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Unit 4: Globalisation in World Economy

and autonomy of the state, but, while these firms are powerful, the nation state still retains its Notes
traditional and dominant role in the world economic and political system.

Notes The geopolitical factors include:
 Demise of communism and the rise of market based economies

 Removal of trade barriers and free capital flows (relative effects on exchange rates)
 Change in institutional barriers
 Intervention of multinational corporations

Globalisation has clearly changed the world system and that it poses both opportunities and
challenges. It is also clear that the technological, policy, institutional, ideological, and cultural
developments that have led to globalisation are still very active. Thus, barring a radical move in
a different direction, these trends toward greater globalisation will likely continue or even
accelerate in the future. One important aspect of these trends will be the growth in international
trade in services that has already increased substantially but promises even greater growth in
the future, especially in such areas as telecommunications and financial services. The result will
be continued moves toward a more open and a more integrated world as it moves closer and
closer to a planet without borders and to a more integrated, open, and interdependent world
economy. The result will be even greater worldwide flows of goods, services, money, capital,
technology, people, information and ideas.

4.1.1 Impacts of Globalisation on National Economies

Globalisation has had significant impacts on all economies of the world, with manifold effects.
It affects their production of goods and services. It also affects the employment of labour and
other inputs into the production process. In addition, it affects investment, both in physical
capital and in human capital. It affects technology and results in the diffusion of technology
from initiating nations to other nations. It also has major effects on efficiency, productivity and
competitiveness. Several impacts of globalisation on national economies deserve particular
mention. One is the growth of foreign direct investment (FDI) at a prodigious rate, one that is
much greater than the growth in world trade. Such investment plays a key role in technology
transfer, in industrial restructuring and in the formation of global enterprises, all of which have
major impacts at the national level. A second is the impact of globalisation on technological
innovation. New technologies, as already noted, have been a factor in globalisation, but
globalisation and the spur of competition have also stimulated further advances in technology
and speeded up its diffusion within nations through foreign direct investment. A third is the
growth of trade in services, including financial, legal, managerial, and information services and
intangibles of all types that have become mainstays of international commerce.

Did u know? In 1970, less than a third of foreign direct investment related to the export of
services, but today that has risen to half and it is expected to rise even further, making
intellectual capital the most important commodity on world markets.
As a result of the growth of services both nationally and internationally, some have called this
“the age of competence,” underscoring the importance of lifelong education and training and
the investment in human capital in every national economy.

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