Political Economy and Development (Essay Sample)

POLITICAL ECONOMY AND DEVELOPMENT
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Benefits and Risks of Globalization of Trade
Benefits of Globalization of Trade
The first major benefit of globalization of trade is that it has facilitated free trade. Free Trade is where countries can produce goods and resources, and exchange them with other countries freely. This has enabled countries to produce goods and services, which they have a competitive advantage in, and specialize in the same. Due to Free Trade, the opportunity cost of doing some businesses over the others is usually very small. Companies easily make a decision on the products that they will produce at the expense of others. The consumers get products or services at a much lower cost since they can buy from a variety of countries. The other advantage is increased the number of choice of goods that any individual will buy since different countries have different goods and products that they bring onto the market (Broner & Ventura, p. 49).
The producers in every country are also at an advantage, as they can get enough market for their products and services. With Free Trade in the world, producers can produce their products or services to people in different parts of the world. This has also increased competition in the world. Most companies are producing similar products and are doing so in large scale. These companies take these products into the same market, making competition very intense. With increased competition, the companies increase the quality of their products and reduce the prices of their products. This means that people will get better quality prices at very competitive prices (Boudreaux, p. 14).
With globalization of trade, international companies can easily specialize in producing some goods or product, and do so in one position. By doing this, producer will increase their economies of scale. This in turn leads to reducing the costs of production, something that easily causes a reduction in prices of these goods. With globalization of trade, they can produce many products, which are sold across the world.
With globalization of trade in the world, there is increased flow of cash. International business people can bring more money into their countries, something that increases the flow of money (Boudreaux, p. 15). This could lead to growth of the economy of their countries. In addition to this, local companies grow to become multinational companies, through trade across the world. The growth of companies is closely related to growth in investment, something that also benefits the economy. Governments can reap from the taxes on these companies and employment rates in the country are increased.
The last advantage of globalization of trade is that it has intensified relationships of people across different parts of the world, such that people can share ideas and technology easily. People have been able to identify new technologies, something that has reduced the barriers between different countries. Countries that have been fighting against each other are now trading freely with each other. Trade has broken most barriers between countries.
Risks of Globalization of Trade
Despite the identified benefits, globalization of trade is not without risks. While engaging in trade, it is impossible to evade globalization. The first associated risk is that of inequality. Globalization of trade involves unequal opportunities in both wealth and income. These grow at different rates depending on whether it is the urban or rural areas (Broner & Ventura, p. 80). A second risk related to globalization of trade is inflation. Increased demand for food and fuel leads to increased prices. For instance, agflation entails the inflation in food prices. Inflation has the effect of risking the poor. Globalization also has the risk of macroeconomic instability. Where interest rates are low and credit services easily accessible, the share prices are expected to rise. Where speculations on credit fail, the poor states are disadvantaged as they are at a higher risk of vulnerability (Yu, p. 1168).
The growth and globalization of trade also have the risk of trade imbalances. There are several cases of trade having surplus. Such has led to tension and pressure, thus necessitating policies that govern the same. These policies, if well identified and implemented would go a long way in curbing the risk of trade imbalances. Globalization in trade has led to risks relating to the environment. This is among the long-term risks that globalization may cause. The risk is associated with the increased and rapid growth and development. Globalization of trade in most cases causes threats that are irreversible (Yu, p. 1179). Examples of such are land degradation, deforestation, permanent water shortage and losing biodiversity. Such environmental effects have negative impacts on the lives of individuals.
Globalization of trade also has the risk of unemployment. The position is that jobs and investments have the effect of draining the economies of the countries that are involved, in most cases developing countries. In cases where production is transferred to new areas, there may be loss of job for some people as a new environment may require fewer employees. In addition, there are areas where the labor costs per unit may be lower. In such cases, the people may lose jobs or face a reduction in their earnings. This highly affects the government and has an effect of pressurizing the set budgets and increasing the deficits faced.
Globalization of trade also has the risk of poor infrastructure. The physical infrastructure required to achieve economic development such as means of transport, power amongst others may be inefficient. Such infrastructural problems make trade impossible owing to the high costs when transporting trade materials. Further problems would be in relation communication where information cannot be exchanged as and when required. Another risk that faces globalization of trade is the inadequate financial support. Though financial aid is available to traders, it is not always there when they need it (Yu, p. 1180).
There are instances where traders lack financial aid when they need it. This poses a great risk to the trade. Without sufficient financial aid, globalization of trade is difficult to be achieved. In relation to this financial aid is the support that the traders require from their respective governments. Most governments do not adequately provide for their traders thus leaving them at risk. The respective governments, therefore, need to provide for their national traders. Additionally, in the case international expansion will be sought, the governments involved need to agree and deal with any likely risk that would otherwise hinder the globalization of trade.
Drivers of Globalization in MINT Countries
Market Drivers
The degree of homogeneity matters when it comes to driving globalization. It is necessary to have the demands of the customers met. In the MINT countries, the customers have increasing demands for several goods and services that are produced across the world; this means that the scales for marketing different products and services in these countries are widened.
In these MINT countries, the per capita income favors the market, such that a good number of people have enough disposable income, something that has enhanced marketing in these countries. Multinational countries can easily bring their products and services to any of these countries, something that could easily drive globalization in these countries.
The next factor is that the lifestyles of the people and their tastes of some goods and products agree. Most people in these countries have very similar demands for specific goods and services, such that companies and individuals seeking to deliver certain products into these countries can do so comfortably. A country with people with similar lifestyles and taste provides a very good market for goods that are similar, and these can easily be supplied in huge numbers (Singh, p. 67). For instance, people with similar tastes will only be supplied with products and services of that taste, something that is very economical. It would be very uneconomical, for the companies, to supply several varieties of products to suit different tastes. For example, in Nigeria people are increasingly importing products from China, more so due to their relatively low prices. This has intensified international trade between the two countries.
Cost Drivers
The important aspect of cost that drives globalization is that of the economies of scale. These countries offer adequate allowance for increasing the economies of scale since they have high populations, with people demanding similar types of products and services (World, 90). This means that the economies of scale would be on the side of the suppliers, making these countries very attractive for international business.
These countries are also very good technological hubs, something that has also reduced the costs of doing business in the countries. Technology is one of the factors that reduces the costs of running business. These countries have heavily invested in technology, meaning that international companies seeking to do businesses in the countries have the necessary technological support to do so.
Transportation is another factor that drives globalization in a country. These countries have very organized transports systems, such as air, water, rail and road. These developed transport systems have made it very easy for international companies to move products and services closer to the market, where they sell it to the people. Movement of goods and services to other parts of the world has been boosted by transport, something that has facilitated international trad...