BANGLADESH UNIVERSITY OF PROFESSIONALS

International Trade and Globalization

BDS:2417

Term paper
On
Impact of Globalization on international Trade

Submitted by
Name: Hurrahtul Aine Tasfi
ID NO:19121044
Department of Development Studies
Semester:4th, Session:2018-2019

Submitted to
Md Zahidur Rahman
Lecturer
Department of Development Studies
Bangladesh University of Professionals.
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Abstract

Globalization refers to the growing interdependence of countries resulting from the increasing

integration of trade, finance, people, and ideas in one global marketplace. International trade

and cross-border investment flows are the main elements of this global integration. The scope of

this paper. Rather, the purpose of the analysis is to disentangle flows of trade and determine

who really benefits from the globalization of the production network and by how much. While

globalization process reduced activity and control of national governments on their economy

and trade their place is substituted by international companies. The national economies on the

other hand try to keep pace with the change in economic system by deregulating their

international trade barriers via regional trade agreements and economic integrations. The link

between globalization, trade and business can contribute to resolve distributional issues,

because one of the key principles of trade facilitation is transparency. This study asks how the

globalization process has impacted the international trade success.

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Impact of Globalization on International Trade

Introduction

Globalization refers to the growing interdependence of countries resulting from the increasing
integration of trade, finance, people, and ideas in one global marketplace. International trade and
cross-border investment flows are the main elements of this integration. Globalization is driven
by two main factors. One involves technological advances that have lowered the costs of
transportation, communication, and computation to the extent that it is often economically
feasible for a firm to locate different phases of production in different countries. The other factor
has to do with the increasing liberalization of trade and capital markets: more and more
governments are refusing to protect their economies from foreign competition or influence
through import tariffs and nontariff barriers such as import quotas, export restraints, and legal
prohibitions. A number of international institutions including the World Bank, International
Monetary Fund (IMF), and General Agreement on Tariffs and Trade (GATT), succeeded in 1995
by the World Trade Organization (WTO) have played an important role in promoting free trade
in place of protectionism. So, the main forces driving global integration have been technological
innovation, political change and economic policy choices. In this way, globalization has
benefited from economic policies favoring deregulation and the reduction or elimination of
restrictions on international trade, foreign investment and financial transactions. Trade opening
has been pursued multilaterally through successive multilateral negotiations, bilaterally and
regionally through preferential trade agreements and unilaterally. In the case of many developing
countries, early commercial policies had an inward-looking focus. But the success of a number
of newly industrializing economies like East Asia with exported growth strategies contributed to
a more general adoption of industrialization policies that recognized the importance of exports in
the process.
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Literature Review

The effect of globalization and regionalization on the world economy was studied by Kim and
Hangshin (2002). Using the social network approach in their research, they used empirical data
on international commodity trading. The outcome of their analysis found that between 1959 and
1996, the globe became increasingly globalized and countries entered trading alliances in this era
rather than in previous decades. The world trade network has been denser as a result. In the other
hand, another result from the report indicated that all countries were not equally incorporated
into the global economy. Although developed and emerging countries became more and more
intertwined, the less developed remained behind the process. Sriram and Bilgin (2002 ) analyzed
foreign trade movements between Turkey-BSEC and Turkey EU spanning the period 1991-2001
in their report. Their analysis indicates that, while there are variations in Turkey's imports and
exports to BSEC in general, the trend is increasing, although the level of trade with the EU is
more steady. Mukherjee (2008) explored the influence of globalization on foreign trade, taking
into account historical viewpoints on global economic integration. The analysis indicates that the
trend is towards worldwide free exchange, guided largely by foreign trade, which is the result of
competitive liberalization. In this sense, globalization plays an important role in improving cross-
border trade by reducing or minimizing international barriers to trade. Hello, Akram Ch. Et., et.
Using foreign trade, FDI and economic development info, al (2011) investigated the effect of
globalization on the globe. The research they undertook focused primarily on the effect of the
mechanism of globalization on the world's fastest growing sectors. The results of the study
showed that while the US was dominant in world exports before the phase of globalization was
dense, in the subsequent time, Germany, Japan,South Korea and China seriously challenged the
US position. With regard to the studies discussed in this section, it can be argued that the effect
of globalization on the world economy is dealt with in various ways within the context of
international trade in particular, and that this analysis offers a different viewpoint on the subject.

Impact of Globalization on Trade

Globalization has had the effect of increased competition. Companies are broadening their target
area, expanding from local areas and home countries to the rest of the world. Suddenly, some
companies are fighting strong competition from outside their home country. This forced them to
source materials and outsource labor from other countries. This story of ‘sourcing and
outsourcing’ turned many companies into global ones, actively seeking for production locations
and partners for new ventures. Globalization has facilitated this and made the transition to global
markets easier. Global trading flows have benefited greatly from this mechanism as an eventual
outcome of this process. By the 1950s, WTO retail exports had risen by more than 8% a year,
according to figures from the WTO. While volatility and contraction were encountered in this
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time of growth, the rise continued to a degree and by the 2000s the annual increase in world
merchandise exports averaged 6 percent. While the global numbers sound attractive, the
individual performances of the countries are not so evident because of the profound success of
the countries. However, because of their geographical location, the natural resources they have,
their level of industrial growth, etc., the effects of globalization and the inclusion of free trade
agreements or economic integration vary from country to country. In the world economy, nations
are no longer self-sufficient and are engaged in trading at multiple levels in order to exchange
what they produce and acquire what they need. Countries typically generate more effectively
than their trading partners in certain economic sectors. Trade encourages economic productivity,
as supported by mainstream economic theory, and it can be argued that the globalization of
development leads to the globalization of trade. A variety of trends have resulted in the growth
and acceleration of the mechanism of globalization. They include developments in the
liberalization of international markets and capital flows, technical advances that have led to a
major decline in transport and connectivity costs, and coordination costs. The rising openness of
developed and emerging market economies, with specific focus on major economies such as
China and India, and Central and Eastern European countries, is also mirrored by the growing
openness of these economies. In the last time, it is possible to mention three patterns in the world
economy to form globalization flows. Since the late 1970s, the value of foreign trading has risen
by a factor of 16 times. In this respect, the continued rise of foreign trade can be taken as the first
trend, both in absolute terms and in relation to global national income. The growing position of
multinational companies is the next one, as they take the lead in foreign trade, particularly in
terms of the share of trade. In East Asian economies such as China, the Republic of Korea, and
Singapore, empirical research indicates that globalization has improved economic development
substantially. Not all developed nations, though, are equally interested in globalization, and it
should not be said that they all benefit equally from it. In fact, developed countries have been
very slow to integrate with the global economy, save for most countries in East Asia and some in
Latin America. The effect of globalization can be debated in terms of the differences between
developed country, emerging and less developed countries. The latest literature on globalization
calls for an irreversible force beyond the reach of domestic policy makers to characterize the
pressure of capital mobility, technical change and extreme market competition. Globalization is
also used in this policy sense as a synonym for greater transparency and directly related to
domestic and foreign liberalization. Trade between countries that take a comparative advantage
encourages growth, leading to a close link between access to trade flows and the effects on
economic growth and efficiency. Likewise, with a substantial partnership, capital flows and their
impact on economic growth conform to each other. International trade is regarded as the engine
of growth for long, even going back at least to Adam Smith. However, during the 20th century, it
has not been a very popular one and instead protectionist theories became dominant and the
majority of the developing countries implemented industrialization policies based on a very
limited degree of international openness for a long time. On the other hand, foreign trading
entered a new age following the conclusion of the Second World War, in which world goods
shipments increased by more than 8 percent a year. By 1973, owing to the oil price fluctuations,
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the eruption in inflation triggered by monetary expansion and insufficient macroeconomic

reform policies, this increase slowed down a little bit. By the 1990s, advances in the information
technology industry led global trade to a second phase of expansion. The overall growth in world
merchandise exports averaged 6% out of 2000 - 2007 period.

Conclusion

While the concept of globalization is not recent, it is clear that its domain grew reasonably since
the 1980s. The economic consequence of this transition resulted in growing interdependence
between world economies and a remarkable rise in the size of cross-border exchange in goods
and services. The reflection of these innovations on both economies, though, is not similar.
Although the globalization process has benefited sufficiently from industrialized economies with
sophisticated economic infrastructure, the position of emerging and less advanced economies
ranges from best to worst. Economic integration, which is already a product of globalization, is
qualified for the same topic. In this context, the effect of the globalization mechanism on the
international trade.

Reference

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