Globalisation starts with increasingly open economies, countries that are exporting and importing more than they used to. With globalisation comes structural change. Resources will be allocated: in some sectors, more resources will be needed to make profitable exports. In other sectors, business find they cannot compete with imports. They adapt their products to improve competitiveness or reduce their output.
A main reason why globalisation happened is due to investment in new markets. Foreign direct investment (FDI). Many bigger businesses don’t just want to export: they want to invest in new markets. They want to build businesses in a range of countries. Most of FDI goes to developed or fast growing economies. Many poor countries are not attractive to foreign investors due to limited profits and various other factors. However in recent years poorer countries are gradually starting to attract more FDI, due to the development in their economy. Investment creates jobs and enhances prosperity. Many government offer incentives for investors. For example keeping business tax low. FDI is a two way thing. The country the investment goes in, also benefits. China being a prime example. Reasons why businesses are eager to invest into China is because of their labour costs and also to gain access to Chinese market of 1.2 billion people. Apple being an example of this. Shifting the production process to other businesses in order to reduce input costs. Also known as outsourcing.
Trade matters for an economy to develop. GDP is a measure of total output or income. It stands for gross domestic product. Global GDP is just the total value of all economies output. Slow growth was seen by many countries during the 80s. But the usual trend is for trade to increase trade. The recent drop in global GDP was seen after the 2008 financial crisis. Trade will remain an important element in economic growth process. International trade enhances the force of competition. When it becomes possible to import product that were previously not at reach or very expensive, consumers get to enjoy different variation of things. Imports also become popular, therefore wages go up. Soline of production and management both benefit due to globalisation. Globalisation will also cause some businesses to close down due to their lack of competitiveness in the market. An efficient economy needs skilled people. People might learn new skills and improve their income and keep searching for a better job.
Globalisation was only made possible after World War II. Governments understood that tariffs made products more expensive for consumers which affected many weak businesses. So therefore the government worked together to create the General Agreement on Tariffs and Trade, known today as World Trade Organisation (WTO). The aim is to make imports more cheaper and markets more competitive, helping to raise standard of living. Fewer import controls meant firms could export more, and trading becomes much more freer. This process became known as trade liberalisation. Overall globalisation plays a vital role in improving the economy as a whole, and still continues to do so.