Globalisation essay
The development of the world economy and international relations becomes vulnerable to the overwhelming impact of globalisation which affects all countries, even though they conduct isolationist policies, such as North Korea, for instance. Moreover, once started, the process of globalisation is likely to be irrevocable. Globalisation is the process of the international economic, political and cultural integration of nations. The economic integration is the major driver of the process of globalisation. Even though many researchers (Dunning, 1998) insist that globalisation has a positive impact on the economic development of the world because the emergence of international trade stimulates the economic growth worldwide, but long-run effects of globalisation may be negative, especially for the poor nations which cannot compete with well-developed nations in the global market.
Background of globalisation
Globalisation has started as the increasing economic cooperation between nations at the regional level and steadily evolved into the global trend. The economic cooperation between countries was the result of the accumulation of capital by leading companies operating in the national market. The accumulation of capital made national markets inattractive for companies because they have saturated them and they needed further export of capital and international market expansion. In such a situation, the international market expansion prior to the globalisation era was not always profitable because of high costs of such expansion. The high costs of international market expansion and, therefore, international economic cooperation between nations, was the result of high fiscal barriers, which local governments introduced to support their domestic economies. The process of globalisation emerged after the beginning of the elimination of fiscal barriers to developer free trade between countries. The free trade implied the elimination of fiscal barriers that stimulated companies operating in different countries expand their business internationally. At the dawn of globalisation, there were interstate agreements involving two or three states, as was the case of the NAFTA signed by the US, Canada and Mexico, but soon such agreements involved multiple parties and, today, free trade agreements involve the majority of nations. At this point, it is worth mentioning the EU as one of the most advanced and integrated international community that united European nations and evolved from the economic union into the supranational political union which unites European countries, members of the EU.
Therefore, the process of globalisation involves the elimination of fiscal barriers and limitations on the movement of capital, goods, commodities, and human resources. The increasing economic cooperation between nations stimulated the development of multinational corporations which operated globally. The overwhelming majority of multinational corporations were based in well-developed countries. Multinational corporations in their turn encouraged governments to eliminate fiscal barriers and develop free trade further to facilitate their further international market expansion. At the same time such policy resulted to the consistent strengthening of the process of globalisation which has become the mainstream trend in the contemporary economic development of the world.
Effects of globalisation on developed nations
Globalisation has had a considerable impact on developed countries. In this regard, one of the effects of globalisation was the development of trade between well-developed nations mainly. In fact, the trade between developed nations comprises the larger share in the total world trade. Moreover, developed nations focus on the trade with each other rather than with under-developed nations which they tend to use as suppliers of natural resources, such as fossil fuels, for instance.
The economic cooperation is beneficial for developed nations because they have technology, capital and well-qualified human resources which are key factors contributing to the competitive advantage of companies in the global market (Martin & Van Gunten, 2002). Developed nations and companies based in developed countries use their technologies to enter new markets and take the dominant position in international markets. They often take the leading position in the global market as is the case of Microsoft, for instance, and develop their business successfully. More important, globalisation involving the free trade opened large opportunities for companies based in developed countries to purchase natural resources and other basic supplies from developing countries. As a result, companies based in developed countries have got an opportunity to decrease costs of production due to the elimination of fiscal barriers and low price of supplies from developing countries. Moreover, they accelerated the consumption of natural resources and other basic supplies from developing countries but purchasing raw materials mainly they sold high tech products to developing as well as developed countries which price was often tenfold higher than the price of raw materials the products were made of.
Foreign direct investment flow also tends to the investment of capital into developed countries mainly, while investments in developing countries turn out to be secondary. Therefore, developed countries prefer to invest into other developed countries because they believe such investments and reliable and safe. In addition, investors investing in developed countries can count on low risk of investment and stable level of income. Such investments are stable and profitable.
Even emerging economies are secondary targets for investors from developed countries. Instead, the US investors prefer to invest into the EU economy, while the EU investors prefer to invest into the US economy. At this point, it is worth mentioning the fact that the investments between developed countries contribute to their accelerated economic growth that allows them to outpace the rest of the world consistently. Developed nations apparently benefit from such mutual investments because they stimulate their economic growth. One of the reasons why investors from developed nations prefer investing in developed economies than in emerging and developing economies is the risk of such investments. In fact, they do not want to take a risk and invest into unstable countries.
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