The Costs and Benefits of Globalization - Research Paper Example

The paper "The Costs and Benefits of Globalization" is a worthy example of a research paper on macro and microeconomics. The idea of globalization is rooted in David Ricardo’s theory of Comparative Advantage. The principle states that, even though a country has the absolute advantage in the production of all products against other countries, it will still do well if it trades (Mankiw). This would allow each country to specialize in the product that they do best-that is the product with the lowest opportunity cost.

This is where the idea of comparative advantage is coined. In two articles about globalization, we will be able to determine the apparent benefits and costs of this trend. A Times staff writer, Carol J. Williams wrote an article about the death of the banana industry in the Caribbean, particularly St. Lucia. Around the year 2000, when the EU has not yet adopted a fully open economy, it set am import quota, therefore allowing the Caribbean country to have a secure market. However, around 5 years later, it adopted the idea of free trade thereby eliminating the quota.

This posed a grave challenge to the Caribbean banana industry as they faced a fierce competitor in the US-based banana company Chiquita (Willams). Chiquita is the banana exporting company with a global coverage of 28.5%. Slowly, St. Lucian farmers are switching to other crops and occupations. The idea of eliminating import quota is supported by the theory of international trade. Particularly, import quotas are seen to limit the gains that can be realized by local consumers (Mankiw). This is an inevitable move of countries adopting the principles of international trade.

Removing import quota is again on the part of the consumers. Specifically, through globalization, they can have access to foreign products which are offered at a lower price compared to the domestic ones. However, this also shows the cost of globalization. This is particularly referred to as the “infant industry argument”. If the local industries are not efficient enough to compete in the world market, it will suffer death. This is one of the common costs of globalization. Because of globalization, more local businesses are displaced.

The big companies enjoy economies of scale, therefore, they can offer the products and services at a much lower price. Telling a comparable story is the country of Portugal. Unable and perhaps unwilling to adapt to the changing world, Portugal now faces fierce competition from Chinese importers as the figure of Chinese imports to Portugal reaching 26.5%, around $1 billion (Hatton). In particular, the cheap merchandises from China such as paintings and other Chinese goods were too tough a competitor for the local Lisbon sellers.

Due to the lower demand for local products which cause slow production, the unemployment rate was also very much affected, reaching a 21-year high 8.3% (Hatton). One of the arguments for globalization is that it brings about efficiency, mainly because he who fails to produce efficiently will not survive. As to the example of Portugal and China, the failure of the Portuguese merchants to anticipate greater competition from cheap China products which is some sort of complacency had a cost. Had they prepared and improved their processes so that they could produce at a lower cost, they could have maneuvered the changes in trade to their advantage.

Globalization is a trend which is very much supported in the field of economics. The aim is that it should benefit both the rich countries and the poor ones, as designed in the model of David Ricardo. However, the process of achieving overall efficiency has a cost and adhering to what some says there is a place of greed in international trade. Therefore, those who are not prepared to fight squarely are suffering much.