Blog | Economics

Local Differences Global Impact

. 1 min read

Local differences are among the main driving forces behind globalization. If oranges, bananas and olives would grow around the world they wouldn't have to be imported. If labour costs would be the same everywhere companies wouldn't outsource their production to China or Vietnam. If regulations would be the same the world over ships wouldn't be send to Bangladesh for dismantling and recycling.

Immigration laws restrict the free flow of labour. People are either not allowed to leave or not allowed to enter. Not all diplomas are recognized the world over. Too bad if you spent 4 years at university and finally get a visa and a working permit.

Like water, money follows the path of least resistance. It flows where taxes are lowest and regulations the most lenient. Bermuda, Cyprus, Zug, the Channel Islands, Gibraltar, Ireland, the Netherlands (A double Irish with a Dutch sandwich anyone?). The Sarbanes-Oxley Act introduced new standards for corporate governance and the disclosure of financial information for U.S. public companies. Companies afraid of the possible impact of these regulations will seek a listing on other stock exchanges, thus leading to a shift in the world's financial markets. Business, employees, demand for housing, services etc. will follow. One city's gain is another city's loss.

Subsidies and import duties protect local interests by making imported goods more expensive relative to domestic substitutes (the European Union and U.S. agricultural policy). Keeping the exchange rate with another currency artificially low promotes exports (the current Chinese monetary policy).