?Globalization – Connecting the World Economies Essay

Globalization – Connecting the World Economies
The clear and crisp definition of the phenomenon called Globalization is a common ground for international markets to carry out trade and cultural exchange. The world has indeed become a smaller place with cross-wired connectivity in all spheres of life. This has had a huge impact on world markets which have thereby expanded and flourished in all possible corners of the world. It is but natural that as markets boom so do the economies of participating nations which in turn results in better and secure prospects for the future of society.

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The process of globalization has gained momentum at a rapid pace as modern technology has provided convenient means for travel and communication to do business internationally or rather we can call it ‘locally’. The inter-connection of international economies has increased opportunity but at the same time also created stiff competition in the form of global competitors. Economic and financial globalization as well as expansion of world trade have brought immense benefits to nations across the world. However the current financial crisis has somewhat hampered the process of globalization with capital flows withdrawing and global trade shrinking. According to certain analysts the wave of globalization is being undermined by protectionism. International organizations such as the I.M.F work closely with nations to overcome the risks arising through volatile capital movement.

They offer help to manage the risks in the form of economic analysis and policy advice. Therefore, as globalization becomes a stark feature of world economics, a number of debates have arisen either for pro-globalization or anti-globalization. The world economies are clearly divided into two categories, although there can be a few more which might have similar features of either two or a mixture of both. The two prominent types of economies are an open economy or a closed economy. There are major differences between the two which can be discussed. An open economy – This kind of economy is one which not only operates within its own country but also functions internationally in other parts of the world. An open economy has a local market as well as an international market. Production and business activities are carried out worldwide. An open economy involves itself in the following activities. It buys shares, debentures, and bonds from foreign countries and sells the same to foreign countries. It borrows from and lends to foreign countries.

It can send it receive gifts and remittances worldwide. Residents of an open economy can work and live locally or internationally. The Gross Domestic Product (GDP) and Gross National Product (GNP) of an open economy are not the same due to the characteristics just mentioned. A few prominent examples of an open economy are countries like U.S.A, Canada and the U.K. A closed economy is one which does not have any sort of economic relation with the rest of the world. It is confined to the territory of its own country and does not participate in any of the following activities. It does not carry out any export or import of commercial goods and services with any foreign country. It does not buy or sell shares, bonds to foreign countries.

It neither borrows from nor lends to any foreign countries. It does not receive or send gifts to foreigners. Residents of a closed economy are not allowed to work outside their country and foreigners are also not allowed to work in a closed economy. Examples of a closed economy are countries like China and North Korea. Advantages of an open economy: The distinct feature of an open economy is that it engages in free trade with all parts of the world. However, there might be certain barriers or tariffs on international trade but, these restrictions do not hamper any trade activities.

There are innumerable advantages of an open economy. They are as follows – competitive prices and better variety of goods, flexible economic environment, and huge investments from outside countries which act as a boost to the host country’s economy. It is possible for any and all countries to operate in this type of economy. Successful implementation of the policies of an open economy can be brought about by a strong and efficient governing body which controls the environment and also prevents international markets from taking advantage of the economy of that particular country. A country which follows the principle of an open economy also brings about more competition in the prices of commodities and related services. The latter tend to be affordable and of high standard. This trend of business activity provides fair competition and as a result benefits the consumer market. Economic flexibility is often essential for a country to grow and expand its output or natural resources. Participating in trade with a lot of countries can lead to greater expansion. An open economy promotes direct investment opportunities which lead to in house production instead of import which might be expensive. This meets the demand efficiently as well as economically.

Restrictions in the form of tariff-barriers help maintain the domestic market from too much exposure to international markets and the related risks. Disadvantages of an open economy: The independent nature of open economies exposes them to certain risks. These can be disturbances in trade cycles, ups and downs in income, prices, job markets starting in one economy and spreading to other parts of the world. Factors such as the size of the economy, intensity of the preliminary disturbance and the level of integration also determine the level of risk the economy is exposed to. It is also noted that another disadvantage to an open economy is large amounts of “footloose” funds. These are short term funds moving around the world in search of temporary investment. Substantial safety and return on these funds leads to international movement of such funds. An open economy is also disturbed by import dependence. Certain import types expose a country to undue political, economic and cultural risks. Another drawback to an open economy is heavy indebtedness. Some weak countries face the inability to repay debts towards their international loans.

This has given rise to frequent bankruptcies of the borrowing parties. Great level of international trade also results in net losses for economies of weak nations even though these might have been an overall increase in economic welfare. It is also observed that a country may be forced to adopt some production technologies which minimize use of their own resources. They might face restrictions on their exports as a result of these conditions. For example, the U.S.A and other advanced countries make it a strategy to weaken competition from imported goods from labor – surplus countries like India. This condition nevertheless has a positive aspect attached to it as it discourages and opposes certain exploitive methods like child labor and wage disparities. Demand for Foreign exchange also becomes a weakness in an open economy. This is due to ever-increasing necessity of foreign reserves required for financing trade and other economic transactions. According to views and analysis it is predicted that it might be impossible to sustain these economic loopholes in the future. Pro-Globalization: There are a number of arguments and discussions which highlight the reasons either for the concept of globalization or against the same. The pro-globalization lobby argues that globalization brings various positive aspects like lot of opportunities for everybody, increased competition which also makes efficient products.

The two most prominent pro-globalization organizations are the World Trade Organization the World Economic Forum. The WTO comprises of 144 member nations which formulate certain policies and procedures to regulate capital flows and govern global trade. This is done through a process of member consensus and strict supervision. On the other hand, the WEF is a private entity. Even though it does not have the power to decide the status of any economic condition, it is effective as a powerful networking forum comprising of leading world economies, government and non-profit leaders. Similarly, the anti-globalization group argues that certain groups or nations which are less resourceful cannot function in the increased competitive markets.

They argue that these economies should be allowed to be more connected to the rest of the world. Important organizations which represent anti-globalization include environmental groups like Friends of the Earth and Green Peace, international aid organization like Oxfam, third world organization like G-77 to name a few are lobbying for the cause and interest of economies which are not fully involved in the concept of globalization. Bibliography: Harvard Style Referencing Applied

Links used for understanding the concept of globalization: Investor Words. (2012). Globalization. Available: http://www.investorwords.com/2182/globalization.html. Last accessed 19/11/12. International Monetary Fund. (2012). Globalization. Available: http://www.imf.org/external/np/exr/key/global.htm. Last accessed 19/11/12. Link used for understanding the differences between open and closed economy: Sushil Suri. (2012). What are the differences between Closed economy and open economy ?. Available: http://www.preservearticles.com/201103144509/closed-economy-and-open-economy.html. Last accessed 19/11/12.

Links used for understanding the advantages and disadvantages of an open economy: Wisegeek. (2012). What Are the Advantages of an Open Economy?. Available: http://www.wisegeek.com/what-are-the-advantages-of-an-open-economy.htm. Last accessed 19/11/12. Uttam Mehra. (2011). 7 Disadvantages of Open Economy to a Country. Available:

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