Globalization

Globalization involves the free trade of goods and services across international borders. It is a process of increasing global connectivity and international interdependence. Advancement in technology, telecommunication and infrastructure facilitates Globalization. On the economic front globalization consists of two important policies privatization and deregulation. Governments of many countries invite national as well as multinational private firms to invest in the various sectors thereby boosting the economy of the country in turn creating a free economy. As governments across the world realize that they cannot produce enough and stay competitive, instead they decide to focus on governance itself. For this purpose governments cautiously regulate or de-regulate trade policies for business at the same time maintain the socio economic balance in the country. In today’s times globalization is a powerful phenomenon with its own merits & demerits. Further to understand Globalization it is important to first understand the meaning of an open and closed economy.

Closed economy traditionally known as’ autarky’ is a state of self sufficiency and independence. An economy which does not work together with other economies of the world and forbids international trade is termed as a closed economy. It is considered to be a glitch in the current times and may lead to economic isolation. It is an economic approach which concentrates only on internal transactions. All the possible natural resources, physical and intellectual capabilities available within the country are employed to fulfil the needs and desires of the people.
As it is an independent economy there is no trepidation of intrusion or intimidation from other countries. Transportation cost such as shipment costs are mitigated in an isolated economy. So, more income is left with the internal economy. Rules and restrictions on goods produced internally are relatively less. Safe products can be ensured as no check is to be kept on imports. A closed economy produces all the goods and services needed hence they do not rely on others which makes them self sufficient. Under no circumstances a closed economy is affected by the financial crises of global economies. However, other dependent nations can be greatly influenced.
Over the years closed economies have been associated with strict dictatorial political governments. It refutes all trade activities and relations with other nations it is considered to arrest economic growth which is one of its major disadvantages. Their progress may be hindered when they face the challenge of shortage of resources. For many years governments of some countries maintained closed economies, however with the advent of the internet, advancement of technologies, ease of exchange of information and to a large extent dominance of international trade finally compelled these economies to open up either completely or partially for foreign trade and investments. Hence closed economies are rarely seen currently.

Citing examples of closed economies is North Korea. Its political regime has an all together different agenda from political agenda of other countries, as a result of which many trade restrictions have been imposed on them which has resulted in earning a closed economy status. The fact that they still exists means that they have sufficient internal resources to run their closed economy.
On the contrary open economy is the complete reverse of closed economy. It is the political state of interdependence where a country does trade with other economies. Private companies, institutions or governments are permitted to invest in other economies and carry out profitable trade. Open economies have generally liberal and conducive trade laws with few but constructive regulations on taxes, licensing requisite, tariffs, unionization, incentives and subsidies. They generally drive the prices of the goods and services to optimum levels. Foreign investors invest in such opportunities as they get a customer base to sell their produce and such investments also enjoy some limited period sops or incentives.
The advantage of an open economy is that consumers can choose from products which are produced in domestic markets as well as which come from overseas ranging from branded clothing, cars, electronic gadgets and luxury items. As there are a number of producers producing substitutes competition is encouraged and better quality of services are provided and lower costs. Companies have an opportunity to set up business and invest in other nations because of this openness it is possible to cater to worldwide consumer needs. For example internationally established food chains such as McDonald’s Starbucks and many more. Expansion is possible by investing in rising and promising markets. Trading activities promotes employment and specialization as countries produce those goods in which they have a relative or comparative benefit.
At the same time since open economies are interdependent they are open to certain inevitable risks. These risks not only disturb the economies from where they originate but also other open economies connected to them. Specific imports essential for defence and military, energy requirements, health care have economic, political and cultural effects. Increase in borrowings and the incapability to repay debts increases the pressure of indebtedness, sometimes leading to financial crises. In international trade, technologically advanced nations impose upon labour intensive economies restrictions on the use of production technologies which affect cost competitiveness of products, giving an upper hand in trade to technologically advanced economies. Such resource restrictions are often termed as ‘labour welfare’ or ‘labour rights protection’. International trade benefits overall economic welfare but at the same time some sections of the economy may be net losers.
Post independence India had a closed economy since the past two decades it has opened up. The only drawback of closed economy was that the Indian manufacturers did not get the opportunity to trade in the international markets consequently their products and services were not competitive to be acceptable in the International market. This as well as International trade pressures and the need to create job opportunities for its large population, India decided to open up its economy. Today it may be called as a semi open economy which enjoys the benefits of globalization and open economy and is also faced with the ill effects of Global economic slowdown as well as Global financial crisis.
Globalization allows additional money to flow into developing economies thus, improving the people’s standard of living. Competition supports modernization and innovation and prices are kept low. Developing countries stand a chance to use and garner benefits from new and modern technologies without taking extra efforts in creating them. Global collaborations, interactions and communications help governments to work in the direction of attaining global goals and objectives. Harmonization results as companies and government are aware about global issues. Foreign cultures are accepted worldwide giving people more options and alternatives. Unemployment rates in developing countries like India and China is reducing and average income of the people which is per capita income is also rising. Globalization has become a channel or a medium for people to acquire skills and jobs as a result of better education facilities. All these factors in turn contribute to the gross domestic product (GDP) of both developed and developing countries.
Globalization also poses a number of threats. The outsourcing of jobs causes unemployment and loss of opportunities in many countries. As foreign cultures enter the originality and eccentricity of a region disappears gradually. There is a higher likeliness of spread of diseases and invasive species could destroy natural ecosystems. International regulations being very few they could have terrible results on people and environments security and wellbeing. Globalization gives rise to disparity among the rich and poor as income is concentrated in the hands of a few.
UAE is blessed with sufficient amount of fossil fuel thus, turning it into an oil economy. It is geographically in a strategic location, taking advantage of this location it has transformed itself in to a regional trading hub and also a small manufacturing hub. Free zones in UAE are the areas where this trade is transacted. UAE has business friendly trade policies a modern infrastructure, stable law & order situation which has resulted it to be a major trade hub and that is the open economy of UAE other than the Oil economy.
Globalization is now an irreversible phenomenon. It has enough buying within several economies as these economies have reaped the benefits of open economy and globalization. These economies are in the frame of mind to overcome the negatives of globalization as the positives of open economy are far too many as compared to the negatives. Hence Globalization is here to stay & economies will now need to smartly adapt to survive & grow in this era of Globalization.