How Globalization Affects Developed Countries - Investopedia
The globalization effect indicates that financial integration helps in a nation's production base and leads to an increase in the specialization of production.
globalization effect
Globalization provides opportunities for reducing macroeconomic volatility on output and consumption via diversification of risk. The <anchor>globalization effect</anchor> indicates that financial integration helps in a nation's production base and leads to an increase in the specialization of production. Globalization can give companies a competitive position and lower operating costs.
What Is the Role of the Nation-State in Globalization?
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# What Is the Role of the Nation-State in Globalization?

By

Mary Hall is a freelance editor for Investopedia's Advisor Insights, in addition to being the editor of several books and doctoral papers. Mary received her bachelor's in English from Kent State University with a business minor and writing concentration.

Updated August 16, 2023

Reviewed by

Reviewed byRobert C. Kelly

Robert Kelly is managing director of XTS Energy LLC, and has more than three decades of experience as a business executive. He is a professor of economics and has raised more than $4.5 billion in investment capital.

Fact checked by

Fact checked byDaniel Rathburn

Daniel Rathburn is an editor at Investopedia who works on tax, accounting, regulatory, and cryptocurrency content.

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Globalization is the increasing interconnectedness of different parts of the world. As the world's economies grow more interdependent, some people are concerned that globalization will lead to the collapse of political boundaries and, alongside it, the fading sovereignty of individual countries, or nation-states.

Learn more about how the rise of globalization has affected the role of nation-states.

### Key Takeaways

- Nation-states are groups of people with a common heritage and culture who are also united under a common government.
- The rise of globalization has affected the role of nation-states economically, politically, and culturally.
- Nation-states must contend with changing populations, trade flows, and cultural identities, which can create complex challenges as well as new opportunities.

## The Role of the Nation-State

A nation-state is a group of people with a shared culture and heritage who also operate under a common government. "Nation" refers to the shared culture, while "state" refers to the government that has sovereignty over that nation. In this sense, the United States is itself a state.

Historically, the nation-state provided a unified identity for its people and fostered a sense of belonging. However, the role of the nation-state in globalization is more complex.

Globalization is generally recognized as the fading or disappearance of economic, social, and cultural borders between nation-states. Some scholars have theorized that nation-states, which are inherently divided by physical and economic boundaries, will be less relevant in a globalized world.

## The Effects of Globalization

While increasingly reduced barriers regarding international commerce and communication are sometimes seen as a potential threat to nation-states, these trends have existed throughout history. Air and sea transportation that made same-day travel to other continents possible and greatly expanded trade among countries did not abolish the sovereignty of individual nations.

Instead, globalization is a force that changed the way nation-states govern themselves and deal with one another, particularly in the area of commerce.

### Growing Westernization

One commonly recognized effect of globalization is that it often favors Westernization, meaning the norms, ideals, systems, and cultures of the West are often dominant. With sophisticated economies and efficiency-driven, capitalist systems, Western companies and Western culture often dominate the global marketplace.

This can put other nation-states at a disadvantage when dealing with the Americas and Europe. This is particularly true in the agricultural industry, in which second- and third-world nations face competition from Western companies but without the same resources and technologies.

### New and Changing Economic Policies

Another potential effect is that nation-states are forced to examine their economic policies in light of the many challenges and opportunities that multinational corporations and other multicultural organizations and entities of international commerce present.

Multinational corporations, in particular, challenge nation-states to confront the unique issue of foreign direct investments, forcing nation-states to determine how much international influence they allow in their economies.

Nation-states also must reckon with changing labor dynamics as multinational companies outsource labor to other regions.

Changing labor dynamics can affect not only the labor market in a company's home country, but also create social and economic changes in the areas where it draws new labor resources.

Changing economic realities caused by globalization affect a nation-state's economic sovereignty, with imbalances furthered by poverty and indebtedness.

### Rising Interdependence

Beyond (and due to) issues of commerce, globalization also creates a sense of interdependence among nations. Enmeshed economies, free trade agreements, and greater immigration all strengthen international ties.

This growing interdependence could create an imbalance of power among nations of different economic strengths. On the other hand, increasingly interdependent economies also often strengthen security alliances between countries, lessening the risk of war and fostering greater peace.

### Cultural Changes

Globalization and its attendant exchange of cultural ideas can create a global culture, which may be at odds with national identity.

Historically, members of a nation share a cultural identity, which can include its history, heritage, holidays, and heroes. But as globalization ushers in new ideas and open borders create new or burgeoning minorities within a state, the homogeneous culture of a nation may have difficulty assimilating these changes. This difficulty may weaken—or be seen to weaken—the power of the nation-state and create new challenges alongside political and economic ones.

## Has Globalization Reduced the Power of Nation-States?

While some scholars assert that globalization has reduced the power of nation-states, others see this power instead concentrating in some states, such as China and the U.S. Still others see the power concentrating not in states at all, but in financial centers and multinational corporations.

## What Are the Benefits of Globalization?

Globalization often brings with it increased access to markets, improved standards of living, lower costs for products, and widespread innovation.

## Will Globalization Continue?

The global integration that is globalization will continue, albeit in changing ways, according to McKinsey Global Institute research. Some of the changes it expects to see include the leveling-off of the trade of goods and services, but an increase in the flow of knowledge, intellectual property (IP), and technology.

## The Bottom Line

The role of the nation-state in a global world is largely a regulatory one as the chief factor in global interdependence. While the domestic role of the nation-state remains largely unchanged, states that were previously isolated are now forced to engage with one another to set international commerce policies.

Through various economic imbalances, these interactions may lead to diminished roles for some states and exalted roles for others.

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