Advantages and Disadvantages of Globalisation

Topics: Economics, Unemployment, Wage Pages: 2 (702 words) Published: November 3, 2008
One advantage of economic globalisation comes from the free trade. “Two nations can benefit from free trade by specializing in producing those products in which they enjoy a comparative advantage” (Case & Fair 2004, p.716). A country enjoys a comparative advantage in the manufacturing of a good if the production has a lower opportunity cost than it would have if produced in other country. When specialization takes place in a production, the production will become more efficient. It is due to research and development which aids in improving the production and minimizing the cost of production. This will thus stimulate the domestic economy (Case & Fair 2004, p.716).

Another advantage of economic globalisation is world output will increase due to free immigration of labours. Immigration of labours happens because of the high wages offered and the job opportunities in a local country. When local firms hire these labours, their cost of production reduces, assuming that each labour has the same efficiency. This leads to an increase in productivity in the country and thus, there will be more total output which leads to expansion in world output (Case & Fair 2004, p.720). For example, a firm in Malaysia uses 5 workers to produce 10 shoes and their total wages are RM1000. If that firm hires 10 immigrants to produce the same amount of shoes with the same amount of wages, the production of shoes actually increases without any extra cost, assuming all workers has the same efficiency. When this happens to all firms, the world output for shoes will increase.

Besides that, economic globalization allows the flowing of capital freely among countries. Local producers or firms can invest into foreign bonds and stocks. When these firms do so, those foreign countries can now buy more assets such as buildings, factories and machines to increase their production of goods and also to create jobs directly. Currencies in those countries will then increase and this will result in...
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