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June 2012

To what extent do the costs of globalization outweigh the benefits?

Globalization has both benefits and costs

World trade as proportion to GDP has increased
Trade liberalization and reduced transport costs, world output,
standard living

Countries benefit from comparative advantage

One country produces at lower opportunity cost, efficient
allocation, output
However transport costs can outweigh

Producers have lower costs, offshoring and cheap labor,

economies of scale
Consumers benefit, increase cons. surplus and welfare
However whether they pass onto the consumers

Consumer more choices, not locally produce,

More access and competition for firms

Is it sustainable
Increased transport and external costs, becoming more
Global warming depletion of natural resources
Arguably they will invest in green ways of producing

Increase exploitation and inequality

Takes advantage of low wage economies which is unlikely to
rise, maintain international competitiveness

Unstable economy, more closely integrated

2008, started in US dragged UK main exporting partner
Begun protectionist measures

Increased inequality, LEDC has no access to infrastructure to

setup telcom
Yet TNC setup companies mean economy will grow