Globalisation is the increasing integration of national economies through cross-border flows of goods, services, capital, people, technology and information.
Globalisation has accelerated over the past 50 years thanks to falling transport costs, the internet, financial liberalisation, the rise of multinational corporations and trade agreements (the WTO, the EU, NAFTA/USMCA, the Mercosur, etc.).
Drivers of globalisation
- Falling transport costs (container shipping, cheaper air freight).
- Communication technology (the internet, mobile phones, video conferencing).
- Trade liberalisation through international agreements.
- Capital-market integration allowing money to move quickly between countries.
- Multinational corporations building global supply chains.
Effects of globalisation
Positive:
- Faster growth for many developing countries.
- Cheaper goods for consumers worldwide.
- Wider choice of products.
- Technology spread to developing countries.
- Reduced absolute poverty as growth has lifted hundreds of millions out of poverty since 1990.
Negative:
- Inequality within countries can rise as high-skilled workers and capital owners gain more than low-skilled workers.
- Loss of jobs in import-competing industries in developed countries.
- Cultural homogenisation as global brands replace local ones.
- Environmental costs of long supply chains.
- Vulnerability to external shocks (a financial crisis or pandemic in one country can spread worldwide).
- Tax avoidance by multinationals shifting profits between low-tax countries.
Trade blocs and agreements
Countries often form trade blocs to lower barriers among themselves while keeping a common external barrier. Major examples:
- European Union (EU): a single market with free movement of goods, services, capital and people among 27 members.
- USMCA (formerly NAFTA): North America (US, Canada, Mexico).
- ASEAN: South-East Asia.
- Mercosur: South America (Argentina, Brazil, Paraguay, Uruguay).
- African Continental Free Trade Area (AfCFTA): Africa-wide.
The World Trade Organization (WTO) is the global body that sets the rules of international trade and adjudicates disputes between member countries.