It is assumed that globalisation generates economic benefits because of an extended application of the principle of competitive markets to international economic relations and activities.
This is so even when domestic economies of some member countries are not market-oriented but are substantially regulated. It would appear that benefits of globalisation depend, among other things, upon the following:
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i. The extent and form of globalisation.
ii. The extent to which monopolistic and oligopolistic forces are kept out of international transactions and domestic economies.
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iii. The extent to which each country abides by the spirit of globalisation and does not try to take advantage of its economic or political strength in exploiting the weaker economies.
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Given these essentials, we can recount the following likely sources of economic benefits for a truly globalised economy:
Expansion of Trade:
With the removal of tariff and non-tariff barriers against external trade, cost of trading comes down, prices of traded items fall and the demand picks up. This in turn leads to an expansion in international trade with all its associated advantages.
Resource Allocation:
Globalisation promotes a more efficient allocation of productive resources of the world in conformity with comparative advantage enjoyed by each country.
There is an inherent tendency for resource allocation to conform with resource productivity on the one hand, and demand pattern on the other. There is a greater scope for taking advantage of economies of scale and technical innovations.
Resource Economy:
It is claimed by advocates of globalisation that the extent of economic interdependence of countries acts as an incentive for peace and prevention of wars.
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This results in a reduction in expenditure on defence and resources so released can be diverted towards projects for economic growth and social welfare.
Resource Generation:
Unrestricted trade adds to the resource base of the trading countries. Such an addition is in direct proportion to the volume of trade and terms of trade etc. The scope for adding to resource base widens in the long run.
Growth Multipliers:
Addition to productive resources and their more efficient allocation generate growth multipliers. Consequently, individual economies are able to generate additional income and employment and thereby reduce the incidence of poverty.
The growth process is further strengthened if globalisation extends to cover capital and technology flows and trade in services.
Reduction in Inter-Country Disparities:
It is claimed by analysts that the very process of globalisation reduces inter-country economic disparities. Thus, it helps in eradicating poverty and enhances social welfare.
Sustainable Development:
It can be argued that, in the long run, developed countries can stay developed only if poor ones also prosper. The argument is that developing countries provide necessary markets for the products of the developed ones and are in a position to provide low-wage skilled labour.