Gains from Globalisation

Globalisation can lead to improvements in efficiency and gains in economic welfare. Trade enhances the division of labour as countries specialise in areas of comparative advantage Deeper relationships between markets across borders enable and encourage producers and consumers to reap the benefits of economies of scale Competitive markets reduce monopoly profits and incentivize businesses to seek cost-reducing innovations and improvements in what they sellGains in efficiency should bring about an improvement in economic growth and higher per capita incomes. The OECD Growth Project found that a 10 percentage-point increase in trade exposure for a country was associated with a 4% rise in income per capita Globalisation has helped many of the world’s poorest countries to achieve higher rates of growth and reduce the number of people living in extreme poverty For consumers globalisation increases choice when buying goods and services and there are gains from a rapid pace of innovation driving dynamic efficiency benefitsRisks and Disadvantages from Globalisation Globalisation is not an inevitable process and there are risks and costs: Inequality: Globalisation has been linked to rising inequalities in income and wealth. Evidence for this is a rise in the Gini-coefficient and a growing rural–urban divide in countries such as China, India and Brazil. Inflation: Strong demand for food and energy has caused a steep rise in commodity prices. Food price inflation (known as agflation) has placed millions of the world’s poorest people at great risk. Macroeconomic nstability: A decade or more of strong growth, low interest rates, easy credit in developed countries created a boom in share prices and property valuations. The bursting of speculative bubbles prompted the credit crunch and the contagion from that across the world in from 2008 onwards. This had negative effects on poorer & vulnerable nations. In 2007-08, financial crises generated in developed countries quickly spread affecting the poorest and most distant nations, which saw weaker demand and lower prices for their exports, higher volatility in capital flows and commodity prices, and lower remittances.Threats to the Global Commons: A major long-term threat to globalisation is the impact that rapid growth and development is having on the environment. Threats of irreversible damage to ecosystems, land degradation, deforestation, loss of bio-diversity and the fears of a permanent shortage of water are afflicting millions of the most vulnerable people are vital issues. Trade Imbalances: Trade has grown but so too have trade imbalances. Some countries are running enormous trade surpluses and these imbalances are creating tensions and pressures to introduce protectionist policies.Unemployment: Concern has been expressed by some that investment and jobs in advanced economies will drain away to developing countries. Inevitably some jobs are lost as firms switch their production to countries with lower unit labour costs. This can lead to higher levels of structural unemployment and put huge pressure on government budgets causing rising fiscal deficits. Standardization: Some critics of globalisation point to a loss of economic and cultural diversity as giant firms and global brands come to dominate domestic markets in many countries.

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