Question

Explain the relationship between today's globalization and orthodox economic theory. Is there a cause and effect between the two? Elaborate.

Answer 1

anss....
Globalization involves all economies joining a common platform and letting trade with each other to maximize the advantage of each economy. It cause every economy to work on their strengths and competencies and produce only what that can be done on lower opportunity cost. Today, many organizations are formed such as world trade organization (WTO) as well as free trade zones that are facilitating the inclusive effects of globalization.
Traditional economic theory is also applied by the economies as these theories are the fundamentals of initiation of trade among economies. It started with closed economy and absolute advantage theory and later on, shifted to the comparative advantage theory that started the traded between two countries. It became the starting point of globalization. Later on many other economic and trade theories such as imitation gap theories came into the picture and gave different reasons of trade between two or more economies.
Thus, a cause and effect relationship is established between orthodox theories and globalization. Orthodox theories led to the beginning of trade between economies and became the cause to the expansion of trade across the globe that is termed as globalization. It is considered as an effect. Globalization has spread very fast in different geographical areas due to interdependencies among each other and a need for fulfillment and stabilize the internal economy. Thus, all nations joined the common platform and discussed their issues and formulated the solution for some of the global issues. Besides, they also formed the free trade zones in their own regional area to increase cooperation and strong ties among themselves. It also helped in complimenting each other in terms of technology, capital resources and manpower.
Thus, it can be safely concluded that the orthodox theories could not meet the expectations of economies that led to the opening of economy for overseas nations. To maximize the benefits of inter nation’s trade, regional trade agreements were formed to facilitated trade among regional economies. It gave birth to the concept of globalization. With the advancement of technology and securing benefits, countries present at different locations of the world also came together via dialogue and complementary nature of each other’s strength. It led everyone to join the philosophy of globalization.