured goods, while producers of primary goods still face
international barriers to trade. The consequence of this is the increase in
trade between nations that produce different types of manufactured goods, and as
a result much of the benefits of this increase trade go towards high income and
NIC nations. Developing nations, while experiencing growth, have not reached the
same levels as high income nations, there for widening the income divide
globally. Similarly, 70% of the financial glow increases are to industrialized
nations, increasing their access to capital and living standards, leaving lower
income nations on slower growth rates.
The quest for economic growth and improved quality of life has resulted in
greater focus on nation’s external stability. The ability of a country to manage
its exchange rate, balance of payments and foreign liabilities impacts on the
perceptions of traders on world markets. Volatility of foreign exchange markets
can contribute to external instability, and globalization has resulted in
increased trade, requiring increased currency movements, there for market
currencies are more prone to sudden appreciations and depreciations, altering a
nation’s competitiveness, and debts levels. The improved access to international
finance has detrimentally affected the external balance of many nations, in
particular developing nations, as rising interest on massive loans can heavily
outweigh the revenue eared, resulting in debt trap scenarios.
Additionally, the global movement toward free trade has resulted in many high
income manufacturing nations increasing in there terms of trade through
comparative advantage, and increasing there rates of economic growth. However,
developing nations’ terms of trade tend to fall over time as prices for primary
exports fall. This result in long term trade deficits and a worsening CAD that
results in a deteriorating external balance, which generally maintains the
income divide between the rich and poor nations with in the global economy.
While globalization has resulted in aggregate increases in trade, output and
investment growth over the past few decades, it is clear that the benefits from
this growth have been distributed unequally between different economies. While
developing nations are now focusing on manufacturing productions, high income
economies are establishing new production patterns and many poor nations are not
adapting significantly. Consequently, this has resulted in lagging economic
growth rates with in less developed countries, while nations such as the fast
growing “Tiger” economies have experienced phenomenal growth rates of close to
9%. The income divide globally, as a result would tend to widen, as richer
nations become richer at a faster rate than poor nations. However, a limiting
factor towards continuing accelerated growth with in high income nations
continues to be the maintenance of an economy’s external stability, in
particular preventing the blow outs of net foreign debt and equity over the
business cycle, which might affect the international confidence in the
management of the particular economy. There for globalization on the whole has
come as a benefit throughout the world, yet these benefits are still heavily
weighed towards the already rich nations, while the developing economies
struggle to maintain growth on par with the higher income nations, resulting in
the evident contrast in quality of life between there “classes” of nations in
the global economy.