Drivers of Globalization

The key factors seem to underlie the trend towards the increasing globalization of markets and production are the decline of barriers to trade and investment and the role of technological changes.

1. Decline of Barriers to Trade and Investment Decline in Trade Barriers

Many of the barriers to international trade took the form of high tariffs on imports of manufactured goods. However, this depressed world demand and contributed to the great depression of the 1930’s.

After World War II, the industrialized countries of the West started a process of removing barriers to the free flow of goods, services, and capital between nations. Under GATT, over 140 nations negotiated even further to decrease tariffs and made significant progress on a number of non-tariff issues (e.g. intellectual property, trade in services). The most recent round of negotiations known as Uruguay round was competed in December 1993. The Uruguay round further reduced trade barriers, covering services as well as manufactured goods provided enhanced protection for patents, trade marks and copyrights and established WTO to police the international trading system. With the establishment of the WTO, a mechanism now exists for dispute resolution and the enforcement of trade laws. Average tariff rates have fallen significantly since 1950’s, and under the Uruguay agreement, they have approached 3.9 percent by 2000.

This removal of barriers to trade has taken place in conjunction with increased trade, world output, and foreign direct investment.

Decline in Investment Barriers

The growth of foreign direct investment is a direct result of nations liberalizing their regulations to allow foreign firms to invest in facilities and acquire local companies.… Read the rest

Faces of Globalization

A fundamental shift is occurring in the world economy. The world is getting closer in terms of cross border trade and investment, by distance, time zones, languages and by national differences in government regulation, culture and business systems and toward a world in which national economies are merging into one huge interdependent global economic system. Globalization is affecting firms that previously operated in a nice, easy, protected national market. It also illustrates the increasing importance of thinking globally. Globalization is the trend toward a more integrated global economic system. Globalization is also termed as the shrinkage of economic space. The rate at which this shift is occurring has been accelerated recently.

Two Faces of Globalization

Globalization has two faces:

1. Globalization of Markets

Globalization of markets refers to the fact that in many industries historically distinct and separate national markets are merging into one huge global marketplace.

There is a movement towards a globalization of markets, as the tastes and preferences of consumers in different nations are beginning to converge upon some global norm. The global acceptance of Coca-Cola, Levi’s jeans, Sony Walkmans, and McDonald’s hamburgers are all examples. By offering a standard product worldwide, they are helping to create a global market. Even smaller companies can get the benefits from the globalization of markets.

Despite the global prevalence of global brands such as Levis, City Bank, Pepsi etc, national markets are not disappearing. There are still significant differences – Germany still leads in per capita beer consumption, with a local pub on almost every corner and in some cities, women selling beer out of their front windows to passers by on the street.… Read the rest