How globalization affects developed countries

The phenomenon of globalization began in its original form when humans first settled in different parts of the world; but in recent years, it has shown relatively stable and rapid progress, becoming an international driving force, and its speed and scale are expanding due to technological progress. , Countries on the five continents have been affected and participated.

Key points

  • Globalization is the process by which companies or other organizations create influence or conduct business on a global scale.
  • Globalization is a combination of gross domestic product (GDP), industrialization, and the human development index (HDI).
  • As companies compete on a global scale, and the subsequent reorganization of production, international trade and financial market integration, developed countries benefit from globalization.
  • Some economists believe that globalization helps promote economic growth and increase trade between countries; however, other experts and the general public generally believe that the negative effects of globalization outweigh the benefits.
  • Critics say that globalization is harmful to less affluent countries, small companies that cannot compete with large companies, and consumers facing higher production costs and the risk of work outsourcing.

What is globalization?

Globalization is defined as a process based on international strategy that aims to expand business operations on a global scale. It is promoted by technological advancement and socio-economic, political and environmental development that promote global communications.

The goal of globalization is to provide organizations with a superior competitive position at lower operating costs, thereby obtaining more products, services and consumers. This method of competition is obtained by diversifying resources, creating and developing new investment opportunities by opening up additional markets and acquiring new raw materials and resources. Resource diversification is a business strategy that can increase the diversity of business products and services within various organizations. Diversification strengthens the system by reducing organizational risk factors, diversifying interests in different fields, taking advantage of market opportunities, and acquiring horizontal and vertical companies.

Industrialized or developed countries are specific countries that have a high level of economic development and meet certain socio-economic standards based on economic theory, such as gross domestic product (GDP), industrialization and human development index (HDI) defined by the International Monetary Fund (IMF) ), the United Nations (UN) and the World Trade Organization (WTO). Using these definitions, some industrialized countries are the United Kingdom, Belgium, Denmark, Finland, France, Germany, Japan, Luxembourg, Norway, Sweden, Switzerland, and the United States.

Components of globalization

The components of globalization include GDP, industrialization, and the Human Development Index (HDI). GDP is the market value of all manufactured goods and services produced in a country within a year, and is an indicator of the overall economic output of a country. Industrialization is the process of realizing social change and economic development by transforming a country into a modern industry or developed country, driven by technological innovation. The Human Development Index includes three components: the life expectancy of a country’s population, knowledge and education as measured by adult literacy rates, and income.

The degree of globalization and diversification of an organization is related to its strategy for seeking greater development and investment opportunities.

Economic impact on developed countries

Globalization forces companies to adapt to different strategies according to new ideological trends, trying to balance the rights of individuals and the entire community. This change enables companies to compete on a global scale, and by legally accepting workers and governments to participate in the formulation and implementation of company policies and strategies, it marks a huge change in corporate leaders, labor, and management. Risks can be reduced through diversification through the participation of companies and international financial institutions and cooperation with local and multinational companies.

Globalization has brought about reorganization at the international, national and sub-national levels. Specifically, it brought about the reorganization of production, the integration of international trade and financial markets. This affects the capitalist economy and social relations through multilateralism and microeconomic phenomena, such as commercial competitiveness at the global level. Changes in the production system affect the class structure, labor process, technology application, and the structure and organization of capital. Globalization is now seen as marginalizing workers with lower education and skills. Business expansion will no longer automatically mean increased employment. In addition, due to its higher mobility compared with labor, it may result in high returns to capital.

This phenomenon seems to be driven by three main forces: globalization of all products and financial markets, technology and deregulation. The globalization of products and financial markets refers to the increased degree of economic integration of specialization and economies of scale, which will lead to increased financial services trade through capital flows and cross-border entry activities. Technological factors, especially telecommunications and information availability, facilitate remote delivery and provide new access and distribution channels, while at the same time transforming the financial services industry structure by allowing non-bank entities (such as telecommunications and utilities) to enter.

Deregulation involves the liberalization of capital accounts and financial services for products, markets, and geographic locations. It integrates banks by providing a wide range of services, allows new suppliers to enter, and increases cross-border operations and more cross-border activities in many markets.

In the global economy, power is the ability of a company to control tangible and intangible assets, which can create customer loyalty no matter where it is located. Regardless of size or geographic location, companies can use their greatest assets: concepts, capabilities, and connections to meet global standards and access global networks, flourish and become world-class thinkers, manufacturers, and traders.

Beneficial effect

Some economists are optimistic about the net impact of globalization on economic growth. Over the years, a number of studies have analyzed these effects. These studies have tried to use variables such as trade, capital flows and their openness, per capita GDP, and foreign direct investment (FDI) to measure the impact of globalization on the economies of various countries. These studies use time-series cross-sectional data on trade, foreign direct investment, and portfolio investment to examine the impact of several components of globalization on growth. Although they analyzed the various components of globalization and economic growth, some of the results are uncertain or even contradictory. In general, however, the results of these studies seem to support the positive positions of economists, rather than the views of the public and non-economists.

The use of comparative advantages between countries to promote growth is attributed to the strong correlation between the openness of trade flows and the impact on economic growth and economic performance.In addition, there is a strong positive correlation between capital flow and its impact on economic growth.

The impact of foreign direct investment on economic growth has had a positive growth effect on rich countries, and increased trade and FDI have led to higher growth rates.Empirical research using time series and cross-sectional data on trade, foreign direct investment, and portfolio investment to examine the impact of several components of globalization on growth found that if a country receives higher income from trade taxes, then its global The degree of transformation tends to be low. Further evidence suggests that there is a positive growth effect in sufficiently wealthy countries, as do most developed countries.

The World Bank reports that if there is no sound domestic financial system, integration with global capital markets could lead to catastrophic effects.

One of the potential benefits of globalization is to provide opportunities to reduce macroeconomic fluctuations in output and consumption by diversifying risks.

Harmful effects

Non-economists and the general public expect the costs associated with globalization to outweigh the benefits, especially in the short term. Measured by GDP per capita, the less affluent countries in the industrialized countries may not get the highly prominent beneficial effects of globalization as the richer countries. Although free trade increases opportunities for international trade, it also increases the risk of failure for small companies that cannot compete globally. In addition, free trade may push up production and labor costs, including providing higher wages for more skilled labor, which again may lead to outsourcing work from higher-paying countries.

The domestic industries of some countries may be threatened due to the comparative or absolute advantages of other countries in specific industries. Another possible danger and harmful effect is the excessive use and misuse of natural resources to meet new and higher demand in commodity production.

How globalization affects developed countries

Bottom line

One of the main potential benefits of globalization is to provide opportunities to reduce macroeconomic fluctuations in output and consumption through risk diversification. The overall evidence of the impact of globalization on macroeconomic output fluctuations shows that although the direct impact in the theoretical model is not clear, financial integration can help diversify a country’s production base and lead to an increase in the degree of production specialization. However, production specialization based on the concept of comparative advantage may also lead to greater fluctuations in a particular industry in a country’s economy and society. Over time, successful companies, regardless of size, will become part of the global economy.


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