Question

Explain the concept of 'globalisation' and explain the changes that have taken place in the economic sector due to globalisation based on the following points.

A) Free flow of capital investment

B) Changes in the concept of trade

C) The rise of transnational companies

Answer 1

Globalization is the word used to describe the growing interdependence of the world's economies, cultures, and populations, brought about by cross-border trade in goods and services, technology, and flows of investment, people, and information.

Some of the important changes that have occurred in the area of economic issues are as follows:

A) Free flow of capital investment: Investment is an important aspect of the economic system. Industries need finance. Investments help to build industries as they provide finance. Investments are done by both, the government and the private sector.

B) Changes in the concept of trade: Several changes have taken place in the approach to trade since the 1990s.

1. International trade was governed by rules and regulations under the General Agreement on Tariffs and Trade (GATT) since 1948. GATT was not an organisation, it was an agreement amongst nations regarding trade. In 1995 GATT was replaced by the World Trade Organisation (WTO). WTO is an international body whose purpose is to promote free trade by persuading countries to abolish import tariffs and other barriers.
2. Trade is normally done in commodities. These can be commodities like iron ore, coal, oil or such perishable commodities like fruits, flowers, seeds, etc. Today we talk of trade in intellectual property. This includes copyrights, trademarks, patents, etc.
3. Another change that has occurred in the area of trade is the use of container cargo ships. Container ships are able to carry huge amounts of goods across the world. There are special port facilities for container ships.

C) The rise of transnational companies: Until the 1990s the government had a lot of control over the economic sector. There was limited scope for the private sector. Globalisation has changed this situation. We have seen the growth of private companies. Companies that used to operate within the nation started operating in foreign lands. They became multinational companies. Today we also see the growth of transnational companies. This development is mainly in the private sector.