How Globalization Affects Economic Inequality

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  • 0:04 Background on Globalization
  • 0:54 Global Supply & Demand
  • 1:37 Wealth Fluctuation
  • 2:34 Worker Exploitation
  • 3:21 Lesson Summary
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Lesson Transcript
Instructor: Amina Borrero

Amina has a Master's in Business Administration

In this lesson we'll take a brief look at the effects of globalization on economic inequality through hypothetical interactions such as supply and demand, wealth fluctuation, and worker exploitation.

Background on Globalization

Have you ever been out shopping and took the time to notice where things were made? Tags with declarations that a product is made in the US, China, or Mexico are all commonplace. Over the last 25 years, we have seen tremendous advances in technology that have given us the ability to put almost anything and anyone from anywhere at our fingertips. The world as we know it is becoming an increasingly smaller place with everyone being much more interconnected.

This exchange of goods, ideas, and services on a worldwide scale is known as globalization. In many ways globalization is good for everyone, but there are also some unfortunate side effects. One of these is economic inequality, which we will discuss today. Economic inequality is the disparity in resources and wealth between two entities.

Global Supply and Demand

To understand how economic inequality comes about from globalization, let's take a look at supply and demand. For our example, we will be talking about corn produced by the country Fresa. Fresa has been producing corn for as long as anyone can remember and has been trading with the countries Manzana and Naranja successfully. However, a new country, Sandia, has started to produce an abundance of corn and has started to sell it a much cheaper price to Manzana and Naranja. Sandia's cheap corn has flooded the market and has forced Fresa to lower the price of their corn to remain competitive. This has resulted in the farmers from Fresa earning much less than they did previously.

Wealth Fluctuation

Let's take another look at how globalization can affect economic inequality. Fresa was a leader in the corn market. They had become wealthy off of their sales, and their farmers were well paid. Now that Sandia has entered the market, things in Fresa aren't going so well. Farmers are earning less and struggling with their other financial obligations. While Fresa is still a leader, the introduction of Sandia's corn into their market is having a pronounced effect on their economy.

Meanwhile, in Manzana and Naranja there is a current economic boom as the lowered price for corn has led to expendable income for those families. All of what is happening now is an example of economic inequality. How these countries, and the people living in them, are fluctuating between rich and poor is an example of the inequality that can occur with globalization. The availability of goods from other countries can upset the economic balance not only within the countries that produce but also within those that consume.

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