Answer to Question #100838 in Economics for globalization and income distribution

Question

explain globalization and income distribution

Answer 1

Economic globalization is a process of rapid economic integration among countries driven by liberalization of trade, investment and capital flows as well as technological change. It is widely believed that increased openness to trade and foreign direct investment (FDI) through its impact on economic growth should reduce poverty and make the distribution of income more equal in developing countries. Undoubtedly, globalization has certain advantages for developing countries, because of increased manufacturing, diversification, economic expansion, and improvements in standards of living. Also, it provides growth of trade volume. However, huge trade volume with negative trade balance or foreign direct investments that favor only the more skilled workers may lead to negative results. At the same time, it brings some risks for developed countries; penetration of developing countries into their economies can has a domino effect through its trade partners (how it was with Greece and other European countries in 2008).