The Effects of Globalization on Economic Growth

The effects of globalization on economic growth

In today’s world, nations exist in a high degree of economic interdependence because of globalization. Globalization is a process of global economic, political and cultural integration（Robert, J.2015）which plays a significant role in the world peace and development. In this essay, only capital flow, international trade and the movement of labor will be discussed in detail to elaborate the important effects of globalization on developed and developing countries’ economic growth.

Firstly, the globalization of generated capital flows play a big role to the developed and developing countries in promoting economic growth. Abundant resources and cheap labor in developing countries are great advantages, which attract the industrial capital in developed countries. Many developed countries choose to set up factories in developing nations. For instance, Apple Inc, as the most highly valued public company in the world, only signs all its products “designed by Apple in California” and outsources hundreds of thousands of manufacturing jobs to countries like Mongolia, China, Korea and India(Entrepreneur,2013). Foreign investment not only alleviates the shortage of funds in economic development in developing countries, but also promotes the industrial level upgrade and the optimization of industrial structure. For foreign capital, the slashed cost of production highly increased the profit space, and competitive product prices also stimulate the consumption demand, consumers can choose from a wider variety of products for lower cost. These factors are conducive to the expansion of industrial scale. Hence, the free flow of capital under the Economic integration situation, is a win-win to either the developed countries or the developing countries.

Secondly, the globalization of free trade is also the important factor that affects the economic development of all countries, whether the developed countries or developing countries. Free trade means that the member countries allow commodities and production factors to be circulated in a wider range by eliminating trade barriers and implementing preferential policies of international trade. Statistics show that tariffs in industrial countries have come down from high double digits in the 1940s to about 4% by 2014(Robert J,2015). The theory and practice have fully proved that; trade liberalization can effectively promote the economic growth in the participating countries. The exporter can obtain external demand of economy support. For instance, in the history, many countries by applying the export-oriented development strategy, such as Japan, South Korea after world war II, successfully realized the rapid development of economy. And importers can get cheap goods and services, despite of a certain shock to domestic enterprises, but it can be used of its own resources for more efficient domain, which is conducive to the development of economy on the whole. Take another example, although many developed countries have trade deficit such as USA and UK (Trading Economics,2017) they focus resources to develop high-end industries, and their economic development levels are always located top of the world. Thus, it is obviously to find that, the intensified degree of liberalization of trade for developing countries and developed countries both have a positive role in the economic growth.