Globalization and Growth: A Macroeconomic Perspective

The increasing trade liberalization between nations and the rising degree of openness of national economies are often branded with the term “Globalization”. In many economies, gains from specialization and trade advantages have arisen as a result of this process. Due to different factor endowments and production possibilities, national economies produce a variety of goods at different relative costs. An exchange of these goods can be beneficial for both the participating economies (trade advantage). Furthermore, economies can also specialize in the production of the goods for which they have a comparative production advantage (specialization advantage). Both effects lead to a higher level of overall welfare. However, there are winners and losers when it comes to globalization. According to the Samuelson–Stolper Theory, with their given factor endowments, an economy specializes in the production of those goods that require for their manufacture the factors which the country possesses in relative abundance. Economies with comparatively high capital resources specialize in capital-intensive goods, those with comparatively high labour resources in labour-intensive goods. This has implications for the functional distribution of income: in the country that specializes in capital-intensive goods, the capital income will increase and the labour income will decrease; in the land where the labour-intensive goods are produced, the labour income will rise and the capital income will fall. Similar effects result for high- and low-skilled workers. Here, a reallocation of the factors of production due to globalization can likewise cause a redistribution of factor income. In the industrialized nations, high-skilled workers, relatively strongly represented in these countries, also profit from migration movements, while low-skilled workers are poorly positioned.