Our world is increasingly being shaped by forces of globalization. But globalization of trade and investment has not been embraced by everyone unanimously because just as there are benefits, there are certain shortcomings as well.
One of the benefits of globalization of trade and investment is bigger markets for the products and services of multination companies. This doesn’t only enable companies to increase revenue but also profitability, in part due to economies of scale. Another benefit of globalization of trade and investment is lower price levels in developed countries because many multinational companies import products or outsource production to developing countries with lower labor costs. Globalization of trade and investment has also increase average income levels in emerging economies like India and China. Another benefit of globalization of trade and investment is increasing cross-cultural interaction among people from different countries. It has also increased interdependence among countries which has decreased the prospects of wars.
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But there are shortcomings to globalization of trade and investment as well. Some are concerned this may be harming the environment in developing countries as multinational companies are not subjected to strict environmental regulations which they face in home countries. Multinational companies have also been accused of exploiting labor in developing countries by paying low wages as well as providing accident-prone work environments. Another criticism of globalization of trade and investment is that it has created jobs in developing countries at the expense of jobs in developed countries as a result of outsourcing. Globalization has also been criticized because economic interdependence may have increased economics risks as was witnessed during the recent financial crisis.
It is clear globalization of trade and investment has both benefits and shortcoming. The benefits include bigger markets for products and services of multinational companies, lower price levels in developed countries, and rising income levels in emerging economies. The shortcomings include environmental costs in developing countries, exploitation of labor in developing countries, and increased economic risk due to increased economic connectivity among countries.
