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A More Connected Global Economy Is a Double-Edged Sword: WTO

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  • Published
    21st Dec, 2021


In its annual report on the status of global trade, the World Trade Organization finds that the increasing interconnectedness of the world's economies is a double-edged sword.


  • Globalizationis a multifaceted concept that describes the process of creating networks of connections around the world.
  • It involves the interdependence of national economies and the integration of information, goods, labour and capital, to name a few.
  • In recent years, globalization has been the subject of growing discontent and criticism, particularly after the COVID-19 pandemic.

The pandemic has illuminated both globalization (a virus went global in a few weeks thanks to globalization and interconnectedness) and de-globalization (the breakdown of international co-operation and the re-emergence of nationalism when it came to personal protective gear, medical devices and vaccines).


WTO’s take on connected world

  • Shock plus recovery: While this globalization makes individual countries more vulnerable to short-term shocks, the WTO says, it also allows them to recover far more quickly than they would have in the past.
  • Better crisis management: Yet, globalization was also at the heart of why this virus was met with vaccines in record time. Scientists were able to share ideas and technology across borders, backed by public and private funding for research and development.
  • Interconnectedness tied to stability: The report also found that the more diversified a country's trading relationships were with the rest of the world, the less likely they were to experience significant economic volatility.

Understanding ‘Globalization’

  • Globalization is the term used to describe the growing interdependence of the world’s economies, cultures, and populations, brought about by cross-border trade in goods and services, technology, and flows of investment, people, and information.
  • Countries have built economic partnerships to facilitate these movements over many centuries.

India and Globalization

  • The wake of globalization was first felt in the 1990s in India when the then finance minister, Dr Manmohan Singh initiated the economic liberalization plan.
    • The new policy was called as Liberalization, Privatization and Globalization Policy (LPG Policy) or the New Economic Policy, 1991.
  • Since then, India has gradually become one of the economic giants in the world.

Components of Globalization

There are three major components of globalization: economic, social and political.

  • Economic globalization: It involves the flow of goods, services, capital and information through long-distance market transactions. Although the pandemic is global, regions and countries have experienced it differently based on various economic indicators.
  • Social globalization: It pertains to interactions with people abroad including via migration, international phone calls and international remittances paid or received by citizens.
  • Political globalization: It involves the ability of countries to engage in international political co-operation and diplomacy, as well as implementing government policy.

The changing globalization

  • Globalization itself is evolving, with changes in global trade flows, capital flows, and the Fourth Industrial Revolution.
  • More trade flow: Trade flows have attracted more attention than capital flows and technological changes as drivers of globalization.
  • Increasing trade in services: Trade in services is now increasing at a much faster pace than trade in goods. The cost differential in the production of services across the world is still enormous. The cost differential in traded services is much greater than in trade in goods. In the past, the only means to narrow such cost differentials was migration. 
  • Technology: Technology has become a bigger force of globalization, changing cross-border mobility of goods and services, and capital flows.
    • New technological revolution has huge spillovers and externalities.
    • Data and information technology is now the lifeblood of the global economy, fuelling ideas for new products and services, and advancing the transnational flow of trade, capital, and ideas. 
  • Digitalization: Technology has enabled services to be digitized and transported long distances at low costs without compromising on quality.
    • The internet has enabled firms to sell services without crossing national borders, and dramatically increased the size and the scope for exploiting cost differentials in services compared to trade in goods.
  • India’s trade characteristics are well aligned with the new face of globalization.

Challenges faced by India

  • Overall, India is much better off today than before, in the new face of globalization. But there are many challenges ahead. India majorly faces a dual challenge—
    • Demographic dividend
    • Rapid technological change
  • Technological progress is placing a higher premium on skills, and any failure of countries to lay the groundwork for their citizens to lead productive lives will not only carry high cost, it will also generate more inequality and conflict.
  • In most countries, children born to more affluent parents start having access to better opportunities early in life, and these lead to lifelong advantages, whereas children born to poorer parents miss out on these opportunities.
  • If policy makers make more effort to make early childhood development programmes universal, income inequality would fall.

What are the positive sides of globalization?

  • Competitive Markets
  • Growing Economies of developing countries
  • Diversified workforce
  • Better Future to skilled manpower
  • Better Products and services
  • Sharing of technology and knowledge
  • Cultural and heritage exchange

Negative side of globalization

COVID-19 has shown us the darkest side of increasing Globalization:

  • Easy spread of vulnerabilities
  • Occurrence of a catastrophe can affect the whole world.
  • Confusing local system
  • Exploitation of manpower
  • Immigration challenges
  • Affected culture and language: Minority languages are dying out because of the necessity of learning internationally recognized language English for carrying on international business and Multi-National Corporations effectively and efficiently.
  • Rapid urbanization: Levels of pollution are rising as countries strive for economic growth and a competitive edge in the global market, resulting in rapid industrialization.

Wrapping Up

To sum up, globalization is definitely a double-edged sword that has created jobs and promoted international cooperation on one hand, and has led to cultural losses, more environmental damage, increased health risks, and exposure to economic crises, on the other.


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