Impact of Globalization on economic growthm quality of life, external stability on market economies

Economic Essay – Globalization

“Analyze the impact of globalization on economic growth, quality of life, and external stability of global economies”

Globalization, an important characteristic within the contemporary economic environment, has resulted in significant changes to individual nations in terms of economic development strategies undertaken by national governments. The term globalization refers to the integration of local and international economies into a globally unified political economic and cultural order, and is not a singular phenomenon, but a term to describe the forces that transform an economy into one characterized by the embracement of the freer movement of trade, investment, labor and capital. The drive for globalization has resulted in greater economic growth globally, through the opening up of barriers to international trade, yet this increase in world output is often associated with detrimental effects in relation to the stability of a national economy, being susceptible to the ups and downs of the international business cycle and also both positive and negative effects on the standards of living or quality of life with in a nation.

It is often difficult to categories an economy as being globalized, yet there are several key indicator that suggest economic management decisions undertaken by the govt have come as a result of globalization. The main evidence to suggest the globalization of nations has been the growth in global markets, changes in global consumption patterns, the establishment of intergovernmental agreements as well as the rise of transnational corporations. Globalization has been essentially driven by the breaking down of economic barriers between nations over recent decades that have resulted in greater worldwide economic growth. This economic liberalization has been spurred on by the global trend towards the deregulation of national economies as well as reforms to encourage greater competitiveness with in the global markets. As a result of the microeconomic reforms, globally there has been a general reduction of restrictions on trade, capital flows and foreign investments. In addition to this, technological advancements over the last half century have contributed to this “economic liberalization” where as a result of this technology growth, transport costs have reduced dramatically, making trade more cost efficient. Communication costs have also reduced through advancements in telecommunications and e-commerce resulting in escalated movements in international finance. Through these increases in trade and financial flows, countries have experienced increased level of economic growth over time that has contributed to the world standards of living. The global population now has greater access to the wider varieties of consumer goods and services, aided by the development of international markets and the ease of transactions permitted by technological advancements.

It is estimated that global economy grew, on average, by 2.5% per annum during the late 1990s. This was fuelled by a growth in trade of over 7% per annum, and growth in foreign investment levels of over 23%. It is clear that globalization has brought about greater rates of economic growth in most nations, as proven by the highly successful NIC’s in Asia, known as the “Asian Tiger” economies, however, while the global economy has grown in total the benefits have varied significantly between economies. Where high income and newly industrialized countries have achieved growth rates of around 3% and 7% respectively, low income countries achieved growth of only 2%. Economic activity in transitional economies fell during the 1990s by an average of 2.7% per annum, showing that globalization has not resulted in more equal standards of living.

However, the standard of living, or quality of life Is not simply a measure of the level of economic growth or change in real GDP, but it is a measure that takes into account the literary levels, education, health care, technological change and mortality rates. An example of a quality of life indicator is the Human Development Index (HDI) which measures changes in those factors as a result of globalization. Over the last few decades, the HDI of the world’s richest countries have increased as a result of globalization, where growth and development has been attributed to these economies through willingness to embrace market liberalization. However, the HDI of the poorer nations have grown at a slower rate to the richer nation’s which, as some economists put it, shows that globalization is another word for the continual plundering of the poorer and weaker nations by the rich and powerful economies. It has been strongly argued that the benefits of competition go only to those who can compete, and poor countries have to negotiate on unequal terms. In addition, the forces of globalization take no account for social injustices, with Asian sweat shops being a prime example.

Trade growth has contributed significantly to changes in living standards and economic growth of global economies, but its impacts have differed between different economies. While the increases in global imports and exports have come as a result of falling protectionist policies, it has advantaged mainly producers of manufactured goods, while producers of primary goods still face international barriers to trade. The consequence of this is the increase in trade between nations that produce different types of manufactured goods, and as a result much of the benefits of this increase trade go towards high income and NIC nations. Developing nations, while experiencing growth, have not reached the same levels as high income nations, there for widening the income divide globally. Similarly, 70% of the financial glow increases are to industrialized nations, increasing their access to capital and living standards, leaving lower income nations on slower growth rates.

The quest for economic growth and improved quality of life has resulted in greater focus on nation’s external stability. The ability of a country to manage its exchange rate, balance of payments and foreign liabilities impacts on the perceptions of traders on world markets. Volatility of foreign exchange markets can contribute to external instability, and globalization has resulted in increased trade, requiring increased currency movements, there for market currencies are more prone to sudden appreciations and depreciations, altering a nation’s competitiveness, and debts levels. The improved access to international finance has detrimentally affected the external balance of many nations, in particular developing nations, as rising interest on massive