Globalization is referred to as a state wherein the economies and performances of several nations around the world get interrelated or interdependent to one another. This implies that the effect of changes in the economy of one country leads to substantial changes in other different economies. Let us know more about globalization and how it affects the global economy.
How Globalization Affects Economy Essay? 250 words
The prime objective of globalization is to assist individual economies throughout the globe by improving the efficiency of markets, enhancing competition, reducing military conflicts, as by the equal distribution of wealth among nations.
There are various ways in which globalization influences an economy. The most critical way is through the changes made in the economic policy. Though different nations adopt different economic policies, in globalization, it is observed that the policies of one economy are attuned to align with the economies of other nations. Thus, the economic policy plays a key role in influencing globalization on any economy.
Another example to show the way globalization affects economic policies of a nation is that the Central Bank of any nation doesn’t have the privilege to reduce their inflation target. This is because, in the context of globalization, inflation can’t be used in the form of a tool to manage or modify the supply functions or demand in a country.
Globalization also greatly impacts the trade that takes place between nations. Generally, a nation is involved in some form of imports and exports. The exchange rates and prices for such export, import and trade are extremely dependent on the globalization. Thus, the global imports and exports and globalization that takes place within countries bring significant changes in the economy.
Growth and innovation form the two key pillars of the economy and both are highly impacted by globalization. Globalization results in innovation, that in turn impacts the development of an economy of a nation. The prices of goods that are being imported or exported from a country and their productivity are heavily affected by globalization. In this way, globalization influences the entire economy.
How Globalization Affects Economy Essay? 500 words
Globalization demonstrates a substantial development in the international trade of services, goods and other types of financial assets in an economy. Globalization is an important phenomenon that generally refers to a state where one nation interacts with other nations or economies through competition, investments or trade. In those circumstances, any type of change that takes place in an economy results in significant impact and change in financial situations and economies of other nations.
Thus, there is a deep connection between the non-development or development of an economy and the globalization. In situations where the economies of varying nations are extremely associated with each other, it becomes essential for the nations to work by the global scenario. Globalization can work in the favor or against an economy based on the situation but surely influences all other economies.
Though there are several benefits linked with globalization, there are also a few risks that investors and governments need to consider.
Benefits of globalization
Some of the advantages of globalization include:
Foreign Direct Investment:
Due to globalization, foreign direct investment increases at a higher rate as compared to the growth in world trade. It assists in boosting the transfer of technology, restructuring of industries, and the expansion of global organizations.
The impact of Foreign Direct Investment has a favorable effect on economic growth in affluent nations. Globalization leads to an increase in trade and foreign direct investment that, in turn, results in higher growth rates. Globalized nations observe low increases in government taxes, and outlays. It leads to a reduction in bribery, and exploitation in the governments.
Globalization leads to an increase in competition among companies. This aids in stimulating the development of new technology, specifically with the expansion in foreign direct investment. The outcome is seen in the form of efficient processes and improved economic output.
Economies to scale:
Globalization aids economies of enterprise firms to scale. This results in the reduction of prices, and costs of goods, commodities, and services. Globalization not just assists economic growth, but also hurt several small-sized businesses who attempt to compete domestically.
Risks of globalization
Below are mentioned a few risks of globalization:
Due to Globalization, nations become interdependent to each other. If local economic fluctuations influence a broad range of nations that are dependent on them, then globalization can even cause global or regional instabilities too.
Globalization results in the increase of nation-states, global or multinational firms, and other international establishments in a country. Many leaders view it as a risk to the dominion that causes them to become patriotic or narrow-minded.
The advantages of globalization can be deceitfully tilted towards affluent nations or individuals. This contributes to larger disparities and potential conflicts on national as well as international levels.
Nations should seek a rebalance of globalization. This will reinstate more voice to labor and its requirements for employment and income stability while concentrating on areas where heavy economic gains can be realized. In this way, globalization will serve as a beneficial tool for the economic growth of the world.