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How Globalization Affects Developed Countries

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48 views8 pages

How Globalization Affects Developed Countries

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raiasad284
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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ECONOMICS MACROECONOMICS

How Globalization Affects Developed


Countries
By NICOLAS A. POLOGEORGIS Updat ed Sept ember 25, 2023

Reviewed by MICHAEL J BOYLE

Fact checked by KIRS T EN ROHRS S CHMIT T

Globalization has shown relatively steady and rapid progress due to


technological advancements with increases in speed and scale, enabling
engagement among all five continents. Globalization allows businesses
or other organizations to create influence and develop operations in many
regions.

KEY T AKEAWAYS

Globalization allows businesses or other organizations to create


influence and develop operations in many regions.
Globalization combines gross domestic product (GDP),
industrialization, and the Human Development Index (HDI).
Developed nations benefit from globalization in production, Ad
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international trade, and the financial markets.

How Globalization Affects Developed Countries

What Is Globalization?
Globalization expands business operations worldwide and is facilitated by
communications, technological advancements, and socioeconomic,
political, and environmental developments. It gives organizations a
superior competitive position and lower operating costs to increase Ad
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products, services, and consumers.

This approach to competition is gained via diversification of resources,


new investment opportunities, and new raw materials and resources.
Diversification strengthens institutions by lowering organizational risk
factors, spreading interests in different areas, taking advantage of
market opportunities, and acquiring companies horizontally and vertically.

Industrialized or developed nations are countries with a high level of


economic development and meet certain socioeconomic criteria based
on gross domestic product (GDP), industrialization, and human
development index (HDI) as defined by the International Monetary Fund Ad
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(IMF), the United Nations (UN) and the World Trade Organization (WTO).

Components of Globalization
GDP is the market value of all finished goods and services produced
within a country's borders in a year and serves as a measure of a
country's overall economic output.
Industrialization is a process driven by technological innovation that
effectuates social change and economic development by
transforming a country into a developed nation.
The Human Development Index comprises a country's population's life
expectancy, knowledge, and education measured by adult literacy and
income.
Global Strategies Ad
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Businesses that compete globally must develop strategies to balance the
rights and interests of the individual and the community. This change
enables businesses to compete worldwide and signifies a dramatic
change for business leaders, labor, and management.

Diversification
Risk reduction via diversification can be accomplished through company
involvement with international financial institutions and partnering with
local and multinational businesses.

Reorganization
Businesses must reorganize at the international, national, and sub- Ad
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national levels in production, international trade, and the integration of
financial markets. The transformation of production systems affects the
class structure, the labor process, the application of technology, and the
structure and organization of capital. Business expansion will no longer
imply increased employment.

Financial Markets
Globalization of product and financial markets means an increased
economic integration in specialization and economies of scale, which
results in trade in financial services through capital flows and cross-
border entry activity.
Technology Ad
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Telecommunication and information availability have facilitated remote
delivery and provided new access and distribution channels while
revamping industrial structures for financial services by allowing entry of
non-bank entities, such as telecoms and utilities.

Deregulation
Deregulation is the liberalization of capital accounts and financial
services in products, markets, and geographic locations. It integrates
banks by offering a broad array of services, allows entry of new providers,
and increases multinational presence in many markets and more cross-
border activities.

Benefits of Globalization
The impact of globalization on the economic growth of a nation depends
on trade, capital flows, GDP per capita, and foreign direct investment (FDI).
Studies have examined the effects of several components of
globalization on growth using time-series cross-sectional data on trade,
FDI, and portfolio investment. Overall, economists support globalization as
a prime position for growth. Trade and foreign direct investment also
result in higher growth rates. A strong correlation exists between the
openness to trade flows and the effect on economic growth and
performance.
Ad
Important: Globalization provides opportunities for reducing
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macroeconomic volatility on output and consumption via risk
diversification.

How Do Businesses Thrive in a Global Market?


In a global economy, a company can command tangible and intangible
assets that create customer loyalty, regardless of location. Independent
of size or geographic location, a company can meet global standards and
tap into global networks, thrive, and act as a world-class thinker, maker,
and trader by using its concepts, competence, and connections.

Are the Benefits of Globalization Equal Among Nations?


Less wealthy countries from among the industrialized nations may not
have the same highly-accentuated beneficial effect from globalization as
wealthy countries, measured by factors such as GDP per capita.
Domestic industries in some countries may be endangered due to the
comparative or absolute advantage of other countries in specific
industries. Another concern is the overuse of natural resources to meet
higher demands in production.

What Are the Effects of Free Trade in a Global Marketplace?


Although free trade increases opportunities for international trade, it also
increases the risk of failure for smaller companies that cannot compete
globally. Additionally, free trade may drive up production and labor costs,
including higher wages for a more skilled workforce, which can lead to
outsourcing jobs from countries with higher wages.

The Bottom Line


Globalization provides opportunities for reducing macroeconomic
volatility on output and consumption via diversification of risk. The
globalization effect indicates that financial integration helps in a nation's
production base and leads to an increase in the specialization of
production. Globalization can give companies a competitive position and
lower operating costs.

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