International trade and the process of globalisation

Essay by claiton112University, Bachelor'sA-, March 2006

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Globalisation today is characterised by world economies which are more deeply integrated, supported by technological progress and liberalisation of markets. This paper will investigate some of the effects globalisation had with respect to international trade, both on developed and developing countries. The first section will deal with the liberal theory of trade and the problems associated with international trade in practice. The next section illustrates how companies take benefit from comparative cost advantage and its implications on labour worldwide. The third section shows how the financial markets have been shaped by globalisation. The next chapter deals with international debt and unequal participation in globalisation. The last chapter shows how globalisation issues have influenced poverty and inequality.

Chapter 1: Trade theory and the emergence of trade barriers

With the election of Reagan (U.S.) and Thatcher (U.K.) in the 1980s, a new economic view emerged. Milton Friedman and Friedrich August von Hayek stated that prosperity for all can be reached when the states take up the role of a night-watchman and businesses and people are completely free in making their worldwide economic decisions (Martin and Schumann, 1998).

This theory is built on the theory of comparative advantage of David Ricardo (Strange, 1993 [p. 178]). The 1980s were the starting point of a worldwide liberalization/deregulation movement which has continued up to now and finally gave power to the global market forces.

However, since then the gap between rich and poor countries (chapter 5) has been rising although poor countries have opened their economies. Today, developing and developed countries are competing for the same products; with over 70% of developing countries' exports are manufactures and not mainly primary commodities (ICC, 2004). ICC also states that developed countries impose trade barriers, for example on textiles or agricultural products, the very goods in which developing...