Globalisation-Benefits and Costs

Globalisation-Benefits and Costs

Benefits of globalisation
Increasing international competition

Through globalisation, economies are opened up and foreign manufacturers have the leeway to compete with domestic firms. This competition improves the efficient use of resources as firms specialise in what they are good at. The absence of barriers also means that the supply of goods in the domestic economy increases leading to lower prices for consumers. Lower prices improve the welfare of consumers via rising  consumer surplus

More revenue
Demand for goods and services increases because businesses can sell abroad, thereby increasing sales revenue for the firms. More export sales mean more tax revenue to the government which can be used for infrastructural development.

Lower cost from economies of scale
Globalisation increases the size of the market as firms can sell to a global market. This leads to an increase in output thereby driving down the unit cost of production. Low unit cost  assures high profits for businesses and more money for business expansion

Engenders economic growth
Multinationals are among the drivers of globalisation. They contribute to the rise in the Gross Domestic Product (GDP) of a host country through their productive activities. The output of the economy increases leading to economic growth. In addition, increasing export raises the GDP of the country as export forms part of a country’s GDP.

Technological innovation
The ease of movement of productive resources is one of the factors that aid the technological development of a country. The knowledge accumulated in one country can be transferred to other countries through foreign direct investment.  Furthermore, multinationals invest in scientific and technological training for the workers in their host countries which may be developing countries. Companies in more technologically advanced economies also sign agreements with those in less technologically developed ones; the agreements may involve the permission to use its superior technology and provision of technical support.

Creation of jobs
An increase in demand for export will necessitate the expansion of productive capacity. Consequently, more workers will be required to meet the demand of the teeming consumers that are in different countries. Besides, the foreign direct investment would boost the demand for labour in the recipient country. 

Consumers have a wide choice
Consumers have a variety of products from different parts of the world to choose from. This makes more products available to them in order to satisfy their numerous wants. Therefore, the living standard of the consumers increases.

Costs of globalisation

Labour is negatively affected
Some domestic firms that are unable to compete with foreign ones will be driven out of business, thereby increasing the level of unemployment. Also, the free movement of labour and capital can harm some countries with a less favourable environment for business. Loss of jobs would reduce incomes and the standard of living of the people.

Environmental degradation
Foreign direct investment and the activities of multinationals will cause air, water, noise and visual pollution. Increased level of carbon emission will lead to global warming. In addition, resources are depleted and wildlife habitat is destroyed.  

Balance of payment disequilibrium
Globalisation will lead to either balance of payments surplus or deficit. The total outflow of money from a country’s international transactions may be greater or lesser than the inflow. A surplus means the money supply increases from its inflow of money from its current, capital and financial account balances. A deficit in the balance of payments shows the net outflow of money in the economy. It is desirable for the balance of payments to be in equilibrium, i.e. the total of transactions is zero.

Vulnerability of economies
Countries are not immune to events happening in other countries due to substantial integration. An unfavourable event in one country can spread to other countries of the world. For example, the financial crisis of 2008 in the US spread to other countries of the world and triggered a global recession. Many companies that invested in poor loans that originated from the US were affected.

Unfair to some countries
Free trade has been to the benefit of the developed economies at the expense of less developed countries. The developed economies get higher prices for their exports while developing countries get lower prices for their exports. So the terms of trade is more favourable for the developed countries. One reason is that many developed economies exports manufactured products that are income-elastic while developing countries exports mainly primary products which are income-inelastic. 

Growing inequality
Some countries experience economic growth since they are able to attract more FDI and more labour while others have not witnessed much progress. Some countries witness brain drain as their citizens continue to move elsewhere and they attract fewer investments; the poverty level in these countries has increased and the government made too little revenue to finance infrastructural development. Many Asian countries, developed and industrialised countries have benefitted a lot from globalisation.

Nefarious activities of multinationals
Multinationals take advantage of the laxity of rules in their host countries, especially developing countries, to exploit workers, ignore standards and evade taxes. They also encourage corruption by lobbying government officials to get contracts.