Economic Globalization as the Economic Interdependence of Countries - Essay Example

Running Header: Economic Globalization Student’s Name: Instructor’s Name: Course Code & Name: Date of Submission: Economic Globalization Introduction Economic globalization is the economic interdependence of countries resulting from increased trading and industrial interdependencies between the countries. The main factors exhibiting this kind of globalization are inter border investments and international trade. As indicated above, the key factors showing existence of are cross border and international trading activities. This has seen the establishment of trading blocks and trading unions in various regions in the world for example the European Union, The Gulf Cooperation and the COMESA. Here are some forms of unions that have been formed in a bid to globalize economically: Free trade area (FTA) – the free trade area is a region which eliminates tariffs against member countries but charges individual tariffs against outsiders. Examples of this include the European free trade (EFTA) and Latin American integration association (LAIA), (Asian development bank, 2008). Customs union – as similar to free trade areas, there is no charging of tariffs to countries in the union. However unlike Free trade areas a common tariff is charged to non-member countries. Examples of these trade unions are Andea Group, and Central American common market (CACM), (Konishi, Kowalczyk & Sjostrom, 2003). Common market – a common market is a form of customs union which does not have any limitations on factor mobility. An example of a common market is the European Union. An example of these types of union is the European Union (Rose, 2009). Complete economic integration – in such a form of union, there is complete integration of monetary, cyclical policies and fiscal policies. There is no existing example of such a union maybe the European Union between 1997-1999 (Bowen, Munadar & Viaene, 2010 ) With the expansion of trade due to economic globalization, most of the countries have been able to benefit with the international free trade that come with it (World Bank, 2011). This enables easy accessibility of countries products that is healthy to her overall economy. Most countries have joined trading blocks depending on their geographical positions. However as it have come to be realized most of these trading partners making some of the trading blocks offer similar goods making it a necessity to look for an outside market probably outside the continent. This has been made possible thanks to economic globalizations that have made it possible for business to carry out their trading activities all over the world. In this regard, it is now possible for a business people to be able to sell and buy goods services without actually having to travel. For instance a businessman in Kenya can be able to place an order to purchase a vehicle from a car dealer in Japan. It also enables a given country to be able to adopt new technologies that she can adopt to improve her economic output, from those countries they partner in trade. These new technologies stretch across all the sectors of the economy. These advanced technologies have seen a significant drop in incurred costs which stretches from sectors such as transport and communication, labor among others. Faster and more efficient machines in the industries translates into increased output, high quality goods hence more profits due to less expenses. The transport and communication industry has not been left behind either. The impact of the internet and the use of the telephone Economic Globalization Globalization is the integration of various economic systems practiced by different countries of the world to one system which is widely accepted. Economic globalization has led to integration of various financial and monetary policies. Economic globalization has resulted to economic integration. Economic integration is the facing off of trade barriers and restrictions that exist between countries (The European Union). Economic integration has seen the establishment of various trading blocks and economic blocks in the world. Some of the examples of economic blocks are the European Union, the Gulf countries cooperation, the east African community, the United States among others. Economic globalization in the context of economic integration creates more opportunities for business and trade to thrive in the countries forming the block. The banking industry has also benefitted from economic integration. The industry is one of the industries which have made globalization a swift process. Economic globalization would not be possible if a convenient banking system were not in place (Kenawy , 2008). The ease of transferring funds from one country to another has by a large extent reduced the risk and delay associated with former money transfers. The visa card allows a person to make transaction in all banks in the world. The transport system has also enabled economic globalization to take root. The ease of transporting goods from one part of the world to the other has resulted to increased trade between countries. This has created economic interdependence ‘economic globalization’ between the countries, for instance most of the countries in the world rely on the Gulf cooperation countries for the supply of oil. On the other hand the Gulf countries rely on countries like Japan and china for the supply of technological products. Factors that influence economic globalization According to Unfed (2011), a key factor influencing economic globalization is governance in a country. The governance of a country may not like to associate themselves with policies adopted by other countries. This forms a great hindrance toward the economic integration of the country and the economies of other country. A country may feel that the policies adopted by the other countries are not fit for their economies hence resist any form of external economic influence from the other countries. This explains the reason as to why some countries have taken long to join the European Union. A government should be flexible enough to be able to analyze the effect of a certain economic trend on the economy of a country. More often than not, globalization affects the economy of a country in appositive manner however, it is up to the country to maximize on the new found opportunities once globalization sets in. it is usually a take give scenario and if the country cannot give/ export anything, it’s economy will suffer. This explains why some countries inhibit the importation of certain products since they want to protect the domestic producers from the international manufactures thereby safeguarding their economies. Technology is another factor affecting economic globalization (Mussa, 2000). The advancement in technology has made a positive impact in economic globalization. It is now possible for people to market their products and services and also share their ideas in the comfort of their living room. The internet and media has by a large extent contributed towards economic integration. Communication is a powerful tool in any sphere of life. It is the ability to send and receive information. Communication is the factor that has ‘opened up’ the world. Communication enabled the people to get information on untapped markets. This enables the investors and business people to venture in to the markets for instance the emerging markets in Africa. Communication also eases the process of making transactions. In order to make any transaction, the transacting parties have to get in touch in a bid to ensure that they outline and specify the terms of the transaction. Effective communication comes in hand in such situations. Video conferencing enables the communicating parties to have full sight of each other and at the same time get full audios on the information being relayed. This creates confidence in the transacting parties hence encouraging the integration being created. Another factor that has contributed to the economic globalization is transport and communication. Globalization ensures that the transfer of goods and services from one country to another. The developments in the road, rail, water and air transport have contributed a lot to economic globalization. It is possible for a businessman to have breakfast in Shanghai and supper in New York. This exhibits the efficiency of the transport system. The ease of transportation of both people and goods has contributed a lot to economic globalization. People are able to get what they need and a time which they need it. This is place utility, a key element that was lacking before globalization set in. the ease of trade has led to economic integration since countries are depending on each other for goods and services which form crucial components of their economies. Cases of economic integration This section will give some of the examples of economic integration. The section will take an insight on four trading blocks in the world which are some of the best examples of economic globalization. The European Union The European Union is trading block for the European countries. The union has twenty seven members as at now with more countries still pending membership (European Union, 2011). The union aims at removing trading barriers within the member countries. The trade barriers include taxes and levies which are charged on goods before they enter a country. This has increased the trading activities amongst the countries in the union. Each country is able to get what it does not have and in return export what it has in plenty. This has created interdependence amongst the countries which in the end have resulted to an economic integration. The introduction of a common currency has been successful. The Euro is an internationally accepted legal tender. This has enables the countries in the European Union to enjoy the benefits associated with a stable currency like the Euro. The countries joining the Euro zone are increasing randomly and in so doing contributing to the strength of the euro. The European Union has also set policies which seek to regulate the good s getting their way to the member countries. The union has been able to strike deals with mutual benefits with potential trading partners like the African union, the United States and china. This has enabled the member countries to get access to markets in the trading partners. The European union has been successful in globalizing the economies of the member countries and of the world at large. The gulf cooperation The cooperation is constituted of the countries in the Gulf region. The countries include Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates ( Laabas & Liman , 2002). The economies of the countries revolve around oil production. The cooperation was established in a bid to bargain for better oil prices in the global market. The cooperation works closely with OPEC, the organization of petroleum exporting countries which is mainly constituted of Arabic countries. The cooperation has been able integrate the economies of the Arabic countries. The countries are now able to speak with one voice in the oil exportation business. This has enabled the countries to maximize on their exports. The cooperation has also been able t waive away trade barriers and restriction that previously existed in among the countries. This has increased trade and industrial activities in the region. This explains why the economies of the Gulf countries are emerging to be forces to reckon with in the globe. For instance Qatar and United Arab Emirates. Dubai which has come to be known as ‘the world market’ has thrived under economic globalization. The common market for eastern and southern Africa is another strong trading block in the world. The trading block is found in Africa and constitutes countries from eastern and southern Africa. The economic block is one of the most active trading blocks in Africa. The trading block seeks to remove trade barriers and restrictions that exist between the countries forming the block. The restrictions include import tax and duty among other fees levied across borders. This has opened up the markets in the region (Comesa , 2010). Trading activities amongst the member countries have increased drastically. Economic interdependence among the countries has also increased due to the globalization of the economy. The region is able to make trade agreements with other countries in the world in a more convenient way through the union rather than individual countries. COMESA has been able to globalize the economy of the region and of the world at large. Benefits/ advantages of economic globalization Economic globalization has numerous benefits. Below are some of the benefits discussed in depth. Poverty alleviation is one of the benefits of economic globalization (Hameed & Nazir, 2008). Economic globalization is a key factor leading to the development of trade between countries. Economic globalization integrates the economic systems of various countries and in the process waving off the barriers to trade. This makes it easier to trade hence making it easier for more people to indulge themselves into trading activities. With more people indulging in trading activities, the more the people who are able to get a regular source of income. This translates to improved lifestyles and reduction in the levels of poverty. Economic globalization also increases the level of productivity of the countries involved. Countries are able to get what they don’t have and use it in the production of goods and services in their own countries. For instance the world benefits from the oil in the Gulf countries and uses it to run machines and industries in their own countries. This has created a big impact on the economies of most countries. There is a common saying that oil drives the world. This explains the reason as to why the crisis in the Arab countries causes a lot of harm to the world economy. This is a manifestation of the world’s reliance on oil. Without economic globalization, it would not be possible for oil in Kuwait to reach an industry in America, a car manufactured in Japan to reach a customer in South Africa and a tourist from Britain to witness the 7th world wonder (wildebeest migration in Kenya). Therefore, economic globalization increases the productivity of a country and at the same time having a positive effect on the economy of a country. Another advantage of globalization is the development of international business (Wilczek, 2008). This has seen the establishment of international companies for example the Coca-Cola Company. The ease of transfer of goods and people has enabled the establishment of these companies. In a globalized economy, a company is able to assess the potential markets and venture into them. In a globalized economy, a company is also able to manage its various branches and maintain cohesion and productivity. All these are possible due to improved transport and communication. Increased competition is also an effect of economic integration ( Ghai, 1997). Economic globalization has opened up the world exposing the national companies to international companies and vice versa. This has created rivalry in the market. This has automatically resulted to product development, quality emphasis and price regulation. This has offered the consumers a chance to get high quality products at cheaper prices. The intense competition has resulted to the demise of some companies which have not been able to cope up with the demands of the competiveness. The competition has also created a scale for judging product quality since product’s quality is a key focus in any competitive market. Disadvantages of economic integration Economic globalization exposes the domestic industries to intense competition from the international organizations (Janicki, 2008). This is due to the removal of trade barriers and restrictions among the countries in the economic block. Because of this, many governments have made policies aimed at creating hindrances to the importation of certain goods which the domestic market can produce with ease. Economic globalization also leads to the flooding of market with counterfeit goods (Staeheli, Kodras & Flint2008). In the absence of an efficient bureau of standards, a country might become a ‘dumping site’ for counterfeit products. For instance, there has been a growing concern on the quality of china made phones. This is due to the reported cases of lack of quality and life of the phones. The phones have found their way into many developing countries due to the lack of regulatory bodies to counter the importation of such phones. Economic globalization can also create an imbalance of trade (Darren ,2010). This is where some countries benefit more from union than others. For instance some countries are net exporters while so are net importers. The objective of economic globalization is to provide a level trading ground but due to the economic empowerment of some countries, this is not possible. This has created economic and trade domination by some countries which is a disadvantage associated with economic globalization. The introduction of a common currency also affects the economies of some countries. For example if a country enjoyed a strong currency, it may see it economically unfit to adapt to the new currency since it will have a bad effect on the county’s economy. For example Britain still uses the Sterling pound even with the existence of the Euro. Conclusion In conclusion, economic globalization has made a very big impact on the economy of the world. The integration of business and trade amongst the countries has made a significant role toward poverty reduction. A globalized economy is characterized by few trade barriers and restrictions amongst countries. The reduced barriers have resulted to easy entry and exit of goods and people in different countries. This translates to more trading taking place amongst nations and its people. This creates a source of income to the people and also a source of revenue to the governments of the concerned countries. Economic globalization is characterized by economic integration. It involves the formation of trade blocks and unions which are aimed at integrating a region into an economic unit. The establishment of the European Union, COMESA, and the GCC has been fuelled by the economic integration. There has also been the establishment of single currency zones for instance the Euro zone. Single currency regions usually use a common currency for their transaction. 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