Globalization

Globalization (also spelled globalisation) is the process by which national economies, businesses and societies become more closely connected through cross-border trade in goods and services, flows of investment and finance, the movement of people, and the spread of technology, information and culture. In economics the term usually refers to the deepening of international trade and capital flows and the spread of production across countries.

Globalization is driven by falling transport and communication costs and by policy choices such as tariff cuts under the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO), and the opening of capital markets. It is one of the most debated subjects in economics and politics, with arguments from free-market, labour, environmental and nationalist perspectives.

Look at the label on a phone or a T-shirt. The design may come from one country, the parts from several others, the assembly from another, and the money that paid for the factory from investors on a different continent. The shopper, the worker and the investor may never meet, yet each depends on the others.

That web of connections is globalization. It means more choice and lower prices for many people and new jobs in some places, but also more exposure to events far away: a factory closure, a shipping delay or a financial crisis in one country can quickly be felt in many others.

• First wave (about 1870–1914). Steamships, railways, the telegraph and the gold standard drove a surge in trade, investment and migration.
• Retreat (1914–1945). Two world wars, tariff wars and the Great Depression shrank trade and capital flows.
• Postwar rebuilding (1945–1980s). The Bretton Woods System, GATT tariff rounds and containerization revived trade, mainly among rich countries.
• Hyper-globalization (about 1990–2008). The end of the Soviet bloc, market reforms in China and India, China's WTO entry in 2001, the internet and global supply chains run by the multinational corporation (MNC) pushed trade and foreign direct investment (FDI) to record shares of world output.
• Slowdown and fragmentation (2008 onwards). After the 2008 financial crisis, trade stopped growing faster than GDP. US–China tariffs from 2018, pandemic supply shocks, sanctions after Russia's 2022 invasion of Ukraine and broad US tariffs in 2025 led to talk of "slowbalization", reshoring and "friend-shoring".

Despite these strains, the WTO estimates world goods and services exports at about $34.7 trillion in 2025, a record in dollar terms (WTO, March 2026).

The simplest measure is trade openness, the ratio of trade to output:

• $X$ is exports of goods and services.
• $M$ is imports of goods and services.
• $\text{GDP}$ is gross domestic product (GDP).

Worked example: a country exports 300 billion dollars, imports 350 billion and has GDP of 1,000 billion. Its openness is $(300 + 350) \div 1{,}000 \times 100 = 65\%$. Small trading hubs such as Singapore exceed 300%, because goods pass through them, while large economies such as the United States are far lower. Broader indices, such as the KOF Globalisation Index from ETH Zurich, combine economic, social and political measures, including capital flows, migration, internet use and treaty membership.

Supporters point to the theory of comparative advantage and to evidence that trade and investment spread technology, raise productivity, lower consumer prices and widen choice. The integration of China, India and other emerging markets into world trade coincided with a historic fall in extreme poverty measured against the World Bank's international poverty line, from more than a third of the world's population in 1990 to around a tenth in recent years. Cross-border remittances and the internet economy have opened new income sources for people in poorer countries.

Critics and researchers have identified costs that are concentrated even when overall gains are positive. Studies of the "China shock" by David Autor, David Dorn and Gordon Hanson found lasting job and wage losses in US regions exposed to Chinese import competition after 2001. Work by Branko Milanovic and Christoph Lakner on global income growth from 1988 to 2008 found large gains for the global middle class in Asia and the very top, and weak gains for lower-middle-income groups in rich countries, feeding debate about economic inequality. Financial globalization has been linked to volatile capital flows and crises, prompting some economists and the International Monetary Fund (IMF) to accept a role for capital controls in some circumstances.

Objections come from several directions. Labour and environmental groups argue that globalization lets firms move to places with weaker standards and fuels tax competition. Nationalist and security-minded critics stress dependence on rivals for critical goods and favour protectionism and industrial policy. Some critics of neoliberalism and the Washington Consensus argue that liberalisation was pushed too fast on developing countries. Dani Rodrik's "trilemma" holds that countries cannot fully have deep economic integration, national sovereignty and democratic politics at the same time. Defenders reply that many of the problems blamed on trade stem more from technology and domestic policy, and that the answer lies in better support for displaced workers rather than retreat.

• KOF Swiss Economic Institute: KOF Globalisation Index
• WTO Stats