David Rubin In This Article Positive Effects of Globalization

Foreign Direct Investment

Foreign direct investment (FDI) tends to grow at a much greater rate than world trade does. This can help to boost technology transfer, industrial restructuring, and the growth of global companies.²

Technological Innovation

Increased competition helps inspire new technology development. The growth in FDI helps improve economic output by making processes more efficient.³

Economies of Scale

Increased global trade enables large companies to realize economies of scale. This reduces costs and prices, which in turn supports further growth. However, this can hurt many small businesses trying to compete at home.⁴

Negative Effects of Globalization

Some of the risks of increased global trade include:

Interdependence

Interdependence between nations can cause local or global instability. This occurs if local economic fluctuations end up impacting a large number of countries relying on them.⁵ For example, in 2020, Ukraine was the fifth larger exporter of wheat. When Russia invaded the country, it threatened food supply chains for countries like Pakistan, Lebanon, and Vietnam that import Ukrainian wheat.⁶

National Sovereignty

Some see the rise of nation-states, global firms, and other international organizations as a threat to sovereignty. Ultimately, this could cause some leaders to become nationalistic.⁷
Two prominent examples of the rise of nationalism as a pushback to globalism include the 2016 election of Donald Trump in the U.S. and the British vote to leave the European Union (known as "Brexit"). These events contributed to the anti-globalization movement and stoked anti-immigration sentiments.

Equity Distribution

The pros of globalization can be unfairly skewed toward rich nations or individuals, creating greater economic inequalities.⁸ For example, in the wake of NAFTA, the average net weekly pay for maquila workers was $55.77 in 1998—less than $2 more than the average cost for basic needs in the maquiladora trade zone.⁹
Dani Rodrik, author of Straight Talk on Trade: Ideas for a Sane World Economy, argues for a rebalancing of globalization.
In a 2017 piece for the Milken Institute Review, Rodrik notes that current policies "produce[s] losers as well as winners." For instance, workers are left with a less stable labor market. In Europe, these workers were given a strong social safety net. The U.S., Rodrik says, "let the chips (and workers) fall where they may."
To fix globalization's problems while keeping benefits, Rodrik suggests several changes. Chief among them: giving labor a stronger voice, shifting from global governance to national governance, and focusing attention on where the biggest economic gains can be made.¹⁰