Globalization and International Trade

Globalization refers to the growing interdependence of countries resulting from the increasing integration of trade, finance, people, and ideas in one global market place. International trade and cross-border investment flow are the main elements of this integration.

Globalization started after World War II but has accelerated considerably since the mid-1980-s, driven by two main factors. One involves technological advances that have lowered the transportation, communication, and computation costs to the extent that it is often economically feasible for a firm to locate different phases of production in different countries. The other factor has to do with the increasing liberalization of trade and capital markets: more and more governments are refusing to protect their economies from foreign competition or influence through import tariffs and non-tariff barriers such as import quotas,export restraints, and legal prohibitions. A number of international institutions established in the wake of World War II – including the World Bank, the International Monetary Fund (IMF) and General Agreement on Tariffs and Trade (GATT), succeeded in 1995 by the World Trade Organization (WTO) – played an important role in promoting free trade in place of protectionism.

Empirical evidencesuggests that globalization has significantly boostedeconomic growth in some countries (e.g. Hong Kong, Korea, Singapore). But developing countries are rather slow to integrate with the world economy because for countries that are actively engaged in globalization the benefits imply new risks and challenges. The balance of globalization’s costsand benefits for different groups of countries and the world economy is one of the hottest topics in development debate.

For participating countries the main benefits of unrestricted foreign trade stem from the increased access of their producers to larger international markets with an opportunity to benefit from the international division of labor, on the one hand, and the need to face stronger competition in world markets, on the other. In addition, an actively trading country benefits from the new technologies that “spill over” to it from its trading partners, such as through the knowledge embedded in imported production equipment. These technological spilloversare crucial for developing countries as they give them a chance to catch up more quickly with the developed countries in terms of productivity.

Active participation in international trade also entails risks, particularly those associated with the strong competition in international markets. A country runs the risk that some of its industries will be forced out of business. Reliance on foreign suppliers may be unacceptable when it comes to industries which relate to national security. In addition, developing countries often argue that recently established industries require temporary protection until they grow more competitive and less vulnerable to foreign competition. Thus governments often prohibit or reduce selected imports by introducing quotas, or make imports more expensive and less competitive by imposing tariffs. Such protectionist policies can be economically dangerous because they allow domestic producers to continue producing less efficiently and eventually lead to economic stagnation.

A country that attempts to produce almost everything it needs domesticallydeprives itself of the economic benefits of international specialization. Some diversification of production and export can be prudent even if it entailsatemporary decrease in trade. Every country has to find the right place in the international division of labor based on its comparative advantages, such as thesize of domestic market, natural resources endowment, and geographic location.

Despite the risks, many countries have been choosing to globalize their economies to a greater extent. And the way to measure the extent of this process is by the ratio of a country’s trade (exports plus imports) to its GDP (gross domestic product) or GNP (gross national product). By this measure globalization has roughly doubled on average since 1950.

from Beyond Economic Growth

Practicum 5.4

Translate the italicized word combinations in text 5a into Russian

Practicum 5.5

Practicum 5.6

Practicum 5. 7

- Consider the clothes and shoes you are wearing, and those you wore last weekend. Where were they made?

- Try to recall the meals you’ve eaten in the last 24 hours. How much of the food came from abroad? Where do your car, TV, stereo, camera, watch, and other appliances and gadgets come from? Where was the last CD you bought manufactured?

- Can you imagine living in a country that does not import anything, where only locally produced foods, textiles and products are available?

III. Communication Practice

Brainstorming