In general, globalisation increases as time goes on and develops along with changing objectives and advances in technology. It is not a new phenomenon. Especially during the last 25 years, more and more areas of the world economy have been brought into the competitive market. Globalisation, on the whole offers huge scope to improve the efficient allocation of resources and derive the benefits of international trade. It is fuelled by trade, movement of factors of production, the increasing number of Multi-National Corporations and the new technology.
There are four main factors that have contributed to globalisation in recent years. Firstly, there is the freer movement of goods and services between countries. This is known as free trade and theoretically each country should concentrate in the production of those products in which is has absolute advantages, the greatest comparative advantages or the least comparative disadvantages. Free trade is promoted internationally and regionally by a number of trading blocs and organisations like so called world wide clubs and regional clubs. The most important and relevant one is probably the World Trade Organisation (WTO). The WTO has pushed along globalisation because it discusses trade issues, establishes agreed rules and takes appropriate measures when these rules have been broken. It has 130+ members and membership is conditional on the grounds that countries must follow trade policies of a broadly free trading nature.
The other main trading bloc is the EU. It has helped globalisation because it enjoys a single currency that further unites and integrates the current 15 members. The EU allows the liberty of inter-member movement with goods, services and labour alike. Free trade has lead to globalisation in recent years because countries can enjoy exports and imports of great quality and lower prices. Globalisation is also about improving current economic situations, and if consumers are satisfied then they tend of spend more, hence generating a larger amount of money in the economy which in turn inspires even more globalisation.
Another factor which has led to the process of increased globalisation is the freer movement of the factors of production, i.e.: land, labour, capital, enterprise. If we first consider the physical capital like tools, infrastructure and raw materials; in the past it was more convenient for a country to just make use of its own resources. It was either extremely expensive or not allowed for these to move about. But since deregulation, freer movement of factors of production exists. Deregulation is basically when the government removes rules and in effect removes barriers to entry, for example perhaps abolishing a tariff on certain imports.
In terms of money capital, in the past there was the issue of exchange control, whereby there was a maximum on the amount of a currency you could carry about. This too has been deregulated, and this along with the decrease in bureaucracy and removal of red tape has enabled foreign investment to occur, spurring on globalisation.
This freer movement of factors of production, which includes capital and labour mobility has led to globalisation as different countries resources has become open to the world market. The United Arab Emirates, for example, exports a large amount of aluminium and generates a massive sum of money from this. However, to do this is has to obtain bauxite (the raw material) and this is possible because of the freer movement of factors of production.
The 3rd factor is the freer movement of firms; more specifically globalisation has been led by the growth of Multi-national Corporations (MNCs). They are such an integral part of globalisation that the sales of MNCs such as General Motors and Ford exceed the entire gross domestic product of many countries.
A Multi-national corporation is a company that has significant production operations in at least two countries, e.g. Starbucks or Sony. These large firms exist because of economies of scale, marketing, and lots of political power. MNCs help globalisation because without them there would be far less trade and innovation. MNCs have increased the amount of world output significantly and this has improved living standards throughout. MNCs create new jobs in other countries, giving rise to opportunity for the country they are operating in, and generating money for their own country.
Multi-national corporations and globalisation is inevitably leading to a shifting in production from the First World to the Third World, where labour is cheaper. This is an example of globalisation as countries become more interdependent on each other. Finally, the last main factor that has contributed to globalisation is the prominence of advancing technology. This includes communication, the Internet, computers, etc.
Technology is tied in with the other factors that have led to globalisation. The dramatic improvement in communications during the second half of the twentieth century has especially helped globalisation and MNCs. Falling airfares, the Internet, the fax machine, digitalisation and computers especially have meant that the movement of people and the transmission of information and ideas is easier and more cost-effective than ever before. Technology has reaped massive economies of scale and efficiency benefits for firms today, particularly as we live in an era where many things are computerised.
Technology has made it more convenient to manage large firms and permit the movement of factors of production and free trade. The significant reductions in constraints on the international movement of goods and capital emphasise the attitudes of people today evolving towards a more liberal outlook, and this in itself mirrors globalisation.