Commerce across borders has been going on for thousands of years, but the international business volume has almost tripled in the past 30 years due to globalization. This increase shows us how the economies around the world have become more integrated and more interdependent.
Of course, such interdependence comes both with rewards and difficulties.
For example, Pedro Milan, the finance minister of Brazil in the late 1990's, was complaining to his U.S. counterpart Robert Roubin “how difficult it was to explain to Brazilian people that the local Brazilian currency was under attack and interest rates were higher just because the Russian parliament had failed to raise taxes in Russian Federation."
Yet the economic globalization has its merits that helped the development of the world economy.
Globalization enabled each country to focus on and specialize in producing more efficiently - rather than trying to make everything internally. This increased the global output and improved the living standards of trading partners.
Also, by expanding markets, local companies benefited from economies of scale, which enabled them to produce goods and services at lower costs by purchasing, manufacturing, and distributing in higher quantities.
Of course, advances in communication and transportation technologies. have fueled up the process.
Globalization and National Actions
Some people argue that globalization makes national actions matter less, in the sense that forceful imperatives of the world economies take power from them.
Some believe the contrary.
They claim that enhanced by globalization, a higher interdependence among countries has increased the potential impact of any one country's actions (or problems) on others, making the national acts more influential and essential. Since the national action effects can quickly impact the borders, the national efforts have become more significant.
Giving Pedro Milan's above complaints as proof, they also claim that the responsiveness of global capital markets to national economic policies, whether good or bad, has increased, which magnifies the impact of federal actions.
We have to admit that globalization has increased the potential impact of the national economies on others as the countries have become more interdependent. Yet, it is also pushing the sovereign nations to act in a way that is acceptable to other countries and limits their flexibility.
So, perhaps it will be wiser to interpret the current situation as a new “game” rather than framing it from the perspective of national actions’ freedom or impact.
Bovee, Courtland L., and Thill, J. V. 2017. Business in Action Eighth Edition, England: Pearson, p. 97.
Griffin R.W., and Pustay, M. W. 2010. International Business, 6th ed., N.J.: Pearson Prentice Hall, p.6.
Rubin R. E., and Weisberg J. 2003. In an Uncertain World, NY: Random House Trade Paperbacks., pp. 213-214.
Ulbrich, H. H. and Warner, M. L. 1990. Managerial Economics, NY: Barron's Educational Services, p. 190.