Drivers of Globalisation since the 1970s

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    Business
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    Undergraduate
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3Drivers of Globalisation since the 1970s

Drivers of Globalisation since the 1970s

Drivers of Globalisation since the 1970s

Introduction

Globalisation in this context has been used to refer to international integration in labour, capital and commodity markets. Through the use of integration as the main benchmark within these international markets, globalisation is not entirely a new phenomenon. This article offers a reflection of the drivers of globalisation after the Second World War. Rapid trade, as well as outputs, has grown together with major shifts in the relative sizes of the world’s major economies. One of the most important values of globalization from the past is that the process has not been smooth. It has been marked with observed periods of accelerated integration and by periods of dramatic reversals that are sometimes related to costly consequences (Sweeney, 2012). The international business entered into long periods of record expansion with the world’s merchandise exports rising by more than eight percent every year since the 1970s. Trade growth has slowed down under the impact of the two oil price shocks, a burst of inflation that results from monetary expansion and inadequate macroeconomic adjustment policies.

Globalisation

According to Hill (2015), globalisation is a shift towards an integrated as well as interdependent world economy that has two major components. These components include the globalisation of markets, which is the merging of the historically distinct and separate markets into one colossal global marketplace. The second is the globalisation of production, which is the sourcing of various goods and services from different locations across the world in taking advantage of the national differences in the quality as well as cost the cost of the major factors of production. It came to my realization that, the two discussed factors underlying the trends in globalisation are the decline in the limitations of the free flow of goods. There is also the barrier of capital as well as the provision of services since the end of Second World War as well as the technological changes in communication, information, processing as well as transportation since the 1970s. I have been able to witness several industrial nations, especially in Asia and the middle east, create general agreements on common tariffs and trade to remove existing barriers that hinder the free flow of capital, products, and services (Buckley, 2011). The establishment of World Trade Organisation (WTO) to police the international trading system has turned out to be one of the significant drivers of globalisation since the 1970s. The member states have often negotiated to ensure the lowering of trading barriers to allow for free flow of goods and services amid the countries. This has made globalisation a theoretical possibility as well as a technologically advanced change that has made it a tangible reality (Hill, 2015).

A vital driver to globalisation has been the collapse of the Communist power in Europe and the move towards a free market economy in China as well as the Latin America. This has created opportunities for most of the international businesses. I have considered the fact that, if all the world states liberalised their main economies through opening foreign trade as well as investments, it is evident that they all would benefit from such a move. This means that the major benefits, as well as efficiency of the free market, are the main route of the globalisation concept (Khan & Iftekhar, 2014).

Theories of Trade, Investment and Internationalisation

The development of transitional companies throughout the world start with the theories of international trade, whereby, from time to time, the theories of foreign direct investments and the theories of firm Internationalisation have been considered in the major drivers of globalisation since the 1970s. Before, the 1970s, neither the theories of international trade nor the foreign direct investments were sufficient enough to give an insightful movement of products and services as well as financial flows in the multinationals (Meiselles, 2013). However, the theory of Internationalisation has for the past years become more and more part of international trade. A good example I would consider is the factor of respect being the major theory of gaining a competitive advantage that ultimately integrates both the macroeconomic as well as the microeconomic approaches. The theory of absolute advantage for insight has been brought to my attention. This is where a country may produce cheap products than other countries. That means country specialisation in the production of goods with smaller costs and the production of the surplus can help in benefiting all the countries equally (Böss, 2010).

The Political Economy of Trade and Investment

The aspect of political economy presents a description of the reality of international trade as it deviates from the theoretical ideas of free trade. There are various political interventions and economic arguments that also act as the main drivers of globalisation in the world. I have come to a conclusion that, while the main policy of free trade as the major driving force of globalisation in the world since 1970 has been considered, there may not always be a theoretically optimal policy given the existence of political arguments (Mansfield & Milner, 2012). However, practically, it may be the best driver of globalisation for most governments to pursue. Every government has a political interest in globalisation and in the long run, these interests affect the business community and the consumers who are best served by the strengthening the international institutions such as the WTO (Hill, 2015).

With the dangers associated with protectionism, there might escalate into trade wars between States. However, businesses may have far much more to gain from political economies, trades and investments as opposed to the governmental effects to protect domestic industries from foreign competition. The effects of the changes in the tariffs among member states include the rise in the cost of imported products which gains accrue to governmental revenues and the producers. Lowering of costs and subsidies ultimately help the producers to compete well and gain export markets (Hawkins, 2016).

Foreign Exchange and Finance

The foreign exchange market provides a useful driver of the foreign exchange market and finance. This is used in the conversion of currency from one countries form of currency to the other. Foreign exchange provides insurance against foreign exchange risks and the adverse consequences of any given unpredictable changes within the exchange rates (Baker & Leigh, 2013). The events that follow foreign exchange market largely affect the sales, profits and the strategies of most multinational corporations. I have to mention that, I have noted an additional factor that drives the growth in cross-border asset trade among the world economics. The creation of the Euro has created a single market in Europe in the provision of better financial services. The impact of the monetary union has effectively integrated money as well as credit makers across the member states. This has created a high degree of sustainability for globalisation with increased financial trade within the Euro areas (Kissane, 2015).

Conclusion

I appreciate the fact that, the trends in globalisation have brought dramatic changes in the world output and the world trade picture which incorporates foreign direct investments and ultimately world order. The United States, for instance, has accounted for almost 27% of the world’s output given that in the early 1960’s the country was a world’s dominant industrial power. However, there has been a relative decline since the 1970’s reflecting on the faster economic growth of some other countries within Asia. Through the 1990s, it is evident that the amount of investments, which have been directed towards the development of other countries, has largely been considered as the major Key for driving the aspect of globalisation. It is clear that firms from the developed world economies are still dominating the ranks of the world’s largest top one hundred multinationals.

References

Baker, H.K & Leigh, A.R (2013). International Finance: A Survey. Oxford University Press: London.

Böss, M. (2010). The Nation-State in Transformation: Economic Globalisation, Institutional Mediation and Political Values. Aarhus University Press: Aarhus, Denmark.

Buckley, P. (2011). International Integration and Coordination in the Global Factory. Management International Review, Vol. 51, No. 2, 163-196.

Hawkins, R. (2016). Smart Globalization: The Canadian Business and Economic History Experience. British Journal of Canadian Studies, Vol. 29, No. 1, pp 126-231.

Hill, C. (2015 (9th edition)). Global Business Today. McGraw-Hill Education: New York.

Khan, A & Iftekhar, M.B (2014). A Study of Drivers, Impact, and Pattern of Foreign Direct Investment in India. The Journal of Developing Areas, Vol. 48, No. 4, 214-236.

Kissane, B. (2015). After Civil War: Division, Reconstruction, and Reconciliation in Contemporary Europe. University of Pennsylvania Press: Pennsylvania.

Mansfield. E.D & Milner, H.V (2012). Votes, Vetoes, and the Political Economy of International Trade Agreements. Princeton University Press: Princeton, NJ.

Meiselles, M. (2013). International Commercial Agreements: An Edinburgh Law Guide. Edinburgh University Press: Edinburgh .

Sweeney, P. (2012). An Inquiry into the Declining Labour Share of National Income and the Consequences for Economies and Societies. ournal of the Statistical and Social Inquiry Society of Ireland, Vol. 42, pp. 96-124.