The effects of Globalization are manifold, affecting various aspects of the world economy to bring about overall financial betterment. The impact of Globalization exerts intense influence on the financial condition as well as the industrial sector of a particular nation. Globalization creates markets based on industrial productions across the world. This in turn, widens the access to a diverse variety of foreign commodities for consumption of the customers, owing to the marketing strategies undertaken by different corporations. Economywatch.com states that “In the world economic arena, Globalization facilitates the formation of a common worldwide market, on the basis of the liberal exchange of both cash and kinds.”
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Globalisation has largely benefited the Australian economy. As Australia has an abundance of natural resources that our whole population cannot use, the extra surplus is sold to other countries that have a demand for the resources, giving us a world market of over 6.5 billion people. Skwirk.com states that Australia “As a country with a stable government and substantial revenue, globalisation, in many ways, has been positive.” Australia has not fallen into the cycle of debt that many developing nations have suffered, nor have we been adversely affected by bad investments. Australia’s strong economy has therefore been strengthened during the globalization time.
An international trade theory can be seen as a measure to address problems in a country which has high unemployment, inflation or a weak macro economy. One international trade theory is known as mercantilism, and this theory suggests that a government can improve its economic well-being for the country by increasing exports and reducing imports. Two of the other main trade theories are known as absolute advantage and comparative advantage. If a country has an absolute advantage over its trading partners, it is able to produce more of a good or service with the same amount of resources or the same amount of a good or service with fewer resources, whereas a country that has a comparative advantage in the production of a good or service, produces it at a lower opportunity cost than its trading partners. According to Ahsan Kaleem, The theory of comparative costs argues that it is “better for a country that is inefficient at producing a good or service to specialise in the production of that good it is least inefficient at, compared with producing other goods.”
Another important trade theory known as the factor endowment theory, strongly supplements the theory of comparative advantage by bringing consideration to the endowment and cost of factors of production. The theory states that countries with a big labour force will focus on labour intensive goods, and countries with more capital will focus on producing goods that are capital intensive.
Economywatch.com states that “The benefits of international trade have been the major drivers of growth for the last half of the 20th century and nations with strong international trade have become prosperous and have the power to control the world economy. There are a few more important benefits of international trade, one of which is the fact that it enhances the domestic competitiveness and takes advantage of international trade technology. An increase in sales and profit can be made through international trade and an extend sales potential of the existing products is created. In an international trade market, the ability to maintain cost competitiveness in a domestic market is achievable and the potential to expand a business is enhanced. There is a reduce in dependence on existing markets within the global trade scene and a stabilisation of seasonal market fluctuations can also be achieved.
A government may choose to intervene in international trade largely based on the fact of wanting to change the allocation of resources and achieve what they perceive to be an improvement in economic and social welfare. Geoff Riley states that “all governments of every political persuasion intervene in the economy to influence the allocation of scarce resources among competing users.” The main reasons for policy intervention are to correct for market failure, to achieve a more equitable distribution of income and wealth and to improve the performance of the economy. There are many ways in which intervention can take place; these include government legislation and regulation, the direct state provision of goods and services, the fiscal policy intervention and an intervention designed to close the information gap.
Regulation can be used to introduce fresh competition into a market whereas the state funding can be used to provide goods and services and public goods directly to the population. The fiscal policy can be used to alter the level of demand for different products and also the pattern of demand within the economy. Market failure often results from consumers suffering from a lack of information about the costs and benefits of the products available in the market. Through government action, and increase in information to help consumers and producers value the true cost and benefit of a good or service can be found.
The global trade system can have a variety of different implications if it is not conducted in the correct manner. International trade may discourage the growth of domestic industries and excessive exports may cause quick depletion of natural resources of a country. Global trade may create economic dependence which may threaten political independence and in the case of intense competition, exports may lead to rivalry among nations. Also, Soumya Singh believes that too much dependence on imports may undermine the economy of a country and developed countries may economically exploit the underdeveloped countries that are dependent on international trade for their economic development.
The globalisation of markets and the development of the global economy have had a definite impact on both the international and Australian economies. There are many benefits to be gained through international trade; however, if it is not conducted in the correct manner, there could also be many implications. Through the various trade theories and government intervention, the most effective way for each country to be involved within the international trade market can be utilised, and as a result, can boost the global economy and support the idea of globalisation.
Kaleem, A, 2005, “International Trade Theories” [online]. Available from: http://bizeco.blogspot.com.au/2005/06/international-trade-theories.html [September 2012]
Economywatch.com, 2010, “Benefits of International Trade” [online]. Available from: http://www.economywatch.com/international-trade/benefit.html [September 2012]
Economywatch.com, 2010, “Effects of Globalization” [online]. Available from: http://www.economywatch.com/economics-theory/globalization/effects.html [September 2012]
Riley, G, 2006, “Government Intervention in the Market” [online]. Available from: http://tutor2u.net/economics/revision-notes/as-marketfailure-government-intervention-2.html [September 2012]
Singh, S, 2012, “What are the Disadvantages of Foreign Trade?” [online]. Available from: http://www.preservearticles.com/2012022923900/what-are-the-disadvantages-of-foreign-trade.html [September 2012]
skwirk.com, 2012, “Globalisation in Australia” [online]. Available from: http://www.skwirk.com/p-c_s-57_u-507_t-1374_c-5292/globalisation-in-australia/qld/sose-geography/the-global-citizen-ecology-and-economy/globalisation [September 2012]