The Benefits Of Globalization & Free Trade
...Politicians decry unemployment caused by Benedict Arnold CEOs shipping jobs overseas; labor leaders and environmentalists fear a degrading of worker rights and deterioration of the environment; workers worry that they will lose good paying jobs to cheap foreign labor. From a macroeconomic perspective it is necessary to examine these issues based upon what economic theory predicts and what the empirical evidence demonstrates. While globalization has many connotations, for the purposes of this discussion, it is the process of greater integration of economic activity between nations through free trade and foreign investment by multinational corporations.
First it is important to understand why globalization might be desirable. The fundamental benefits of trade can be demonstrated by applying the economic principle of comparative advantage. The ramifications of globalization in terms of the amount and quality of employment will then be addressed, as well as the contentions that multinationals are exploiting workers and engaging in a “race to the bottom” in labor and environmental standards through there foreign investment decisions.
The economic principle of comparative advantage is crucial in understanding the benefits of free trade and globalization. The concept of comparative advantage states that even if country A can produce two goods more efficiently than country B, if country B can produce one good more efficiently relative to the other good than country A, then it benefits both countries to specialize and produce the good that they have the comparative advantage in producing. Consequently, by trading, both will be better off than if they attempted to be self-sufficient. For example, suppose China can produce computer programs with 30 hours of work and shoes with 15 hours of work, and the U.S. can produce programs with 15 hours of work and shoes with...
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