Economic globalization is the increasing interdependence of different economies in terms of international trade, technology and capital movement. Its main characteristic is the significant expansion of multinational corporations that stimulate economic growth by developing industries and creating new jobs. Economic globalization opens markets and makes international cooperation more effective. However, it also has a negative influence on the international stability and can cause significant economic collapses.
Economic globalization has two areas of influence. First, it liberalizes international trade and opens national markets. Countries increase their import and export by reducing tariffs and taxes, and thus get a significant potential for GDP growth and the improvement of the nations’ welfare. Second, globalization penetrates into the financial sector and stimulates international flows of capital. Investors become able to allocate their capital in developing countries by foreign direct or portfolio investment. The former usually supports real economy by creating new facilities and jobs, while the later has nothing to do with goods and services, and usually serves for speculations.
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Capital inflows are very important for countries, especially for the developing ones, as they stimulate the real economy and increase general productivity. East Asian Miracle, the significant economic growth in East Asian countries in the early 1990th, started from the successful liberalization of the financial sector. The growth resulted in the total urbanization and economic boom. However, Asian countries became very dependable on the foreign investment, and the rapid capital outflows were fatal for their economies, resulting in the economic collapse and financial crisis in the region. Asian financial systems were not very well developed and thus were not ready to deal with giant capital flows. The similar situation happened with Russia after its financial liberalization. The lack of regulations resulted in economic collapse with enormous poverty and unemployment rate.
Consequently, the countries should make their decisions taking into account history and the bitter experience of some countries. Economic globalization provides nations with great opportunities for a better life, but it also creates many threats, as the unregulated globalization is a very powerful force that can cause catastrophic consequences.