Group 5 FMI- Raleigh: Pros and Cons of Globalization

Globalization covers a wide range of topics, ranging from cultural values and information to economics and international trade, we chose to focus here on the pros and cons of globalization on economics and culture aspects.

  • Free Trade

Free trade reduced the barriers that once stood between nations and thus conducted to a significant increase in trade volumes. An example of a free trade agreement is the North American Free Trade Agreement (NAFTA), which allows Mexico, Canada, and the United States to trade products and services without important import and export restrictions.

Free trade has several benefits for economies and consumers. Consumers enjoy a greater choice of goods and services, since foreign companies can easily offer their products for sale. They also benefit from lower overall prices for goods, as a greater variety of goods for sale increases competition and drives prices down.

Manufacturers in countries with free trade agreements also benefit from free trade in the form of a larger export market.

Free trade also allows nations and economies to specialize in what they do the best, producing higher quality goods at better prices.

  • Free Movement of Labor

In a globalized world, workers can more easily move from one country to another.

In many cases, free movement of labor allows economies to fix ‘gaps’ that exist in their labor markets. Companies can also hire workers in foreign countries to work for them using online tools and telecommunications.

The benefits of free movement of labor also work in the other direction. If a country has too few jobs and too many workers, people can easily move to markets in which the job market is better. An excellent example of free movement between countries can be seen in the European Union.

  •  Global Culture

Global mass media connects all the people in the world so that cultural barriers reduce.

However, each of the benefits of globalization, from free trade to the free movement of labor, can also be a downside for specific countries and economies.

  • Paradox of Free Trade

One of the biggest downsides of globalization is the harm it can cause to economies at an early stage of development. Free trade forces all countries to compete using an even playing field, which critics claim puts smaller, less developed countries behind their more developed counterparts.

Some economists believe that free trade is only possible if industries in developing countries are allowed to grow under a certain level of economic protection. This is known as the Paradox of Free Trade, and it is a core argument among economists.

  • Labor Drain

Another downside of globalization is the phenomenon known as ‘labor drain.’ Since globalization allows workers to easily move from one country to another, countries with limited job opportunities often find it difficult to encourage skilled workers to stay in their countries.

After receiving training in their home countries, many people emigrate and spend their professional career in a more lucrative economy at the expense of their home country.

  • Corporate Tax Avoidance

Globalization can also have a significant negative impact on taxation. Since many companies are able to trade with one country while being based in another, large corporations often exploit tax havens such as Luxembourg, Switzerland, and Hong Kong to avoid paying taxes in the countries where they generate their profits.

This can often hurt consumers in the form of higher taxes on consumer products and property. Since countries often have little control over where big companies register to avoid tax, they are often forced to raise other taxes in order to make up for lost revenues due to corporate tax avoidance.

  • Weakening of specific cultures in the profit of a global culture

Lastly, globalization has had a cultural impact on many countries that have been subject to large-scale immigration. Many critics of globalization feel that the free movement of labor has resulted in the weakening of specific cultures in favor of greater economic and cultural hegemony.