The effects of global economic integration

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Coursework Title:

|With reference to some of the results of empirical research, examine the effects of global economic integration on countries |
|and the world, taking care to stress both the positive and negative impact on global integration. |

Words Count: 1519

Student:Mariam Diaby
ID: 2832037
Tutor: Brian Ardy
International trade has always existed between countries around the world. But between 1870 and 1913 and since 1945 economic links between countries become more evident, contributing to see the world as globalised. This economic integration can be defined as the process whereby the markets of different countries for different goods, services and factorsof production are increasingly becoming parts of a global market. Saskia Sassen (2006) writes that « a good part of globalization consists of an enormous variety of micro-processes that begin to denationalize what had been constructed as national — whether policies, capital, political subjectivities, urban spaces, temporal frames, or any other of a variety of dynamics and domains ».

Recently,global economic integration has intensified; world trade and capital flows have risen substantially, and production of goods and services is increasingly controlled by multinational corporations. As global economic integration is becoming deeper, questions arise related to its actual benefits, but also its negative effects.

The positive effects of global economic integration are the main reasonfor its development. The main positive effect of economic globalization is the improvement of efficiency in the economy. By trading with other nations, countries’ market sizes become larger and, consequently have more production and higher production efficiency due to economies of scale. Countries can specialize on the basis of comparative advantage and this will raise the efficiency in production.Economic growth is achieved through more productive use of all resources, and results in improvement in people’s average standard of living.

To face greater demand, production is more focused, and causes an optimum use of available resources. Countries belonging to an integrated market adjust their use of natural resources and specialize in the production of certain goods. Using productiondata in current prices for 27 manufacturing industries, Amiti (1999) finds that there was a significant increase in specialization between 1968 and 1990 in Belgium, Denmark, Germany, Greece, Italy, and the Netherlands. As the size of the market expands production, costs can fall as a direct effect of economies of scale. Linked to specialization, economies of scale is a mean to industrialexpansion.

Empirical studies of the effects of integration within the European Union have shown that trade and market integration can increase effective competition. Harrison et al. (2006) evaluate the impact that different reforms carried out by the European Union under the Single Market Program have had in innovation intensity. They find that these policies have increased both competition, measured asa reduction in markups, and innovation intensity, measured as R&D expenditures over sales, leading to productivity growth in the manufacturing sector. Competition leads to lower prices, better products and more efficient production. Badinger (2005) suggested that gross domestic production (GDP) per capita of the EU would be approximately one-fifth lower today if no integration had taken placesince 1950.

Economic integration engenders innovation through technological advances. Industries are more specialized in their production, and to face the competition, invest in research and development. This leads to improved production processes and allows industries to retain a comparative advantage. Production, varies, and consumption increased. Consumers can benefit from a wider variety of...
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