Impacts of Globalization on an Economy
Globalization is a phenomenon, which demonstrates a significant growth in the overall international trade of goods, services and other financial assets as observed in an economy. Globalization also commonly refers to a situation where in one country highly interacts with other countries or economies via trade, competition or investments. In such situations any change taking place in one economy and lead to significant impacts and changes in the economies and financial situations of other economies and countries. Globalization is also a situation where in the performances and economies of multiple countries across the globe become interrelated to each another and the impact of changes in any one economy can cause significant changes in other economies.
There are different ways by which globalization can have some impact on an economy. The first and the most crucial way is through the changes taking place in the policy. Different countries adopt different policies but in the case of globalization, it is often observed that the policies of one economy are adjusted slightly in order to make them align to the policies of other economies. Thus, the use of policy is one major aspect that leads to the impact of globalization on an economy. One of the very common example of how globalization affects economic policies is that the central banks of any country do not have the privilege of lowering their inflation targets because under globalization purview, inflation cannot be used as a tool in order to manage or change the demand or supply functions in a country.
Globalization also significantly affects the trade taking place from one country. A country is usually involved into some form of exports, as well as imports and the prices and the exchange rates for such trade and export and import are shown to be highly dependent on the globalization. Thus, the economies change significantly because of the globalization and the global exports and imports taking place from a country. Innovation and growth are two important pillars of an economy and both of these factors are highly affected by globalization. Globalization is shown to lead to innovation, which in turn affects the overall development of an economy. The productivity and the prices of any goods being exported or imported from a country are highly affected by globalization, thus affecting the entire economy.
Thus, we see that there is a strong connection between globalization and the development or non-development of an economy. In a situation where the economies of different countries are highly correlated to each other, it is important for the countries to work according to the international scenario. Globalization can act in the favor or not in the favor of an economy depending on the situation but definitely has an impact on all economies.