Globalization refers to the economic integration of goods and services, labour and capital. In this topic prepared by our JC Economics Tutor Simon Ng from Economicsfocus, extensive focus will be placed on the impacts of globalization on developed and developing economies. For instance, the analysis will cover the effects of foreign direct investment on the economies. Also, globalisation affects the external equilibrium, seen in terms of the changes in the balance of payment, which then affects the exchange rate stability.

economics tuition notes definition


What is globalization?

-It involves the rapid increase of economic activities across national boundaries, which results in increasing international integration of markets and flows of goods and services, funds and capital and  resources and labour

What is capital and labor flow?

-Movement of FDI and foreign investment portfolio

What is labor flow?

-Movement of labour from countries of lower productivity (low wage) to those with higher productivity (high wage)

What is the flow of fund?

-Flow of short term capital fund, seen in terms of savings, bonds, transactions and equity transactions

-Extensive impact on exchange rate and inflationary condition

What is Foreign Direct Investment (FDI)?

-Movement of capital that is under foreign ownership and foreign control of production facilities.

What is economic integration?

-Standard trading procedure

-Smoothen the mobility of flow of funds

-Facilitate development of trading infrastructure (Statutory Boards / State entrepreneurs -BOL, CAAS, PSA)

-Ensure optimization of resource utilization

-Expand and integrate the consumer market

-Greater integration of monetary and financial system

What is international factor flows?

Flow of capital and labour across nations

What is a standard trading procedure?

-With standardized procedures set by international bodies of trade (WTO), communication between country regarding trade issues will be more efficiency. Terms and rules of trading is specified to raise the efficiency of trade between members.

What are the benefits of globalization?

-Increased consumption and production possibilities

-Promotes efficient allocation of resources

-Promote a higher level and value of investment

-Accelerate economic growth and raise employment opportunities

-Increase in welfare

-Keeps government power in check

What are negative impacts of globalization?

-Higher degree of competitiveness for resources and export market

-Occurrence of structural unemployment

-Inflationary condition contributing to rising cost of living

-Growing income inequality among the nations and within the nations

-Labour market inequality

-Exploitation of cheap resources in developing countries

-Environmental issues

What are the determinants of Capital Flows? What are the determinants of Foreign Direct Investment (FDI)?

-Business Facilitation

-Political and economic framework

-Availability of lost cost / skilled labour

-Abundance of raw materials

-Market size and growth

-Access to regional or global market – trade network (capacity for export)

What are the positive of capital flows for receiving country?

-Higher rates of private investment leads to economic growth and employment (raise FDI will raise investment, raise AD via k, thus raising national income, production and employment

-Transfer of technology and skills

-Increased tax revenue for host government (raise national income – raise taxes)

What are the costs of capital flows for receiving country?

-Cause appreciation of host countries currencies, lowering export competitiveness

-Income disparity where only a small portion of economy benefits from FDI (only for workers who work for MNCs)

-A competitive local industry may foreclose when competing with large foreign firm

-Destruction of environment

What are the benefits of capital flows for a source country?

-Increase returns of investment – developed through the extended economy

-Benefit from lower cost of production

-Stimulates export of machinery and other capital goods

What are the negative impacts of capital flows for a source country?

-Reduction of GDP and decrease in total domestic wage – outflow of I will decrease domestic production – decrease demand for local workers (US firms increases production of US goods in China – selling of China – made US goods in China to Chinese à decrease production in US)

-Loss in tax revenue

-Export decrease as firms set production units aboard

What are the benefits of labor flows?

-Equalization of wage – low wage workers in developing economy can get higher wages by working abroad

-Increase in total world output as labour flows from a country of lower labour productivity to one that has a higher labour productivity

-Changes in income distribution: Migrants workers get more income by working in foreign country

-Increases in remittances from workers working overseas: important source of foreign exchange (for example – The Philippines – raise remittance – raise dd for peso leads to Appreciation of peso leads to fall in price of imports – help to curb imported inflation)

What are the negative impacts of labor flows?

-Brain drain from source country

-Drain on government resources arising from immigration of unskilled labour: Countries that provide generous welfare payments may attract unproductive people who will enjoy welfare benefits at the expense of locals

What are the impacts of globalization on Singapore?

-Structural unemployment


-Detrimental influence of international monetary and financial instability and global economic downturn

-Unequal distribution of income and wealth

What are the possible solutions to overcome the problems of globalization?

-Exchange rate management

-Supply-side management

-Manpower development/taxation and subsidies

-Creation of international trade network system

-Taxation – attract investment

-Infrastructural development

How does outsourcing curb the negative effects of globalization?

-Expand the resource capacity for Singapore – cheaper labour cost

-Expand the production through investment abroad – broaden the economic scope of development

-Help Singapore to increase competitiveness in the export of its good as the price of export is reduced through outsourcing

-Allow Singapore to focus on its comparative advantage to enhance competitiveness – advance high–valued production – raise our production status

-Spare the country’s resources which can be used in other areas of development – diversify the economy

What are the limitations of outsourcing?

-Structural UN+ - certain sectors will be eliminated or shrink in the size of the industry

-Less tax revenue for the government

-Complexity of the integration for the industries – may create inefficiency

-Increase competition from these countries which outsourcing is distributed to develop CA – replace industries in Singapore

-Subjected to exchange rate fluctuation – affect the cost of trade

-Advantage and Disadvantage of outsourcing in the receiving nation

-Advantage and Disadvantage outsourcing of from the outsourced nation

What is mobility of resources?

-It refers to the ease of flow of labor and capital from one point to another. (i.e. between countries, cities, firms, individuals)

What is outsourcing?

-It refers to a business strategy conducted by firms to cut costs by transferring a portion of production process to external suppliers instead of allowing full production process to be conducted locally. 

What is remittance?

-It refers to the transfer of money from one country to another.

What is labor productivity?

-It refers to the amount of good or service that a worker is able to produce in a given period of time.

What is brain drain?

-It refers to the flight of highly-intellectual and trained individuals from the host country to another country.

What is asset appreciation?

-It refers to the increase in value of assets over time.