The Benefits of Globalization & Free Trade
Why It Is Good for America
&
The Rest of the World
David Srulevitch
Principles of Economics ET-101
December 2004
The trend of globalization and trade liberalization has been an extremely contentious issue for many. Politicians decry unemployment caused by Benedict Arnold CEOs shipping jobs overseas; labor leaders and environmentalists fear a degrading of worker rights and deterioration of the environment; workers worry that they will lose good paying jobs to cheap foreign labor. From a macroeconomic perspective it is necessary to examine these issues based upon what economic theory predicts and what the empirical evidence demonstrates. While globalization has many connotations, for the purposes of this discussion, it is the process of greater integration of economic activity between nations through free trade and foreign investment by multinational corporations.
First it is important to understand why globalization might be desirable. The fundamental benefits of trade can be demonstrated by applying the economic principle of comparative advantage. The ramifications of globalization in terms of the amount and quality of employment will then be addressed, as well as the contentions that multinationals are exploiting workers and engaging in a "race to the bottom" in labor and environmental standards through there foreign investment decisions.
The economic principle of comparative advantage is crucial in understanding the benefits of free trade and globalization. The concept of comparative advantage states that even if country A can produce two goods more efficiently than country B, if country B can produce one good more efficien ...