Globalisation and Free Trade Essay

planetaryization, also referred to as global integration is an important stinting concept used to understand the scotch, structural, political and pagan changes that have occurred in the world today. globalization is argued to have shaped the post-war world. Globalisation sess be defined as the increase of interconnectedness betwixt countries through international trade. The reduced constitution barriers to trade and investment in the public sector and the reduced communication and transportation appeals in the private sector be believed to be the main driving pull out behind globalisation (Frankel, 2006).Due to globalisation, the concept of dissolve trade operates. chuck up the sponge trade is a policy where countries are able to trade surplusly with each other as there are no tariffs utilise to imports and no quotas or subsidies applied to exports. According to the law of proportional vantage, the free trade policy allows both countries to gain mutually from trad e change magnitude economic growth.The increase in inequality and job losings which is occurring just about the world is argued to be as a result of global logical system of competitive profit-making management techniques of outsourcing and corporate migrations, atomisation, downsizing and widespread technological carry on which all came about as a result of globalisation and free trade (Ukpere and Slabbert, 2007) Due to both(prenominal) consequences of globalisation, movements were formed against it (Krugman et al, 2012).The anti-globalisation movements argue that although globalisation increases the boilersuit income of a countrified up to now the benefits are not equally distributed amidst the citizens. This widens income disparities which brings up social and welfare issues and could also limit the forces which drive economic growth as opportunities brought about as a result of globalisation may not be fully taken advantage of. Maintaining citizens bide is important in order to sustain globalisation, however support shown by citizens could largely be influenced by the rising level of inequality (Subir Lall et al, 2012).The Ricardian amaze of comparative advantage states that justs are produced competitively using one instrument of product labour, utilising constant-returns-to-scale technologies that vary across countries and goods (Deardorff,2007) . The Ricardian model puts forward that countries would export the good in which they have comparative advantage which is determined by fortune cost, labour cost and labour productivity. A surface area has a comparative advantage in the business of a good if the opportunity cost of producing that good in terms of other goods is lower in that commonwealth than it is in other countries (Krugman et al, 2012).The Ricardian model illustrates a world with two countries, A and B which both utilise a single grammatical constituent of production labour in producing good X and Y respectively. Assuming agricultural A has comparative advantage in producing good X, then unsophisticated A should specialise in the production of good X and would export it to country B. Since it is more cost effective for country B to import good X , Production of good X would decline in country B leading to a reduction in the motive for labour. As a result workers would lose their jobs leaving them with less spendable income change magnitude inequality.As a result of globalisation, the cost of communication amidst countries is low, reducing the cost of controlling the geographically dispersed parts of an organisation. This allows organisations report countries which have low production costs and set up branches in such countries in order to exploit the low production costs. This is referred to as outsourcing. Through this fragmentation of industry, the host countries are able to pursue their comparative advantage and maximise the use of their resources.However due to outsourcing, the movement of production to the host country causes people in the foreign country to be laid off their jobs as there is a decline in the demand for labour, increasing job losings and also the inequality gap. The factor-proportions guess stresses the importance of the interaction surrounded by the proportions of the factors of production that are utilised by countries in production and the proportion of the factors of production the country possesses (Krugman et al, 2012).The Hecksher- Ohlin model is a version of the factor-proportions theory . The model assumes that the country that is long in a factor exports the good whose production is intensive in that factor and can be referred to as 2 by 2 by 2 Two factors of production, two goods, two countries (Krugman et al, 2012). Assuming we have two countries, country A and B which utilise two factors of production labour and lend to produce goods X(labour intensive) and Y(land intensive) respectively.The Hecksher-Ohlin model states that If count ry A has abundance of Labour and country B has abundance of land then country A would be effective in the production of good X and country B would be effective in the production of good Y. The Hecksher-Ohlin model purports that owners of abundant factors benefit from international trade and owners of precisely factor would lose from trade. Owners of the scarce factor would then be forced to lay off some workers leading to disparities in the distribution of income which increases inequality (Krugman et al, 2012).The Stopler- Samuelson theory describes an interaction amid relative factor rewards and the relative worths of goods. The theory purports that under some economic conditions (perfect competition, constant returns, equal number of goods produced to equal number of factors) the line up in market price of a good would result in an rise in the return to that factor that is most intensively utilised in producing that good whereas a reduction in the return to the other factor occurs.Due to free trade, there are reduced tariffs on imports and as a result, there is a decrease in the price of merchandise goods that are high skill-intensive reducing compensation of limited high- adept workers. Also, there in as increase in the price of exported goods which the country has abundant factor, that are low skill-intensive and the compensation of low-skilled workers. In a developed country with comparatively abundant high-skill factors the opposite would occur with a rise in receptivity resulting in higher inequality. Inequality is argued to be rising amongst countries.The differences between the global poor and global sizable continues to increase (Haines, 2001). The income take of the richest quintile is increasing whilst the income share of the rest of the quintiles is decreasing. Although globalisation is argued to be largely responsible for the increase in job losses and inequality, we can also argue that technological win has contributed to some extent . Technological progress is responsible for the increasing gap between the skilled and unskilled workforce as it puts greater importance on worker skills.As a result of this, in most countries skilled workers are paid significantly higher wages than unskilled workers as a result leading to differences in income distribution. Also, in most households nowadays, well pass that most people use telephones and computers, making it possible for individuals to purchase a wide range of goods and services from a global supply chain. Countries that denounce goods and services at a lower price compared to other countries bleed to have comparative advantage in producing the good according to the Ricardian Model.As individuals we tend to then purchase goods from the country which sells it at the lowest price when compared to other countries. These current patterns have led to a large incision of the labour market withering away, increasing inequality and job losses amongst countries (Martin a nd Schumann, 1997). Samuelson (2004) indicated that using the Ricardian model, with two goods and two countries with different levels of productivity, technological progress in the lagging country would benefit the latter and the more developed country would end up losing from international trade.This reduces the mutual benefits from international trade increasing inequality. In order to decrease the rising inequality and job losses the government should make providing easy and free access to education a matter of high importance. This gives unskilled and low income groups an opportunity to take advantage of opportunities which arise from globalisation as a result they would be able to lessen the disparities in income distribution and have more job opportunities (Subir Lall et al, 2012).Globalisation is believed to have significantly contributed to the increase in the overall wealth amongst countries however it has a disequalizing effect as access to wealth between the rich and poo r segments of the population is unequal. Government should put in place policy reforms which are aimed at opening up access to finance, developing institutions that set ahead lending to the low income groups in order to enhance the general distribution of income, which in turn helps to support the overall growth of the economy.