Economic globalization is perhaps one of the three key dimensions of globalisation found in most academic texts, with the other two being political globalisation and economic globalisation. What exactly is it? Globalization is a process through which geographical, cultural, economic, technological and political differences are lessened or even removed. As observed by many economic historians and social scientists over the past two decades, the effects of this process on the societies that experience it, are both positive and negative. On the one hand, economic liberalisation has led to the creation of numerous international economic organisations, often through the coordination and formation of bodies such as the World Trade Organization (WTO), the European Union (EU) and the North American Free Trade Agreement (NAFTA). These bodies aim to reduce the cost of global trade by eliminating barriers to trade, reduce agricultural protectionism, and increase the global sharing of resources.
On the other hand, the opposite occurs when a country with a strong domestic economy opens up to other regions through open-market policies, liberalisation and government subsidies or through foreign direct investment (FDI). This “asymmetry” can have a profound effect on the international capital flows, leading to an imbalance in the exchange rates of different regions. Furthermore, political systems also play an important role, particularly when national leadership decides to promote or inhibit economic globalization through bilateral or multilateral trade agreements, trade protection measures and protectionist policies. Some examples of these are the protectionist measures imposed by the European Union (whereby all imports are subject to customs duties) and the North American Free Trade Agreement (NAFTA), both of which limit the amount of international cooperation and technological transfers that take place between the US and other countries.
Economic globalization thus has several negative effects on the global economy. One of its most obvious effect is a reduction in regional employment due to the loss of local jobs due to the relocation of industries to cheaper locations, for example, in China. Another is the displacement of labour by the creation of new job-less positions in cities where there was none before. In addition, because of the mobility of technology, multinationals can relocate to other parts of the world, creating a net loss in employment for native workers.
The negative effects of globalisation can also be seen in currency depreciation, a phenomenon that started almost two decades ago. This process, known as globalization deceleration, has been particularly noticeable since the onset of the global economic crisis in 2021. It initially started as a reaction to the introduction of the European Union's Common Market (the EU) in the different regions of Europe, and later spread to the rest of the world through various free trade deals. A major impact on the currency of the United States was the fact that American businesses to set up operations in different regions of the world, thereby reducing the demand for the dollar, the main global currency.
As foreseen, the negative effects of economic globalization will continue until the effects of political liberalisation have been achieved worldwide. However, this does not mean that political constraints will completely dismantle the economic growth that multinational companies need to enjoy. They will still be able to satisfy their consumers and supply them with a variety of products that they can buy. Their competitive advantage will remain intact, as political constraints will not affect the companies that export their products. Also, these companies will still be allowed to access the freely available resources in other regions, so they will be able to increase their production and market share.
So far, the introduction of international free trade agreements has made some changes to the global economic system. For instance, the creation of the European Union (EU) caused a shift in the direction of global trade that pushed many economic players to open up their markets and promote closer cooperation. This has been followed by other similar agreements, such as the North American Free Trade Agreement (NAFTA) between the United States, Canada and Mexico. The introduction of these agreements resulted in a significant shift in the balance of power in international financial exchanges. It is expected that more such agreements will emerge in the future, leading to further changes in the global economic structure.
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