Globalisation refers to the increasing integration between economies across the globe. Its influence not only over the flow of goods and services, but also capital, technology and labour, has seen significant impacts on economic growth and development. These impacts, however, are not only positive but also negative.

Positive Effects of Globalisation

Globalisation impacts economies in various profound ways, from boosting economic growth to altering the structure of economic sectors. Beneficial effects of globalisation on economic growth and development include:

Increases in Trade and Investment

Globalisation has led to a significant increase in international trade and foreign investment. Economies open to free trade experience growth through expanded markets for their exports. Additionally, an increase in the inflow of foreign investment also causes an increase in economic growth. This is because exports $(X)$ and investment $(I)$ are components of aggregate demand $(AD=C+I+G+(X-M))$. By extension, an increase in aggregate demand results in an increase in economic growth.

According to the World Bank, global exports of goods and services are estimated to represent approximately 28.88% of global GDP. This is a significant increase from 1990, where global trade made up about 19% of global GDP. This shows the shift toward globalisation over the last few decades due to its effects of increasing economic growth. The following graph displays the global trade volume over the last few decades.

The graph illustrates a significant increase in trade, demonstrating how globalisation has expanded international trade activities substantially from the 1990s to the present.

However, there are also downsides to globalisation. As the world is increasingly interconnected by trade, global events have ripple effects. For example, trade as a percentage of GDP has decreased about 2% since 2019. This can be attributed to catastrophic world events, such as COVID-19 and the Russia-Ukraine war, as global supply chains have been disrupted.

Technological Advancement

Technological advancement has propelled globalisation in the last few decades, allowing for countries to be increasingly connected at cheaper rates at faster and more reliable speeds. This has allowed for developing countries to access advanced technologies and production methods. As a result, economies in general experience an increase in economic growth, with production becoming more efficient, therefore allowing for trade increases.

A study by the World Intellectual Property Organisation (WIPO) found that technology transfer through trade, FDI, and licensing has contributed to the catch-up growth of developing countries. This is seen through the increase in global research and development expenditure by developing countries. This is evident in a 17% increase in R&D expenditure from 17% in 1996 to 40% in 2017.

Employment and Labour Markets

Globalisation has affected labour markets by creating new job opportunities in export-oriented industries. Additionally, it has facilitated the increase in the mobility of labour. In a post-COVID world, people are now able to complete jobs remotely. Thus, we see people working for companies in other nations completely online. This has been improved by advancements in technology, allowing for online conference calls.

Cultural Exchange

Alternatively, globalisation has not only had economic effects but social effects. Essentially falling under the category of economic development, increased globalisation has resulted in cultural exchanges between nations. This has come as a result of tourism and overseas education. As a result, economic growth can also increase, as when people travel to foreign countries, they are bringing in an influx of money to that specific economy.

Negative Effects of Globalisation:

Negative effects of globalisation on economic growth and development include:

Inequality and Distribution:

Globalisation can cause rising income and wealth inequality as skilled workers and capital owners can reap disproportionate gains. A report by the World Inequality Lab found that the share of global income going to the top 1% of earners has increased from 16% in 1980 to 22% in 2016. This displays the disproportion between high and low income earners as the share of income going to the bottom 50% has decreased from 8% to 10% over the same period.

Environmental Degradation:

Rapid economic growth fuelled by globalisation often comes at the cost of environmental degradation. Increased production, consumption, and transportation contribute to air and water pollution, deforestation, and climate change. A study by the Intergovernmental Panel on Climate Change (IPCC) found that international trade has been responsible for around 30% of global carbon dioxide emissions, with emissions embodied in traded goods and services growing faster than overall emissions. You can find out more about this study on the IPCC website: IPCC Study

However, governments across the globe are attempting to combat these problems through policy implementations. For example, Australia's net zero emissions policy is a target where Australia aims to have zero carbon emissions by 2050.

What are the Policy Implications in Regards to Globalisation?

Addressing the negative effects of globalisation while attempting to gain its positive potential requires thought-out and balanced policymaking decisions. Considerations include: