Globalisation and its economic consequences

Table of Content

1. Introduction

2. The Consequences of Globalisation
2.1. Effects on Growth and Development
2.2. Effects on Income
2.3. Effects on National Labour Markets
2.4. Effects on Labour Norms and Environmental Standards

3. National Sovereignty and Government Interventions

4. Conclusion

5. Bibliography

1. Introduction

Today Globalisation is one of the most controversial and widely discussed topics. Even though it is frequently used, there is still no commonly agreed definition of the term.

Globalisation stands for a historical process in which the national social, economical, cultural, and political attributes of individual countries geographically expand and melt together. The result is, that behaviour, economic activity, and the distribution of authority and power will change and take on transcontinental character.

Since this process has and will have extensive impact on all countries and even all individuals, it is not surprising that there are many supporters as well as many opponents, who have enormously dispersed attitudes towards this topic.

The basic discussion is if the process of Globalisation is or was avoidable or if it has to be seen as a natural and desirable result of the political interactions within the last century.

The supporters argue that the process will enable us to build up a more efficient and productive global environment, based on the mutual exchange of knowledge and experience, which will finally lead to a prospective and peaceful future.

The opponents disagree since they regard Globalisation rather as a threat of democracy, national sovereignty, and equality. They argue that exploitation will increase and that the development will lead subsequently to more poverty and social injustice.

In the following study, the consequences will be examined in more detail. Main attention will be paid to the effects on growth and development, income distribution, national labour markets, labour and environmental norms, as well as the effects on

national sovereignty. Based on these consequences, potential governmental interventions will be discussed.

2. The Consequences of Globalisation

2.1. Effects on Growth and Development

Even though the effects of Globalisation are not commonly agreed as beneficial, there exists a broad consensus that it can lead to increasing economic growth. If a country decides to adopt a more open trade policy, it can profit from international trade and direct foreign investment. This will result in a higher degree of specialisation, the introduction of new technologies and consequently to a higher level of global competitiveness. This counts especially for small countries since economies of scale as well as product variety is increasing, which will help to integrate in the global market.

Critiques argue that only the industrial nations and some of the emerging countries benefit from globalisation, while the developing countries still have a rather small degree of direct foreign investment, which will finally increase the gap between rich and poor countries. The development of direct investment inflows between 1995 and 2000 is shown in Table 1.

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Table 1 : Direct Investment Inflows (Mrd USD)

Source: UNCTAD, World Investment Report 2001

(see http://www.unctad.org/Templates/WebFlyer.asp?intItemID=2110&lang=1)

It can be seen that the distribution of capital flows widely differs between developing countries. Most investments go to the emerging countries, while it stagnates or even decreases in the poorest countries.

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