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How is the World Connected into a Global Economy?

By Josie Myers
Updated May 16, 2024
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The world is connected into a global economy by a number of factors and for a variety of reasons. The term globalization is often used to discuss this connectivity. In a global economy, countries integrate characteristics of other economies into their own and become increasingly dependent on one another for economic growth.

The global economy began in the 1800s when humans began to use mineral resources instead of plants as the primary source of energy and raw materials. Before 1800, plants and animals were the primary source for food, labor, fuel and fibers. Since the usage of energy was defined by how much could be grown at one time, it greatly constrained production and energy flow.

Once mineral resources began being used, these limits on energy were lifted. There was a seemingly limitless amount to be drawn from the Earth itself. This energy was more efficient and had plenty of room for expansion into new technologies. At first, it was also cheaper to use. This seemed to be a completely positive change as land previously used for creating energy could now be freed to produce food, while the cheaper fossil fuels lowered manufacturing and transportation costs.

The countries that did not use this new technology were at once greatly behind those that did. By the early 1900s, the dominant countries that reportedly controlled 2/3 of the world's economy were Britain, the United States, Germany and France. The less economically advantaged countries traded with these more powerful ones in order to gain some of the loosely flowing capital. This trading of mineral and fossil fuels, as well as the ease of transportation and communication, began connecting the world in a way unimagined before. Powerful countries with little natural resources depended on economically smaller countries to deliver the very material that made them powerful in the first place.

The global economy was expanded throughout the late 20th century with the emergence of the internet, the reduction of trade barriers, and increased capital investment is foreign interests. Countries were trading debt with one another, both from a governmental level and as individual businesses like banks and financial institutions. The internet also allowed for a greater ease of trading in foreign stock exchanges.

By the early 21st century, the global economy was connected through major flows of capital. Goods and services could be exported and imported. Labor was exported to countries who could offer more competitive production costs, or imported through migration. Capital was invested through global stock market investments or through debt exchanges.

There is a great debate over the positive and negative effects of the global economy. Those who support globalization claim that it spreads the wealth to all and promotes competition and therefore improved products. Those who are anti-globalists say that it causes physical damage to the environment and has great human costs such as unemployment and poverty. The future has yet to prove which side is right.

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Discussion Comments
By Alchemy — On May 05, 2011

@ Submariner- While the case of Jamaica is a sad point in globalization, the global market economy is not always bad. I believe that you can have globalization and localization at the same time. I think that the flaw in the globalized economy comes down to the argument over the implications of comparative advantage.

Comparative advantage implies that both sides have equal resources and that these resources have no externalized costs and they are limitless. If one takes into account energy, resources, and the environmental impacts of the two, it would make sense to localize more things because of the finite nature of the world’s resources. For example, shipping cotton to china for textile, to Mexico for sewing, and back to the U.S for screen printing to get the cheapest cost for a tee shirt creates a good that has externalized costs greater than the value of the good. Comparative advantage changes when one accounts for the external costs of a good.

By submariner — On May 04, 2011

@Babalaas- I would like to offer my opinion. I like to think that I am neither for nor against globalization, but I do see some of its flaws.

I was born in Jamaica so I have seen the damage that globalization can do. The United States and the IMF forced Jamaica to sign an agricultural development agreement in order to repay high interest, Short-term loans that the country was at risk of defaulting on; essentially, it was a mess of international finance.

The agreement would remove all import tariffs on American agricultural goods in exchange for access to the American market and removal of subsidies on American goods. The big problem was that the United States did not remove their subsidies, flooding the country with agricultural products cheaper than the nation could produce them. The United States also refused Jamaican Agricultural goods, saying they were not uniform enough, making exports almost impossible. In the need, the IMF backed the U.S and the United States gained an unfair advantage, effectively kicking the ladder away.

By Babalaas — On May 01, 2011

Why does a globalized economy lead to unemployment and poverty? It seems like some countries are just unprepared for globalization, and do not have the political and legal systems in place to take advantage of globalization. How can this be attributed to globalization?

I just do not understand why some people are so against globalization. From my perspective globalization has allowed countries like China, Korea, Brazil, India, and others to develop at a very fast pace. This sounds like a great spreading of wealth to me.

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