1.5 – The Rise of Globalization

Learning Objectives

By the end of this section, you will be able to:

  • Assess the importance and effects of globalization
The image is a photograph of a cargo ship transporting goods.
Figure 1. Globalization. Cargo ships are one mode of transportation for shipping goods in the global economy. (Credit: Raul Valdez/Flickr Creative Commons)
Recent decades have seen a trend toward globalization, which is the expanding cultural, political, and economic connections between people around the world. One measure of this is the increased buying and selling of goods, services, and assets across national borders—in other words, international trade and financial capital flows.Globalization has occurred for a number of reasons. Improvements in shipping, as illustrated by the container ship shown in Figure 1, and air cargo have driven down transportation costs. Innovations in computing and telecommunications have made it easier and cheaper to manage long-distance economic connections of production and sales. Many valuable products and services in the modern economy can take the form of information—for example: computer software; financial advice; travel planning; music, books, and movies; and blueprints for designing a building. These products and many others can be transported over telephones and computer networks at ever-lower costs. Finally, international agreements and treaties between countries have encouraged greater trade.

Table 1 presents one measure of globalization. It shows the percentage of domestic economic production that was exported for a selection of countries from the 1970s to the 2010s, according to the World Bank. Exports are the goods and services that are produced domestically and sold abroad. Imports are the goods and services that are produced abroad and then purchased domestically. The size of total production in an economy is measured by the gross domestic product (GDP). Thus, the ratio of exports divided by GDP measures what share of a country’s total economic production is sold in other countries.

Country 1970-79 1980-89 1990-99 2000-09 2010-20
High Income Countries
Germany 35.1 44.1 46.4 69.4 85.2
Japan 22.0 22.9 17.8 25.2 33.1
United States 14.6 18.1 21.5 25.3 28.1
Middle Income Countries
Brazil 16.4 18.7 17.6 26.3 26.2
China 8.1 20.5 32.1 52.4 42.1
India 10.8 13.8 20.7 38.4 46.1
Mexico 18.8 28.4 41.6 53.1 70.9
Nigeria 35.6 19.0 36.8 41.2 33.1
Pakistan 37.0 25.4 37.4 54.2 59.3
Lower Income Countries
Madagascar 37.0 25.4 37.4 54.2 59.3
Syria 49.5 43.6 65.5 70.9 49.0
Togo 96.6 99.4 70.0 80.4 81.5
Table 1. The Extent of Globalization (Average Exports as a percentage of GDP) (Source: http://databank.worldbank.org/data/)

In recent decades, the export/GDP ratio has generally risen, both worldwide and for the U.S. economy. Interestingly, the share of U.S. exports in proportion to the U.S. economy is well below the global average, in part because large economies like the United States can contain more of the division of labor inside their national borders. However, smaller economies like Belgium, Korea, and Canada need to trade across their borders with other countries to take full advantage of division of labor, specialization, and economies of scale. In this sense, the enormous U.S. economy is less affected by globalization than most other countries.

Net exports as a percentage of GDP for Germany, Japan, and the US, 1970-2020. Net exports have generally risen, with Germany's next exports being particularly high.
Figure 2. Net exports as a percentage of GDP for Germany, Japan, and the US, 1970-2020.
Net exports as a percentage of GDP for Brazil, China, and Mexico, 1970-2020. Net exports for these countries have generally risen, although China's next exports have been declining since the mid-2000s.
Figure 3. Net exports as a percentage of GDP for Brazil, China, and Mexico, 1970-2020.
Net exports as a percentage of GDP for India, Nigeria, and Pakistan, 1970-2020. While India's net exports have been rising, the other countries' have fluctuated but not increased nor decreased significantly.
Figure 4. Net exports as a percentage of GDP for India, Nigeria, and Pakistan, 1970-2020.
Net exports as a percentage of GDP for Madagascar, Syria, and Togo, 1970-2020. Trends are generally stable, with considerable long-run variation for Togo.
Figure 5. Net exports as a percentage of GDP for Madagascar, Syria, and Togo, 1970-2020.

Table 1 and Figures 2-5 also show that many medium and low income countries around the world, like Mexico and China, have also experienced a surge of globalization in recent decades. If an astronaut in orbit could put on special glasses that make all economic transactions visible as brightly colored lines and look down at Earth, the astronaut would see the planet covered with connections.

Summary

The last few decades have seen globalization evolve as a result of growth in commercial and financial networks that cross national borders, making businesses and workers from different economies increasingly interdependent.

Glossary

exports
products (goods and services) made domestically and sold abroad
globalization
the trend in which buying and selling in markets have increasingly crossed national borders
gross domestic product (GDP)
measure of the size of total production in an economy
imports
products (goods and services) made abroad and then sold domestically
definition

License

1.5 - The Rise of Globalization Copyright © by Erik Dean; Justin Elardo; Mitch Green; Benjamin Wilson; Sebastian Berger; Richard Dadzie; and Adapted from OpenStax Principles of Economics. All Rights Reserved.

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