Forthe longest time since the onset and acceptance of globalization, nometrics have existed that measure the effectiveness and relationshipbetween globalization and economic growth. However, economic growthonly focused on the physical accumulation of capital. The problemwith focusing on capital accumulation over time is that accumulationof capital at a faster rate than population growth can quickly meetdiminishing returns. As a result, the incentives for any ongoingincentives no longer exist. This phenomenon is what steered severalpieces of research to investigate on globalization and theaccumulation of knowledge as ‘human capital’ in people, and as‘technology’ in firms (Grossman & Helpman, 2015). Grossman &Helpman (2015) suggest that knowledge is non-rivalrous, but its usealso differs from one person to another. Therefore, using knowledgeto test for economic growth is the best model as it is non-rivalrousand increases returns if the output is related to both tangible andintangible inputs as there will be the elimination of diminishingreturns between inputs.
Grossman& Helpman (2015) examine four critical potential links betweeninternational knowledge acquisition and global integration. First,Grossman & Helpman (2015) assert that knowledge is shared acrossborders if there is the inclusion of people. The rationale behindthis assertion is that imported ideas can facilitate the developmentof new ideas, the continuous improvement of existing products, orreduction in product prices. Most of these procedures can be donethrough the facilitation of research which is shared among differentnations. As the cost of invention reduces in each country, there is aconstant improvement of R&D in the various countries.
Second,market integration through international trade provides innovativeand improved products to a larger international market even thoughthey will still face more competition than before (Grossman &Helpman, 2015). Firms that exhibit this trait can not only improvetrade domestically but also in foreign international markets(Grossman & Helpman, 2015). However, the scale effect orcompetition effect will determine the intensification and moderationof incentives for innovation within an integrated market.
Third,“integration of world markets has general equilibrium implicationsfor input prices and relative output prices” (Grossman &Helpman, 2015, p. 100). Countries with low cost of innovation enjoy alow cost of human capital and in return, comes a competitiveadvantage in producing relatively unique products. Ultimately, anation with advanced human capital developments has the capabilitiesto conduct more R&D, export differentiated products to the globalmarket, and hence, grow at a faster rate.
Lastly,globalization affects technological diffusion among differentcountries with the aim of improving productivity growth.International integration promotes activities that positively affectinvestment incentives and nurture technological diffusion. However,the dissemination of technology can either increase or decrease as aresponse to global integration depending on the cost factor oflooking for and acquiring novel technologies (Grossman & Helpman,2015). International trade has the capability to replace lessefficient local sellers with more intense and competent foreignvendors.
Inconclusion, globalization can be measured in reaction to economicgrowth by examining knowledge spillovers between countries. Thetheoretical literature pronounced by Grossman & Helpman (2015)explain the links between economic growth and globalization. However,this relationship varies from country to country depending oncritical characteristics, history, and availability of resources. Asa result, there should be policy developments that address andpromote these growth patterns in different countries so that growthcan be felt on a wider scale.
Grossman,G. M., & Helpman, E. (2015). and Growth. TheAmerican Economic Review:Papers& Proceedings, 105(5),100-104.