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The Threat of Globalisation

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The Threat of Globalisation The current debate on globalisation is very interesting because it raises such a wide variety of issues. The main concern of the International Forum on Globalisation (IFG) is 'the emergence and growth of corporate trade and banking institutions that are not accountable to democratic processes or even national government'. A full consideration on the consequences of this would lead us beyond the boundaries of economic thought but I will try to highlight what economic theory adds to the discussion and where available, show evidence to support these theories. I will therefore try to address the following questions raised in IFG's position statement. Is there any evidence to suggest that these transnational institutions are growing to the extent that they endanger national economic systems? How is globalisation affecting the returns to different factors of production in the various trading countries? And will globalisation result in the homogenisation of society into a 'global monoculture' (IFG 1995) Anti-globalisation protestors fear that powerful corporations who have no base and are not subject to the rules of any one country are becoming a dominant global force. These transnational companies can move from one region to another taking advantage of cheap labour in India, research grants in the U.S, and lower taxes in Europe all at the same time. ...read more.


This model assumes that capital and labour in both trading countries are fixed, that they can be split between production of X and Y and that they are homogeneous. Production of X is labour intensive and that of Y is capital intensive. Finally, goods and factor markets are perfectly competitive with no other distortions such as tax. Crucially, for my use of the model in this case, the level of technology in country H and F is identical but their factor endowments are different. That is country H is relatively well endowed with capital and country F is relatively well endowed with labour. It is important to note that relativity allows one country to have higher absolute supplies of both labour and capital. Country H could concentrate completely on production of good X or of good Y, X = f(L + K) Y = g(L + K) but by doing so they would be using resources in production of one good that might be better used in production of the other. Therefore the production possibility frontier is concave. Note also that because country H is well endowed with capital, it can produce more of capital-intensive good Y than labour intensive good X, hence the bias in the curve towards production of Y. ...read more.


Producers in each country are then forced to adjust production to suit the new patterns of demand In questioning globalisation, Hirst and Thompson (1995) investigate the flows of capital around the world and show They suggest that negative consequences of this may include a reduction in the power of governments to control their own affairs. Although this is an important issue, worry from the perspective of an economist is the extreme pursuit of economic development with no consideration of health or ecological issues There are those who assert that globalisation is desirable and use economic theory to show that all countries concerned can benefit from an increase in trade. Alternatively there are those who question whether globalisation is really happening and conclude that there are not as yet trans-national companies who Julius (1990) and Ohmae (1990) claim that numerous TNCs within the developed world go wherever investors see a return on their investments. So during the 1980s a smart TNC would initiate operations in the emerging markets of Korea, Taiwan and Hong Kong. When confidence was broken in the 1990s it would withdraw its assets from East Asia and head for safer shores to take advantage of the 'new economy' in the U.S. This leads many to think that by examining capital flows one can identify transnational companies. ...read more.

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