Benefits and Costs of Globalisation

Idea

Globalisation extends the gains and burdens of trade to flows of capital, technology and labour as well as goods. This note catalogues the benefits and costs specific to those broader flows; it reaches no verdict. All the benefits and costs of trade are also potential benefits and costs of globalisation.

Considerations

Benefits.

Access to raw materials. Resource-constrained economies can import foreign resources. Singapore, highly import-reliant, imports raw materials to produce more and better goods; higher-quality inputs lower unit costs and raise short-run aggregate supply.
Access to FDI. Greater interconnectedness makes multinationals more willing (profit prospects) and able (better transport and ICT) to invest abroad. Foreign direct investment brings both actual and potential growth.
Access to foreign technology. Globalisation eases technology transfer — through imports of technology and through FDI — raising productivity, living standards and profits.
Access to foreign labour. Labour-constrained economies can draw on foreign workers. Around a third of Singapore’s labour force is foreign — a “brain gain” — and the larger, higher-quality workforce raises productive capacity, driving potential growth.

Costs.

Economic instability. Greater short-term capital flows raise exchange-rate volatility. Rapid inflows of “hot money” can suddenly appreciate the currency, threatening export competitiveness; sudden depreciation can cause imported cost-push inflation.
Brain drain. Greater labour mobility raises the chance that highly skilled workers migrate to economies with better prospects — a “brain drain” that hits developing countries hardest.
Structural unemployment. Easier outsourcing leads firms to hire cheaper labour in developing countries, leaving workers in developed countries structurally unemployed.
Income inequality. Inflows of cheap foreign labour depress low-skilled wages in developed countries, while highly skilled, internationally mobile workers can seek higher pay abroad — widening the wage gap, since low-skilled workers typically cannot afford to migrate.
Increased immigration. Greater immigration can strain social amenities — housing, transport, schools, hospitals — and, where immigrants do not assimilate, create cultural tensions that lower the non-material standard of living.

The benefits and costs are largely symmetric across capital, technology and labour: the same mobility that delivers FDI, technology and “brain gain” also delivers instability, structural unemployment and inequality, which is why globalisation calls for active management.