Globalization is defined as “the shift toward a more integrated and interdependent world economy” (Hill, 2009, p. 6). There are different aspects involving globalization. One primary facet includes the globalization of markets that merges “historically distinct and separate national markets into one huge global marketplace” is classified as the globalization of markets (Hill, 2009, p. 6). The advancement of technology has increased international communication, resulting in the fall of national barriers, and the escalation of cross-border trade. Consumer preferences are crossing international borders and cultures enhancing global market trade. Products such as Coca-Cola soft drinks, McDonald’s hamburgers, and Sony PlayStation games are examples of the success of global market creation. Another primary aspect of globalization is the globalization of production. This process includes “the sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production (such as labor, energy, land, and capital)” (Hill, 2009, p. 7). Globalizing production allows businesses to compete more effectively, resulting in higher product quality and lower overall costs.
There are quite a few traditional international trade theories that support the concept of globalization. One is Adam Smith’s theory of absolute advantage proposed in 1776. Smith’s theory explained “why unrestricted free trade is beneficial to a country” (Hill, 2009, p. 168). Building on Smith’s absolute advantage was another theory developed by 19th-century English economist, David Ricardo. His theory was comparative advantage that explained how countries can comparatively become more efficient at producing goods at a lower opportunity cost. Ricardo’s theory of comparative advantage was later further refined by two Swedish economists, Eli