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Multinational corporations - Essay Example

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Human societies across the globe have established progressively closer contacts over many centuries, but recently the pace has dramatically increased. Jet airplanes, cheap telephone service, email, computers, huge oceangoing vessels, instant capital flows, all these have made the world more interdependent than ever…
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Multinational corporations
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Download file to see previous pages As a result, laws, economies, and social movements are forming at the international level. Many politicians, academics, and journalists treat these trends as both inevitable and (on the whole) welcome. But for billions of the world's people, business-driven globalization means uprooting old ways of life and threatening livelihoods and cultures. The global social justice movement, itself a product of globalization, proposes an alternative path, more responsive to public needs. Intense political disputes will continue over globalization's meaning and its future direction" (Global Policy Forum)
"The term globalization refers to the process of global integration of the economies of nations by allowing the unrestricted flow of goods, services, investments and currencies between countries. Nation states pursued globalization in the hope that this would lead to prosperity. They believed that globalization would bring them agricultural modernization, industrialization, urbanization, and hyper-consumerism resulting in increases of per capita gross domestic product (GDP). Unfortunately, such developments have often been accompanied by increasing social and environmental destruction throughout the world. The process of globalization is having unprecedented impacts, both positive and negative, on life at the individual, village, town, city and national levels" (Center for Alternative Development Initiatives).
Globalization traces its roots on the modern economic concepts popularized by economists such as David Ricardo. Particularly, it has its foundation on the "principles of comparative advantage" which supports international trade (Mankiw).
Introduced by David Ricardo in 1817 through his book On the Principles of Political Economy and Taxation, comparative advantage posits that trade can create value for both countries even if one has the fewer resources in the production of all goods. Using the production possibilities frontier, Ricardo was able to prove this, achieving a significant breakthrough in the field of international economics.
Practically, Ricardo believes that given the situation, both countries can still gain by having the less efficient country specialize in the production and exportation of the commodity in which its absolute disadvantage is smallest and import the product in which it has its greatest absolute disadvantage. The commodity in which one country has the least absolute disadvantage can be thought of as one in which it has the comparative advantage. The gains are realized as both countries specialize in the production of commodity in which it has the least opportunity cost (Mankiw).
The Gains from Trade: A Simple Numerical Example
To facilitate understanding of the gains from trade, we cite the example from the Principles of Macroeconomics book of N. Gregory Mankiw. Given that it takes 20 hours for farmer to produce 1 lb of meat and 10 hours to produce 1 lb of potato, and 1 hour for rancher to produce 1 lb. of potato and 8 hours to produce 1 pound of meat, we construct the table for a 40-hour work schedule.

Source: Mankiw, N.Gregory. Principles of Macroeconomics. Orlando, Florida: Harcourt Brace College Publishers, 1998.
Obviously, the rancher has the absolute advantage in the production of both meat and potatoes.
The rancher may advice the farmer to produce potato alone, while he does meat production at longer hours than production of potato. The table below shows the beneficial ...Download file to see next pagesRead More
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