Economic Globalization

It is a difficult task to provide a clear-cut judgment on whether economic globalization is beneficial to overall the world economy. We see more states joining the World Trade Organization (WTO). We also see protests where people roaring “down down WTO”. The reason why we see this phenomenon is that economic globalization is a two-edged sword. While providing new opportunities, economic globalization also means risking its own domestic economy. It is important to carefully examine both the benefits and harms of this two-edged sword.

Jeffrey Frankel argues that economic globalization “is overall a good thing, not just for economic growth but also when non-economic goals are taken into account” (2000). He backs up his argument by pointing out that both theory and evidence have clearly revealed the positive effects of globalization on real incomes. For instance, the classical theory tells that the division of labor, known as “specialization”, on the transnational level allows each country to specialize in what it is strong for, which allows maximizing the value of its output, so that resources are not wasted in the goods production that could be imported more inexpensively than they can be produced domestically. Yet, it is important to bear in mind that this argument is true only when perfect competition, constant returns to scale, and fixed technology exist, and they are indeed not too realistic (Frankel, 2000), as it is obvious that, for example, competitions between developed and developing countries are certainly not fair.

Treaties signed in the WTO are not beneficial to all parties. For instance, many of the agreements have required much huger reductions in import barriers by the trading partners of the United States than by the United States, which is a clear implication that agreements raise foreign demand for U.S. products by more than they raise U.S. demand for imports. It is thus skeptical that joining an international institution such as WTO has absolute advantage for a state.

Friedman is also skeptical towards the benefits that can be brought by joining WTO. He describes the negative, side-effects of economic globalization as a “backlash”, an adverse reaction that comes when the globalized economy challenges traditional business practices, social structures, cultural mores and environments (2000). Markets generate capital but also, at the same time, chaos, and the more powerful markets become as a result of globalization,