Individual companies, organizations, and workers can be disadvantaged, however, by global competition. When viewed as a whole, global free trade is beneficial to the entire system. Foreign investment also often comes with, or in the form of, technology, know-how, or access to distribution channels that can help the recipient nation. The country that receives the inflow of capital benefits because that capital contributes to investment and, therefore, to productivity. The country that’s the source of the capital benefits because it can often earn a higher return abroad than domestically. At the macroeconomic level, this international investment has been shown to enhance welfare on both sides of the equation. Increased Cross-Border InvestmentĪccording to the course Global Business, globalization has led to an increase in cross-border investment. “The conventional wisdom has been that the increased intensity of these other flows-goods, services, capital, people, and so on-have reduced the probability that the world's nations will fall back into the catastrophe of war.” 3. “Of course, as long as there have been nations, they've been connected with each other through the exchange of lethal force-through war and conquest-and this threat has never gone away,” Reinhardt says in Global Business. Due to this, increased globalization has been linked to a reduction-though not an elimination-of conflict. It’s been shown that when nations specialize in the production of goods or services in which they have an advantage, trade benefits both parties.įor a globalized economy to exist, nations must be willing to put their differences aside and work together. An example is a tropical nation that specializes in exporting a certain fruit. The ability for nations to “specialize”: Global and regional cooperation allow nations to heavily lean into their economic strengths, knowing they can trade products for other resources.Smartphones, for example, are dependent on rare earth metals found in limited areas around the world. Without this flow of resources across borders, many modern luxuries would be impossible to manufacture or produce. Access to resources: One of the primary reasons nations trade is to gain access to resources they otherwise wouldn’t have.While there are potential pitfalls to this (see “Disproportionate Growth” below), this work can significantly contribute to the local economy. Through globalization, developing nations often gain access to jobs in the form of work that’s been outsourced by wealthier nations. Access to jobs: This point is directly related to labor. Wealthier nations, on the other hand, might outsource low-skill work to developing nations with a lower cost of living to reduce the cost of goods sold and pass those savings on to the customer. Developing nations with a shortage of knowledge workers might, for example, “import” labor to kickstart industry.
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