In the most basic terms, globalization of the world economy is the integration of economies throughout the world through trade, financial flows, the exchange of technology and information, and the movement of people. Globalization has become a major topic of discussion and concern in economic circles since the mid-1990s. It is clear that the trend toward more integrated world markets has opened a wide potential for greater growth and presents an unparalleled opportunity
for developing countries to raise their living standards. At the same time, however, the Mexican crisis has focused attention on the downside risks of this trend, and concerns have arisen about the risks of marginalization of countries.This has given caused a sense of misgiving, particularly among developing countries.
Globalization has been known to hold both potential benefits and risks for the economic and political development of states. The extent of integration is clearly reflected in the rising importance of world trade and capital flows in the world economy. An increasingly large share of world GDP is generated in activities linked directly or indirectly to international trade. And there has been a phenomenal growth in cross-border financial flows, particularly in the form of private equity and portfolio investment, compared with the past. In addition, the revolution in communication and transportation technology, and the much improved availability of information has allowed individuals and firms to base their economic choices more on the quality of the economic environment in a country. As a result, economic success in today’s world is less a question of relative resource endowments or geographical location, than in the past. Consequently it has become a question of market perception, orientation and predictability of economic policy.
Globalization is first and foremost a result of expansion, diversification and deepening of trade and financial links between countries, especially over the last ten years. Also, economic thought itself has evolved over time, toward the general acceptance of the fact that outward- oriented and open economies are more successful than closed, inward looking ones. Consequently, individual countries in all parts of the world are liberalizing their exchange and trade regimes in the conviction that this is the best approach for growth and development. Moreover, there is a deeper
commitment of national authorities throughout the world to embark on sound macroeconomic policies so as to create a more stable environment for investment and expansion of economic activity. The benefits of these developments are easily recognizable- increasing trade where consumers and producers get a wider choice of low-cost goods, often incorporating more advanced technologies, and more efficient use of global resources.
Greater access to world markets has allowed countries to exploit their comparative advantages more intensively, while opening their economies to the benefits of increased international competition. The rapid increase in capital and private investment flows have also increased the resources available to countries, and accelerated the pace of their developmentbeyond what they could otherwise have achieved.
Moreover, greater openness and participation in competitive international trade has increased employment, primarily of skilled labor, in tradable goods sectors. With the expansion of these sectors, unskilled labor has found increased employment opportunities in the non-tradable sectors, such as construction and transportation. The expansion of merchandise trade may also have lessened migratory pressures. On the other hand, the movement of labor across national boundaries has lessened production bottlenecks, raising the supply response of recipient economies, and increasing income in the supplying countries through worker remittances. Openness to foreign expertise and management techniques has also greatly improved production efficiency in many developing countries. But do not forget the many risks to globalization, i.e. the ability of investment capital to seek out the most efficient markets, and for producers and consumers to access the most competitive source, exposes and intensifies existing structural weaknesses in individual economies. Also, with the speedy flow of information, the margin of maneuver for domestic policy is much reduced, and policy mistakes are quickly punished. Indeed, increased capital mobility carries the risk of destabilizing flows and heightened exchange rate volatility, in cases where domestic macroeconomic policies are inappropriate. And finally, it is clear that countries that fail to participate in this trend toward integration are most likely to be left behind.