Question

When one hears about globalization and industry, they may think of major brand names and industries merging in with society, their culture and way of life. Globalization corresponds with the world. How might globalization affect the US and other countries? In developing countries?

Answer 1

The U.S. economy has played a vital role in globalization due to the U.S. dollar being the world's reserve currency for well over 70 years. It has been very advantageous for the U.S. financial market compared to other foreign economies, which have to buy, sell, and transact business using the U.S. dollar.

The U.S. dollar as the world's currency has allowed for substantial negotiation power for U.S. corporations, which have given rise to multinational corporations. Trade,

negotiations, and relationships were established based on the use of the U.S. dollar through collaborations by force or by threat. While this created more buying power and value for the U.S. dollar, it lessened the value of other countries' currencies, which resulted in poverty-stricken economies, especially in developing regions.

Globalization has benefits, but also costs. Let's focus first on the benefits. U.S. firms gain access to new markets — Coca Cola, Procter and Gamble, and Merck, for example, sell their products in virtually all countries. These activities generate profits for their American shareholders. U.S. companies also gain access to new sources of raw materials and intermediate inputs, and to lower-cost locations for assembly operations that use unskilled labor — think of liquefied natural gas from the Arabian Gulf, computer boards from Taiwan, and running shoes assembled in Malaysia.

Still focusing on benefits of globalization, we know that as consumers we have gained access to new products, including compact disks, digital cameras, and fresh raspberries and blackberries in January and February. And as savers, we have gained the ability to diversify more broadly. Academic literature shows that over the long-run internationally diversified equity portfolios have a better risk-return tradeoff than domestic-only equity portfolios. These benefits have led to a higher standard of living in the U.S. and abroad.

Globalization creates greater opportunities for firms in less industrialized countries to tap into more and larger markets around the world. Thus, businesses located in developing countries have more access to capital flows, technology, human capital, cheaper imports, and larger export markets. Globalization allows businesses in less industrialized countries to become part of international production networks and supply chains that are the main conduits of trade.