Economic Globalization (Meaning and Explanation)

We explain what economic globalization is, its characteristics and examples. Also, its advantages, disadvantages and consequences.

What is economic globalization?

Economic globalization is the international integration of national economies and the free flow of capital between countries facilitated by free trade agreements, the growth of multinational companies and the development of transportation, telecommunications and computing technologies.

In this sense, economic globalization consists of the rapid and significant increase in international operations and transactions: exchange of goods, services, technologies and capital. It includes the internationalization of production, the financial market, the flow of large capital, the exchange of information and technology, the dynamics of cooperation and competitiveness, and employment.

Although it has antecedents that go back at least to the so-called “age of discoveries”, between the 15th and 17th centuries, economic globalization is a contemporary phenomenon that It developed especially after the Second World War (1939-1945), and more strongly after the end of the Cold War, at the end of the 20th century. Never before has humanity been able to trade with such distant corners of the planet or work at such a distance as now.

In this way, the contemporary economic fabric has become extremely complex. Economies that were not traditionally related have been integrated and new forms of exchange, investment and financing emerged that challenge the ideas of the national, borders and sovereignty.

economic globalization refers to the productive, commercial and financial aspects that are part of the broader phenomenon of globalization which tends to overcome national borders and distinctions, marching towards an integrated planet that operates as a single system of relationships. Economic globalization is one of the four most important aspects of the general trend toward global integration, along with political globalization, social globalization, and cultural globalization.

The process of economic globalization seems to be irreversible, and brings with it great benefits and facilities, but also enormous risks and disadvantages.

Characteristics of economic globalization

The main characteristics of economic globalization are the following:

International economic integration. Economic globalization consists of the interconnection and interdependence of the economies of the different countries of the world, through commercial exchanges, capital flows and the internationalization of production.
Global financial system. The international movement of capital is supported by a series of agreements and financial institutions that enable investment and marketing on a global scale.
free trade agreements. The movement of goods and capital is achieved in many cases with the signing of free trade agreements that allow national barriers or borders to be overcome, and with the assistance or supervision of international organizations such as the World Trade Organization (WTO).
Multinational companies. Global integration goes hand in hand with the expansion of large multinational companies, which have their headquarters in a specific country, but establish subsidiaries in various parts of the world and market their products globally.
Relocation of production. Some multinational companies implement production relocation, which consists of installing their factories in less developed countries to reduce labor costs.
Information and communication technologies. Economic globalization depends largely on new information and communication technologies (ICT), such as computing and the Internet, which facilitate economic and financial operations on a global scale.

You can also see: Characteristics of globalization

Advantages of economic globalization

economic globalization advantages — Globalization allowed the economic growth of some previously impoverished countries.

Economic globalization is a process full of opportunities, which can allow the mobility of goods and money around the world. Among its main advantages are the following:

Economic growth and wealth generation. With globalization, new markets open, either due to the new scope of productive and commercial initiatives or due to the emergence of new types of employment, service areas and forms of exchange. This is leading to a decrease in global poverty, especially in previously impoverished countries such as China, India and Bangladesh, although poverty remains high in many regions of the world.
New forms of consumption. One of the greatest advantages of economic globalization has to do with the ability to exchange goods, services and information in the fastest, most far-reaching and massive way in history. Electronic shopping, digital commerce and virtual work have revolutionized the way of consumption irreversibly.
New supply chains. The international flow of raw materials, technology and labor allows for new productive mechanisms, which take advantage of global economic differences. Thus, for example, a company from a certain country can find cheaper labor in other latitudes, which translates into greater profits and new markets in which it is possible to invest.
New global economic actors. With the reduction of poverty and the opening of new markets, new economic powers are emerging capable of rivaling or serving as a counterweight to traditional ones, as has happened with the trade war between China and the United States. This allows for a more economically diverse world.

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Disadvantages of economic globalization

Economic globalization brings with it risks, dangers and problems, many of which did not exist before. Its main disadvantages are:

capital flight. Capital flight is called the massive, rapid and disorderly departure of assets or capital from one nation to another, which usually produces a forced devaluation of the local currency and a weakening of the economy, since the wealth is literally leaving. , outwards. All of this is easier than before due to the globalization of banking, financial and investment processes.
Worker vulnerability. Economic globalization gives strength to large multinational companies, which, by establishing themselves in other countries and employing local labor, can avoid the labor legislation of the country of origin. Furthermore, they can keep their workers precarious and poorly paid, or even have abusive policies, since their economic power often prevents governments from standing up to them.
unfair competition. Monopolies and unfair competition between companies intensify and become a global phenomenon, since there is no single government capable of stopping them, and the limits of one jurisdiction end where those of another begin, something that does not happen with the capital, which tends to flow freely between nations.
Tax havens. Economic globalization makes it possible to shelter large capital in countries whose tax legislation is more lax and where little research is done on the origin of the funds. This, in practice, represents a useful space to house corruption money and evade taxes, thanks to the banking secrecy regime.

Consequences of economic globalization

The main consequences of economic globalization are the following:

Facilitates international movement both people, goods and capital, which promotes business and the generation of wealth.
Promotes economic growth in developed countries due to the extension of free trade that allows them to export valued goods and access less expensive resources and labor.
Promotes the economic development of less developed countries which receive foreign capital investments and authorize the installation of multinational companies that generate jobs.
Generates greater access for the population to goods and services from around the world with affordable prices that allow many people to raise their standard of living and promote consumption in areas such as tourism and international travel.
Causes an increase in inequality between countries with significant differences in the quality of life of the population depending on the level of development of their economy, and keeps many people in poverty despite the global increase in wealth.
Gives great power to multinational companies which causes smaller local businesses to close and allows them to impose conditions on national governments to satisfy their economic interests.
Enables the outbreak of global recessions since the level of integration of the markets means that a crisis in a region has an impact on the world economy.
Causes job insecurity and instability when multinational companies set up shop in less developed countries to reduce costs, which can generate unemployment in the country of origin or low-paid jobs in the destination country.

Examples of economic globalization

economic globalization examples — The market for companies like Google is not restricted to one country or one region.

Some clear examples of economic globalization are the following:

Banks with global presence. Banking internationalization can be seen in the growing presence of large Chinese banks in America and Europe: Industrial and Commercial Bank of China (ICBC), China Construction Bank Corporation (CCB) or Bank of China. These large financial institutions displaced other smaller local and regional companies thanks to the support of the Chinese government, since they are state-owned banks.
Franchises of multinational companies. A classic example of economic globalization are the franchises of large multinational companies established in the most diverse regions of the world, such as McDonald's or Starbucks. These franchises are usually found on all continents and, in the case of McDonald's, it has a presence in more than one hundred countries.
Technological giants. Another example of economic globalization is technological giants such as Apple, Huawei or Google, digital operation or telecommunications companies, whose market is no longer restricted to a country, or even a region. Like the McDonald's chain, they are everywhere and have participation in all markets, where they take advantage of labor and economic differences between countries to maximize their profits and take advantage of their competitors.
Big brands. Some brands that are characteristic of economic globalization are those that have achieved strong international recognition and are sold in many countries around the world, such as footwear and sports clothing from the American multinational Nike. This company has factories in several countries, especially in Asia, where it usually obtains cheap labor and tax benefits, although following a series of complaints they have begun to implement audits to comply with labor standards.
Digital buying and selling platforms. Digital platforms and applications for buying and selling products or services are another clear example of economic globalization. From almost anywhere in the world, goods offered in remote countries can be purchased directly through platforms such as Amazon, eBay or AliExpress. You can also hire services streaming or entertainment offered by companies such as Netflix and income can be generated through social media monetization mechanisms such as YouTube.

World actors of economic globalization

The main actors participating in economic globalization are:

International non-governmental organizations ( NGO ). They are organizations with headquarters and activity in multiple countries, which generally pursue non-profit purposes, without national governments participating in them. For the most part, they have a humanitarian nature and are financed by donations and collaborations, which allows them a certain margin of freedom of action.
International Government Organizations (IGO). They are organizations created by the signing of treaties or agreements between the different countries of a region or the world, in whose activity the signatory States have a say and which normally have an important role in the mediation of disputes or the coordination of policies.
Multinational or transnational corporations. They are large companies with a presence in numerous countries around the world, capable of mobilizing enormous investments in capital, materials and human resources, and whose interests can clash with those of States. These great economic powers also tend to monopolize entire sectors of the market and exert influence on other areas of society, such as culture and politics.

Beginnings of economic globalization

Although economic globalization is a recent phenomenon, it has certain important antecedents. Some historians highlight, among them, the extension of trade routes in ancient times with the conquests of the Roman Empire in the Mediterranean, and the emergence of the Silk Road that since the 2nd century BC. C. allowed the arrival of luxury products from China to the Middle East and Europe.

Later, in the so-called “age of discovery” during the Modern Age, European navigators made voyages of exploration through Africa and Asia and conquered the then called New World, that is, the American continent. From then on, a globalization process took place in which European colonial powers established sea routes to obtain raw materials and labor from their colonies, and the various continents began to become increasingly interconnected.

Other types of globalization

In addition to economic globalization, there are three other major types of globalization: political, social and cultural.

Political globalization

The tendency to integrate markets and productive activity is accompanied by associations and enmities between different States and nations. In this way, in the global world The trend towards political cooperation between countries with similar interests is accentuated. A large international organization that integrates a large part of the world's countries and intervenes on different global aspects also stands out: the United Nations (UN).

At the same time, with globalization The coordinated action of radical groups, both political and religious, increases for example, through terrorism tactics in various cities around the world or decentralized forms of war. Also characteristic of globalization is the resort to so-called “hybrid wars,” which include both conventional tactics and insurgency or counterinsurgency methods, cyberwars, and the spread of fake news.

Cultural globalization

Global exchanges of goods and services are accompanied by the dissemination and exchange of ideas, customs and values. In this context, The free flow of information brought about the creation of a new culture: culture 2.0 or Internet in which languages converge, users of different nationalities come into contact with each other and new forms of personal relationships begin to occur.

This has repercussions on traditional cultures in two ways: on the one hand, it produces the integration and adoption of many aspects of other cultures that are “imported”; On the other hand, it generates forms of resistance and consolidation of local and traditional values as a way of defending “one's own.” Both options usually occur in the same society at the same time.

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References

Lechner, F.J. (2009). Globalization: The Making of World Society. Wiley-Blackwell.
Osterhammel, J and Petersson, N. (2019). Brief history of globalization. From 1500 to the present day. 21st century.
Shangquan, G. (2000). Economic Globalization: Trends, Risks and Risk Prevention. United Nations Organization (UN). https://www.un.org/
Volle, A. (2024). Globalization. Britannica Money. https://www.britannica.com/