Blog4：What is the relation between economy and globalization? — LIUZIYE

 

I believe that the most important components of the economy and globalization are trade and investment.

Trade is one of the most significant manifestations of globalization. By lowering tariffs and eliminating barriers, it promotes the free flow of goods and services. International trade enhances global division of labor, leading to more efficient resource utilization. Countries begin to focus on producing goods they are most skilled at. For example, developing countries rely on cheap labor for labor-intensive industries, while developed countries focus on high-tech industries and services, which improves global economic efficiency. This division of labor not only optimizes resource allocation but also drives the formation of global supply chains. Modern manufacturing depends on global supply chains; a smartphone, for instance, may be made up of components from multiple countries. The cross-border cooperation lowers production costs and promotes the spread of technology. For developing countries, international trade provides an opportunity for economic growth. Many developing countries have achieved rapid economic growth by joining global supply chains. For example, China and Vietnam have quickly industrialized by participating in global manufacturing, gradually transitioning from labor-intensive industries to technology-intensive industries. This development model greatly improved people’s living standards.

The impact on the economic structure of developed countries is also significant. Developed countries, by importing cheap goods, allow consumers to enjoy more choices at lower prices. At the same time, companies can take advantage of the production advantages of developing countries and concentrate resources on technological research and innovation. This global cooperation improves overall economic efficiency and creates numerous cross-border cooperation opportunities. International trade is also a major channel for technology transfer. Advanced technologies and management experiences spread through the flow of goods and services. For example, developing countries, by importing advanced equipment, learn related production technologies and management methods. This helps narrow the technological gap between developed and developing countries. Furthermore, technology transfer is not just a one-way process from developed to developing countries. Developing countries have also innovated in certain fields and influenced the world through trade. For example, China’s mobile payment technology has expanded to many countries through cross-border e-commerce.

China has achieved remarkable results by joining global supply chains, particularly in electronics, textiles, and furniture industries. Known as the “world’s factory,” China gained foreign exchange by exporting a large number of products, driving urbanization and industrialization. South Korea, through government-supported export policies, also achieved success in electronics and automobile manufacturing, with the success of Hyundai and Samsung relying on the global market.

Although trade has promoted global economic growth, it has also caused some issues. For example, trade imbalances. Some countries depend on exports, while others face huge trade deficits. This imbalance may lead to international disputes and affect global economic stability. Over-reliance on international trade may also put some countries in a weak position in the global supply chain, making them vulnerable to market fluctuations. The globalization of trade also affects the environment. While global supply chains improve efficiency, they also increase carbon emissions and resource consumption. Countries need to balance trade growth and environmental protection, finding sustainable solutions.

Investment, particularly Foreign Direct Investment (FDI), is also an important driver of globalization. Multinational companies bring not only capital but also new technologies and management expertise when they invest in other countries by building factories or setting up branches. These cross-border capital flows promote the economic growth of the host countries and help the parent companies optimize costs. FDI also promotes technological progress. Multinational companies introduce advanced production technologies and management practices to host countries, improving local enterprises’ technology and efficiency. For example, European and Japanese car companies have built factories in China, not only to meet local market demand but also to help China improve its manufacturing technologies. Investment also drives industrial upgrading. Foreign capital is more inclined to invest in high-tech industries, helping host countries improve their industrial levels. In China, for example, foreign investment accelerated the development of electronics, information technology, and advanced manufacturing, boosting the overall competitiveness of the economy. FDI also facilitates the global flow of capital. Multinational companies move capital from wealthy regions to places with greater development potential, helping these regions grow economically. For example, India’s IT industry developed rapidly, closely linked to foreign investment. American and European companies investing in India have driven the country’s economic development and modernization.

Although FDI brings economic growth, it also presents challenges. Over-reliance on foreign capital may make the economy too single-sided, lacking the ability to develop independently. Furthermore, foreign capital may bring social problems, such as environmental pollution and labor rights issues. Therefore, when attracting foreign investment, the host country needs to balance economic growth with social responsibility. FDI not only strengthens global economic ties and growth but also brings about industrial upgrading and capital flows.

However, foreign capital inflows may make certain industries overly dependent on foreign investment, leading to a lack of independent innovation and local enterprises’ competitiveness. This situation could limit the development of local businesses, resulting in an unbalanced economic structure and making sustainable growth difficult. Additionally, foreign companies often pursue profit maximization, potentially neglecting environmental protection and social responsibility, leading to resource wastage or pollution. In countries with lower environmental protection standards, foreign companies may contribute significantly to environmental damage by cutting costs. Moreover, foreign investment may bring social inequality. Foreign enterprises tend to offer higher-paying jobs, but local companies may not be able to compete, causing the income gap to widen and social tensions to rise. Finally, the capital flow of foreign investors is sensitive and can be affected by international market fluctuations. If foreign capital withdraws or reduces investment, it can have a severe impact on the local economy.