Economic globalization: causes, effects, and contemporary implications

Financial Systems, Economic Growth, And Economic Globalization

Globalization has had significant impacts on all economies of the world, with manifold effects. It affects their production of goods and services. It also affects the employment of labor and other inputs into the production process. In addition, it affects investment, both in physical capital and in human capital. It affects technology and results in the diffusion of technology from initiating nations to other nations. It also has major effects on efficiency, productivity, and competitiveness. (Michael Intriligator, 2001)

Economic Globalization

Economists and Environmentalists, Is Integration Possible?

Statement of Thesis

The purpose of this work is to research and examine the positive and negative impacts that globalization has and to examine the concept of 'economic globalization' and to examine as well the movement against economic globalization and the underlying motivations and arguments. Finally this work will research the evidence supporting each concept and conclude that the globalization in terms of economics has had an overall positive effect.

Introduction

Globalization is an aspect of the present world system representative of one of the most "influential forces" in the determination of the future course of earth. (Intriligator, 2002) Globalization is inclusive of the dimensional factors of economic, political, security, environmental, health social, cultural, and others. It is important to realize that the term globalization holds a different meaning for the variation of personalities throughout the world. While the interpretation of globalization for those who are scholars, activists, policymakers, and others in this mindset it is seen as a "force for advancing the world economy" there are those of a different mindset that see it as something inherently dangerous to the system of the world in terms of the economical state of affairs. (Intrigilator, 2002) Stated in the work entitled, "Economics Forever" is that, "Conventional economists believe that continuing economic growth will solve the world's environmental problems as they arise. but. 'environmental economists' in many countries - including Kenya, South Africa, Thailand, Costa Rica, India, Brazil, the Philippines, Chile, the U.S.A. And several European states - are exploring ways to including environmental impacts in economic thinking. "Thus the increasingly evident natural disasters should be considered by financial economists in relation to the loss of goods, services, or other such loss at the time of a natural disaster such as hurricanes, flooding, tornados, etc.

There exist aspects of both positive and negative in nature and "some of its positive features stem from the effects of competition that it entails, and that some of the negative aspects could potentially lead to conflicts could be offset by international or global cooperation through agreements on policy or through the development of new international institutions." (Intrigilator, 2002) Therefore, it is stated that "while globalization can cause international conflicts, it can also contribute to their containment through the beneficial effects of competition and the potential of global cooperation to treat economic and other threat facing the planet. (Intrigilator, 2002) Globalization as defined by Michael D. Intriligator, Dept. Of Economics; University of California is "understood to mean major increases in worldwide trade and exchanges in an increasingly open, integrated and borderless international economy."

Globalization: Resulting Areas of Growth

Growth has resulted in areas such as trade and exchanges, not only in traditional international trade in goods and international trade in services, but in exchanges of currencies and capital movements, in the transfer of technology and in the moving of individuals via international travel and migration as well as in international flows of information and ideas." Another aspect that "illustrates the extent of globalization is the volume of international financial transactions totaling over $1.2 trillion daily.

Advances in technology have lowered the costs of transportation, communication, data processing and information storage and retrieval. Inventions such as the microchip and computer, email and the Internet have all had a part in propelling globalization forward. Institutional changes are also one aspect of that which has resulted from Globalization. The changes in terms of the industrial specter are evidenced through increased "power, profits, and productivity" (Intriligator, 2002) Further these in the industrial arena are free to "choose among many nations for their sources of materials, production, facilities, and markets," (Intriligator, 2002) and thus experience expedient adjustment to the changing market conditions in the 'globalized' market environment of today.

Intriligator (2002) states in the work entitled "Globalization of the World Economy: Potential Benefits and Costs and a Net Assessment" that the structure within the global market environment is reliant upon "subsidiaries or strategic alliances" in obtaining a "comparable degree of influence and flexibility." (Intriligator, 2002) Stated in the work entitled, "Measuring the Effect of Globalization on Labor Demand Elasticity: An Empirical Application to OECD Countries" is that much focus has been in relation to the effects of "increasing international integration on the labor market" with the majority of the attention being paid to the impact on wages and employment in relation to globalization. Stated in a separate work is that Trade might induce an increase in labor demand elasticity via a scale effect due to increased competition on the output market and/or via a substitution effect.

Cultural Factors in Relation to Globalization

Cultural factors are an important aspect of globalization in issues of diversity, ethnicity, racial, religious/spiritual matters." Acculturation of minority individuals in relation to communication, interaction and self-esteem found that there are significant ethnic differences in behavioral patterns, peer networks, family contexts, and levels of self-esteem. Further stated is that stress levels are different among culturally different individuals and that acculturation possessed in the experience stress that is inherent to the process. (Rhee, 2003) However, the stress levels that go along with acculturation are not as severe as experienced in the past because the world is more connected through communication and knowledge systems and through economical interdependence among countries and diverse race, ethnic and cultural groups. All this has served to dissolve the unseen but well-defined boundaries that separate all the diverse nations and people of the modern world.

Convergence of Beliefs and Ideology as Factors in Globalization

It has been established the existence of positive results from the globalization of the world, and as well negative results are noted. One point that must be given consideration as a causative to globalization is that of the converging of beliefs and ideology worldwide which has very much in terms of market economy and the free-trade system been that which has propelled globalization along in it's solid development. There is a stated "three-part agenda for transition is inclusive of: (1) Stabilization of the macroeconomy (2) Liberalization of prices; and (3) Privatization of state-owned enterprise This three-part agenda is referred to as the "Washington Consensus" also called the SLP. Another approach referred to as the ICG is as follows: (1) Building market institutions, Establishment of competition and (2) Providing for an appropriate role for the government in a modern mixed economy (3) Establishing competition, and (4) Providing for an appropriate role for the government in a modern mixed economy.

In the work entitled "Financial Systems, Economic Growth and Globalization" (Rousseau & Sylla, 2001) states that the work's focus is to "brings together two strands of the economic literature -- that on the finance-growth nexus and that on capital market integration -- and explores key issues surrounding each strand through institutional and country histories and formal quantitative analysis" (Rousseau & Sylla, 2001) Studies are characterized by a focus on the countries inclusive of those the Dutch Republic, England, the U.S., France, Germany and Japan" the studies are of a longitudinal nature over the course of three centuries. The method of study was through having detailed how it was that in each case the emergency of one specific system was able to "jump-start" economic growth and was through use of a cross-country panel of seventeen countries during the period 19850 to 1997. The findings in this study were that the emergence and development of a financial system in these countries were able to propel economic growth. Further this study showed "that these effects were stronger over the 80 years preceding the Great Depression. (Rousseau & Sylla, 2001) the findings include that country who possessed the more sophisticated financial systems engage in more trade and appear to be better integrated with other economies by identifying roles for both finance and trade in the convergence of interest rates that occurred among the Atlantic economies prior to 1914. (Rousseau & Sylla, 2001)

In the study the question is asked as to what precisely is the "relationship between a country's financial development and its economic growth? (Rousseau & Sylla, 2001) Secondly asked is the question of how it is that "a country's financial development and economic growth relate to the extent of its participation in the global economy?" Results suggest that "the growth and increasing globalization of these economies might indeed have been "finance-led." (Rousseau & Sylla, 2001) the work of Rousseau & Sylla (2001) further address the two research bodies that have independently developed apart and independent of each other but yet are related in content, subject matter and findings. This aspect of the study were inclusive of works of "economic historians on the development of financial systems" most particularly the "banking systems" worldwide and exactly what the resulting impact will be. (Rousseau & Sylla, 2001) While the two identified "strands of literature" one dealing with domestic and the other international developments, are no always related to one another" but are however, both elements of the story called financial globalization." Definition of a "Good Financial System" states that there are five key components which are: (1) Sound public finances and public debt management; (2) Stable monetary arrangements; (3) a variety of banks, some with domestic and others with international orientations, and perhaps some with both orientations; (4) a central bank to stabilize domestic finances and manage international financial relations; and: (5) Well-forming security markets."

Impacts of Globalization on National Economies

Impacts on the economies of the world have been stated in relation to globalization as well as there being noted an affect of the goods and services production. "Investment, technology, efficiency, productivity and competitiveness are all noted to be impacted by the world's globalization."(Intriligator, 2002) the growth of foreign direct investment (FDI) is at a lucrative rate and this element plays a key role in investment in enterprise, technology transfer, industrial restructuring and in the global enterprise formation initiatives.

Globalization contains both good and bad or positive and negative effects to the individual. Many effects of globalization that are of a positive nature stem from the root of competition. There are however, negative effects related to globalization. Along with the possible increases in output and raising of wages and living standards is the possibility of greater human well being throughout the world. Potential conflicts and costs of globalizations are stated to be of a diverse nature being Regional, National, or International. One of these is described as the "who" that gains from the potential benefits due to the fact that equity problems may be of a 'substantial nature' in the distribution of the gains from globalization among individuals, organizations, nations and regions. This is illustrated through the gains being channeled to the rich nations and individuals which creates an even greater inequality and leads to possible conflicts nationally and internationally. Secondly, a cost/problem exists that stems from globalization is that of "major potential regional or global instabilities that are caused by interdependencies of economics globally.

Section 1 and Section 2 of the work entitled, "Financial Systems, Economic Growth and Globalization" is a discussion of the meaning of "good" or "well-functioning" financial system and accompanying case studies from other countries are developed and the five key components are realized." Those five are 1) Sound public finances and public debt management

2) Stable monetary arrangements

3) a variety of banks, some with domestic and others with international orientations or both 4) Central; Bank to stabilize domestic finances and manage international financial relations, and 5) Well functioning securities markets.

This type of system used in financial aspects can mobilize capital domestically thereby promoting a country's economic development and growth. Stated is that: "A strong convergence effect, as indicated by negative and significant coefficients on initial income and a positive an significant role of financial depth in subsequent growth is common to all four regressions" Fundamental changes in the nature of the developed world countries' economies as well as the business types that the corporations are engaged in are stated to "present a significant challenged to screening an affective SRI mechanism" according to Jorgensen (2000)