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Thoughts on Globalization

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Thoughts on Globalization

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  • Feb. 2013
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Globalization and Trade

Besides technological advancement that have made it possible to lower the costs of

transportation, communication, and computation to the extent that it is often economically

feasible for a firm to locate different phases of production in different countries, the

Increasing liberalization of trade and capital markets meant that more and more

governments are refusing to protect their economies from foreign competition or influence

through import tariffs and nontariff barriers such as import quotas, export restraints, and

legal prohibitions (World Bank). This trend has been particularly beneficial to industrialized

and developed countries as they have a comparative advantage in the production of

manufactured goods for which there is demand globally. On the other hand, primary

exports constitute the bulk of exports from developing countries.

According to the World bank, terms of trade deteriorated in the 1980s and 1990s because

prices of primary goods—which used to make up the largest share of developing country

exports—have fallen relative to prices of manufactured goods. For example, between

1980 and 1995 real prices of oil dropped almost fourfold, prices of cocoa almost threefold,

and prices of coffee about twofold. While some experts believe that poor policies, weak

institutions and corruption have been major factors responsible for the weak integration

and lack of competitiveness, others believe that geographical and climatic factors also

have a huge role to play in globalization. For instance, landlocked countries may not be in

a position to fully take advantage of the international trade as they have to deal with greater

transportation costs and various tariffs and legal restrictions associated with moving goods

and services across international borders, in the end this reflects in the final price of their

products and reduces their competitiveness. To reduce the...