Free trade means buying and selling of goods internationally, without any limits on the amount of goods, and without special taxes on the imports from a foreign country. Globalization trade in terms of free trade is the process by which the world is interconnected through technology and powerful infrastructure for the purpose of buying and selling goods and services without limits. Globalization trade seems to talk about several occurrences which ensure two major components. Firstly, they take place across nation boundaries and secondly, they result in to human societies depending among one another for several reasons. It is therefore one aspect that is dealt with every day since it affects the world from every point of human view.
Opportunities for Globalization Trade
The evolution of nations has both opportunities and dangers for the already industrialized economies as well as the developing nations of the world. The opportunities for globalization trade have created freedom amongst those exchanging goods and services. The first opportunity is, opportunity for globalization is free trade and the effects on the global economy. When trade becomes freer it means more is going to be carried increasing the financial flows. Comparatively when financial flows increase, capital will definitely be distributed equally from one nation to another raising the living standards of people from the less developed countries. The argument on free trade was intelligently stated by Adam Smith one of the famous economist in the 18th century (Kasapidis, 2000). Adam in his book Wealth of Nations argued that businesses that are individually owned and trade promotes economic activities more than state controlled businesses. Most economists including Adam Smith state that to ensure equal opportunity for advancement in all nations, trade barriers should be abolished.
Secondly, globalization trade ensures transnational regulatory frameworks are put in place. Global network adopts more control as well as more responsibility for welfare of the individual nations and the global community at large. Therefore, global socialism develops whereby nations can come together to help out a nation during crisis.
Finally, globalization trade goes both ways of foreign markets and sourcing. Once you have identified and traded in a foreign market, you may notice that some goods you have in sourcing in a particular nation are available elsewhere at substantial savings. Globalization trade hence allows you to take advantage of such a niche to reduce your costs and add value to customers I your home market as well as those in markets overseas.
1.2. Negative effects of Globalization Trade
Globalization has caused increased demand of more-skilled workers at the expense of the less skilled workers. This has caused an increased income gap between these two groups. The unemployment created by globalization to the less skilled workers has increased inequality as well. Research has shown that in the United States for instance, wages of the less skilled workers has fallen greatly since the year 1970 compared to those who are more skilled (Slaughter & Swagel, 1997). It also shows that between 1979 and 1988 there was a difference between the wages and income of a college graduate and a high school graduate; there was a 20 percent rise on the average wage of the college graduate relative to average wage of a high school graduate. Generally the actual average real wage has reduced since then for the whole United States.
On the contrary other countries have suffered the demand shift on employment rather than income. Countries that have inflexible wages set in the centralized labor markets have a lower relative employment. This is caused due to the difference in labor market structures.
1.3. Impact of Globalization on International Economy
Before globalization, international states were only interested in promoting their own safety. They were concerned in solving domestic problems rather than international problems. Globalization came to change all these; since issues and problems have become more global which calls for collective action to solve them.
1.4. Globalization influence on different Economy
When it comes to employment, globalization has different impact on different economies. Activities such as off-shoring services increase job opportunities in developing countries at the same time causing a decrease in the developed economies. Job structures are improving to suit specific individuals (Oldemeinen, 2011).
International Trade Costs
Trade costs have been seen to take part in the decision of whether to outsource or insource, and whether sourcing inputs through intra-firm or stretched trade is the best. Research shows that the literature on the new economic geography states that a fall in trade costs can lead to a greater reduction to geographical concentration of production. The reduction in trade costs has led to different stages of production processes not to take place in the same place (Report, 2008). Trade costs fall because of the reduction in tariff and non-tariff barriers. Similarly, they fall due to reasons associated with transport and communication. The improved communications have enhanced logistics as well as reducing the time and any uncertainty that might be present during delivery. Moreover, due to reduced number of times loading and offloading takes place trade costs have been reduced. This is an advantage since a country can export manufactured goods at subsidized prices than it was before.
There is a theory based on the imperfect markets stating how the patterns of production and trade are associated with it. First, a country will tend to export goods where they are highly demanded. Another observation is the reduction in the trade costs will definitely lead to an increase in the home market effect. Finally, falling trade costs will make countries go on different directions, while the manufacturing production becomes more in one place the other places specialize in non-manufacturing production activities. Nevertheless, when the trade costs reduce more the reverse effect will take charge whereby the periphery will major on the manufacturing activities.
Trade and Inequality
The finding of research carried out by Rosario Crino and Paolo Epifani presents a major controversial issue on international trade having increased wage inequality worldwide. The study presents that the analysis carried out on international trade has stated that increase in trade surplus will lead to higher superior quality skills in both nations that are already developed and developing countries (Sussex, 2013). The researchers argue that there is need to rebalance the world trade so that wage inequality can be reduced. The trade literature reveals that international trade has influenced 20 percent of the wage inequality that is on the rise.
Trade liberalization is one of the major causes for the greater opportunity for inequality in the developing countries. The technological changes, the laws that were there before trade liberalization and the low protection that was present then are the reasons there is difference between high skilled and less skilled workers after trade liberalization. Therefore, trade is one of the major drivers of changes in inequality.
Trade and Poverty
Trade is expected to make a positive impact on growth. The price effects of trade liberalization will affect the individual households differently. Recent studies have suggested that rural households adjust positively to agricultural price increases as compared to the urban households. This is because rural households are flexible; they can go back on subsistence farming for survival or even become suppliers of the agricultural products they majorly produce.
Research has shown that global economic integration should help the developing countries since these countries have an advantage of producing goods from the less skilled labor (Harrison, 2006). World Bank Policy Research suggests trade can reduce poverty under these three conditions; in countries that have financial sectors that are well integrated, education levels are high and finally where the governance is stable and cannot be easily brought down (Singh, 2013). These three aspects of an economy can reallocate resources to more productive sectors. Hence, it allows the country to take advantage of the opportunities trade comes along with. A financial sector that is well integrated allows investors to venture into sectors that are promising and help by redirecting them to believe. An economy with high education levels will be able to come up with skilled individuals who are productive. Lastly, better governance allows conflicts to be resolved intelligently with a lot of ease.
Globalization trade has impacted the world today in so many ways and will appreciate that it has been able to alleviate poverty levels in the developing countries and that there are long term benefits that accrue from it.
Harrison, A. (2006). The National Bureau of Economic Research. Retrieved FEB 28, 2016, from Globalizaton and Poverty: http://www.nber.org/papers/w12347
Kasapidis, R. (2000). TheArt of Science. Retrieved FEB 28, 2016, from The Opportunities and Dangers of Globalization: http://www.itech.fgcu.edu/&/issues/vol2/issue1/global.htm
Oldemeinen, M. (2011, JUL 27). E-International Relations Students. Retrieved FEB 28, 2016, from How has Globalzation changed the International System?: http://www.e-ir/info/2011/07/27/how-has-globalisation-changed-the-international-system/
Report, W. (2008). Trade in a Globalizing World. Retrieved FEB 28, 2016, from http://www.wto.org/english/res_e/booksp_e/anrep_e/wtr08-0d_e.pdf
Singh, R. J. (2013, FEB 19). The World Bank. Retrieved FEB 28, 2016, from Evidence That Trade Does Reduce Poverty, But Only If the Conditions are Right: http://www.blogs.worldbank.org/trade/evidence-that-trade-does-reduce-poverty-but-only-if-the-conditions-are-right
Slaughter, M. J., & Swagel, P. (1997). International Monetary Fund. Retrieved FEB 28, 2016, from Does Globalization Lower Wages and Export Jobs: http://www.imf.org/external/pubs/ft/issues11/
Sussex, U. (2013). Trade and Inequality. Conference Media Center, 12.
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