economic logic of globalization

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  • 8/12/2019 Economic Logic of Globalization

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    Economic Logic of Globalization:

    Globalization is the process of integrating countries and increasing the cooperation between

    them. It leads to greater free trade, movement of labor, enhanced capital flows and growth ofmulti-national and transnational companies. There are several costs and benefits associated with

    globalization.

    Benefits:

    Free Trade: International trade allows countries to produce those goods in which they

    have a comparative advantage. This leads to production of a larger variety of goods at

    lower cost. The size of the market increases due to export opportunities and specialization

    leads to economies of scale. It promotes competition and efficiency in the market.

    Free Movement of Labor: Free movement of labor is beneficial to both the workers and

    recipient countries. It reduces geographical inequalities and if a country is going through

    high employment there are work opportunities elsewhere.

    Increased economies of Scale: As countries specialize in the production of commodities

    that they have a competitive advantage in and the size of production increases they

    experience economies of scale. Economies of scale are advantages that come by

    increased size of production like cheaper supplies, improved Research and Development

    that reduces average cost.

    Greater Competition: As a country is opened to trade domestic monopolies cannot exploit

    consumers as they face competition from foreign firms.

    Increased Investment: Globalization leads to capital flows between different countries.Investors can channelize their surplus funds this helps in the economic development of

    nations.

    Costs:

    Free Trade can harm developing countries: There is an opinion that free trade can harm

    developing countries. The Infant Industry argument states that firms in developing

    economies need to be protected from foreign competition to be able to develop.

    Environmental Costs: Some people argue that globalization has resulted in pollution as it

    has increased the use of non-renewable sources of energy. However, this is not becauseof globalization but a failure to set environmental standards.

    Labor Drain: It allows workers to move freely between nations and causes migration of

    skilled labor to higher paying countries resulting in brain drain.

    Less Cultural Diversity: Globalization has led to a convergence and amalgamation of

    different countries and cultures which has resulted in reduced diversity.

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    Tax Avoidance: To increase investments countries reduce corporate taxes which enable

    TNCs and MNCs to set up offices in these countries and save taxes on profits.

    Economic Logic of IPL:

    The Indian Premier League (IPL) took advantage of the increasing popularity of shorter forms of

    cricket. IPL embodies the principles of globalization by involving different nations. It promotes

    international integration as it has players from all over the world (the maximum number of

    foreign players in a team is 4) and is also now focusing on conducting it in South Africa. The

    IPL was conducted in South Africa in 2009 as there were security issues due to general elections

    in India.

    IPL makes use of the global popularity of cricket as a sport and caters to a worldwide audience.It earns maximum revenues by selling its broadcasting rights in different countries. IPL also acts

    as a stimulus to the economy as it increases tourism and is a profitable time for small vendors.