What is Globalization? At an economic level Globalization is the process denationalization of markets. In much simpler words it integration of an economy to the world economy. Globalization theoretically is an economic phenomenon, but it has its impact can be felt on all fields of human life. Also Globalisation has helped developed countries by bringing in opportunities for economic development. Globalization also has helped developing countries in gaining greater access to developed country’s technology and their markets. But globalisation has its own negative impacts and challenges. Growing inequality in within and across nations, environmental problems and volatility in financial market are some of the negative impacts of globalisation.
What is it that differentiates between a developed country and a developing country? Terms like rich and poor, high income and low income, industrial and agricultural etc. are also being used. The attributes that differentiate a developed country from a developing country are infrastructural development, national income, quality of life, education and health. Many of the developing nations have a very huge national income but when it comes to Per capita income they are among the lowest. Because per capita income not only depends upon the national income but also the total population of the country. Unfortunately the main characteristic of any developing nation is that they have massive population. So countries are differentiated on the basis of their per capita income because it is more feasible and easy. At the top most level are the high income countries, with per capita incomes ranging from $10,000 to $30,000. These countries have well developed infrastructure, a large urban population, an educated labour force. These countries are mature and are growing at a very slow pace. Included in this category are: United States, Canada, France, Germany, United Kingdom and other members of European Union and others in the Pacific, Japan, Australia, and New Zealand. These advanced countries work together in the Organisation for Economic Cooperation and Development (OECD).
In the middle there is a wide range of developing countries in terms of the World Bank’s Terminology, “Lower middle and Upper middle income” countries. Countries having per capita income ranging from $10,000 to $1000 per year. Some of these countries are making huge development and slowly approaching maturity. Most of the Asian countries fall under this category including Korea, India, Indonesia and also some Latin American countries like Brazil, Argentina, Mexico etc. Most of the countries which fall under this category lack enough infrastructural facilities and education. Many of these countries are on the path of industrialization and most of them are labour intensive industries. On the other hand many of them still have large number of population living the rural areas where it is underdeveloped.
Finally, there are the very poor countries, with per capita incomes of less than $755. Countries of Eastern Europe and the former Soviet Union that have been in the process of transition from Soviet-style command economies to the free market. These countries have substantial industries and had attained a middle income living standard.
I feel that Globalization is without doubt a boon for the developing nation. It is considered to be one of the most successful prosperity and anti-poverty movement in modern era. With the help of Globalization developing countries are able to reap the benefits of current technology; which will result in production of better quality products. This doesn’t mean that globalization does not have any negative effects. Globalization can also cause some serious problems like brain-drain, outsourcing, environmental issues etc. It also has an adverse effect on the local industries as they cannot compete against foreign multinational companies.
But even if globalization has these negative impacts, it was a great opportunity for the developing nations to rise through increased foreign trade and Investments. Openness to trade, factor flows, ideas and information have powerfully stimulated progress, economic and political. Because of globalization the earth has become more flatter, faster and more fashionable. But there are people who believe that globalization can bring only harm to developing nations. They argue that globalization has been implemented in order to exploit the developing countries resources and labour force. But when we consider the gains or benefits of globalization we can find out that globalization has brought in more good than bad of the developing countries.
Kotilainen, M., &Kaitila, V. (2003).Economic Globalization in Developed Countries. Paper prepared for the Ministry Of Foreign Affairs, Finland.
This paper analyses Economic Globalization from the point of view of the Developing countries. Also an analysis of Globalization in its different forms, with an focus on the economic impact on developing countries. The paper clearly defines Globalization and also elaborates on development and history of Globalization i.e. the Different Waves of Globalization. The Paper deals with economic impact of globalization on developing countries.
The paper also discusses the development and history of Globalization. The World Bank classifies the development of Globalization as follows:
The First wave of globalization: 1870 – 1914.
The retreat into nationalism: 1914 – 1945,
The second wave of globalization: 1945 – 1980, and
The new wave of globalization: 1980 – present.
The paper has also explained in detail how Globalization affects the developing countries. Almost all the areas that can be affected by globalization have been included, they are as follows:
Foreign Trade: Ultimate aim of every developing nation is to increase their exports. Developing countries specialise in the production of some goods and import others which help to lower cost. And import liberalisation facilitates this. Generalised System of Preferences (GSP) has forced developed countries to give preferential transaction with the developing nations. The concept of ‘Everything but Arms’ is an example of further steps taken in liberalisation of import/export policy by the developed countries.
In order for the developing countries to increase their foreign trade the developed countries should open up their economy. But there is one problem that the developing countries face that is the price of their products are typically very volatile in the world market. Developing countries have made significant growth in foreign within the past three decades.
Foreign Direct Investment: Foreign Direct Investment is welcomed everywhere especially in developing countries, as it provides external resources in the form of capital that support the economic development of the developing country. Problem arises only if the government does not have any control over the it’s flow. The liberalisation policy taken up by countries has a direct impact on the FDI inflows. When we compare the countries in South Asia and East Africa, South African countries have more economic freedom, because it’s being liberalised than the other. So these countries attract more FDI inflows than their counterpart South Asia. From this we can understand Structural Reforms is an important factor in advancing economic growth.
International Migration: The paper explains that the way developed countries view international migration is completely different from that of developing nation. In developing countries where population growth is fast and unemployment is high, where people cannot find job easily in their home country.
This leads to more liberal migration policy in these countries. The ageing of the population in the developed countries will, however make the migration policy of the developed countries slightly more liberal in the future.
Foreign Borrowing and Lending: The problem with developing countries is that they borrow too much from other countries and institutions. They prefer more debt relief than what has been agreed up on. According to the developed countries and financial institutions, there are mainly three problems that hinder lending: The immediate economic loss, the risk of moral hazard in borrowing over the longer term and the internal problem existing within the nation. In the future foreign borrowing will only take place if the developing countries have sufficient repayment capacity.
Foreign Aid: The paper identifies foreign aid as an area which can be affected by globalization. Foreign aid consumes a major portion of a country’s development expenditure. The future of economic growth depends on the funds allocated and on the priorities of the developed countries.
Macroeconomic Integration: International institutions like the IMF and the World Bank, are often criticised for limiting the sovereignty of policy makers in the developing countries. The lack of interdependence in macroeconomic policies is, a major characteristic of a globalised world. In order avoid macroeconomic instability the developing nations must liberalise their short-term capital movements.
The Paper also discusses the other areas where globalization has some impact, they are: General politics, the Social structure, the labour market, social policy, education, culture, religion and the environment. In these fields, however, globalization does not necessarily determine a certain outcome. The paper clearly states that globalization is indeed a boon for developing countries. Globalization helps in foreign trade, attract foreign investment, international migration etc. The countries need to open up their economy in order to use the opportunity for the development of the economy.
Stallings, B. (2000). Globalization and Liberalization: A View from the Developing. Prepared for U.N. Economic Commission for Latin America and the Caribbean.
The paper mainly deals with the Macroeconomics of Globalization i.e. Trade and Finance. It also draws a distinction between Globalization and Liberalisation. The paper clearly identifies the quantitative importance and the qualitative characteristics of developing countries in the expanding trade and financial flows of the 1980s and 1990s. The author takes the example of Latin American countries to depict the effects of globalization on Developing countries. The paper summarizes both the advantages and disadvantages of being part of a globalized world and suggesting some ideas about how to emphasize the former while minimizing the latter.
The paper explains how Globalization has influenced the imports and exports made by developing countries. In terms of world imports, developing countries’ share fell slightly during the 1980s and then started increasing steadily by the late 1990s. A similar situation was found with exports from developing countries to the world although the trend is more pronounced. It is also important to note that trade flows in general rose rapidly in this period, nearly tripling in nominal terms. Another way of thinking about the rising importance of trade is to look at trade as a share of countries’ own output, i.e., the change in export and import coefficients.
The paper also discusses the effects of Globalization on Latin American countries. The main message that comes across is that globalization and liberalization have increased heterogeneity across countries, sectors, and types of firms. Some have been able to take advantage of new opportunities, while others have only encountered more obstacles. Especially large differences were found with respect to productivity, which may imply continued differentiation in the future. For countries that improved their performance, foreign capital played a major role. FDI (Foreign Direct Investment) in particular contributed to increased investment, both in tradeable and in the services sector. Trade Liberalisation and Privatisation also played a vital role in this drastic change.
The paper also stresses that not all of these changes can be attributed to globalization. Liberalization, as reflected in domestic policy changes, was at least as important. The key point to emphasize is the close interrelationship between globalization and liberalization in determining performance outcomes, both faster growth and increased heterogeneity.
Finally the paper discusses the Advantages and Disadvantages of Globalization on the developing countries. One of the positive aspects is that there has been an additional amount of external finance available to developing countries. In addition, an increasing share of the new funds has consisted of foreign direct investment that is currently highly valued by the governments of most developing countries. Moreover, such investment tends to embody new technologies that increase the productivity and, thus, the competitiveness of developing countries. The argument is that capital markets may actually contribute to democracy by dismantling oligopolistic corporate structures in developing countries, and that the demand for additional information on the part of foreign investors (and the IMF) may increase private and public-sector transparency.
The paper also identifies some serious problems that are being caused. One such problem is the increase in heterogeneity or polarization across regions and countries and also within countries (firms, regions, and groups of workers). Some who are much more able than others to take advantage of the new opportunities that globalization offer, which can lead to increased social and political conflicts and rejection of liberalization and globalization. Also the new capital flows have also brought some problems to Government in trying to manage their economies.
Individual countries or regional groupings need to devise policies to protect themselves from the vagaries of international capital flows. The paper also suggests that policies are necessary to offset the polarization that is being exacerbated by global financial flows. These involve both social policies (especially education) and policies to assist firms that are being left behind in the increasingly competitive world. Controls on the entry of short-term capital flows during periods of strong international liquidity have proved useful in some cases. Also there is need for higher domestic savings in most developing countries to lower the need for external savings. Finally, policies are necessary to offset the polarization that is being exacerbated by global financial flows.
Goyal, K. (2006).Impact of Globalization on Developing Countries (With Special Reference To India).
This paper explores the process of Globalization and Liberalization in developing countries. The paper explains in detail the effects of globalization on developing countries by taking the example of India, which is considered to be one of the fastest growing economies in the world.
Most part of the paper discusses on how or what lead India to open up her economy and also the different impacts of globalization. India opened up the economy as an attempt to climb out of a major financial crisis which led to a foreign exchange crunch that nearly took India to situation where it could not pay off its debt. India responded to this by initiating number of Domestic and foreign policies which was formulated to tackle the short-term as well as long-term problems.
Major Reform measures that were taken as a step towards Globalization are as follows:
In July 1991 India was under a major financial crisis, the foreign currency reserves had plummeted to almost $1 Billion; Inflation rose to an annual rate of 17 percent; fiscal deficit was very high; foreign investors and NRIs had lost confidence in Indian Economy. India was not the only country that initiated these policies, many countries underwent the same changes at the very same time; most of them where countries of South East Asia, Latin America, Western and Eastern Europe. These economic changes initiated by these countries were inevitable as it was their last resort. Major policies brought in as part of liberalisation and globalisation was: Devaluation of currency, Disinvestment, Allowing Foreign Direct Investment (FDI), Removal of quantitative restriction on imports, Reduction in import/export tariffs and wide range of financial sector reforms.
The paper also discusses on Impacts of Globalization on Developing countries especially India. Globalization has intensified interdependence and competition between economies in the world market. These economic reforms have yielded the following significant benefits:
Indian economy greatly benefited from the process of globalization. India’s annual growth rate was just 3% in the 1970’s which was far less than that of Brazil, Korea and Mexico. Also India’s average growth rate doubled in eighties to around 5.9% which was still lower than many of the developing countries. Globalization helped in increasing the growth rate substantially and also improves India’s position globally.
These are some notable changes due to globalization:
Foreign Direct Investment: FDI soared from around US$100 million in 1991 to USD around 5536 million in 2004-5.
Foreign Trade (Export – Import): There was increase was substantial increase in the amount of imports made by India; i.e. from USD $79 in 2003 to USD$107. Not only imports exports also increased by around 24% as compared to previous years. Oil imports rose by 19 percent with the import bill being US $ 29.08 billion against USD 20.59 billion in the corresponding period last year. Non-oil imports during 2004-05 are estimated at USD 77.036 billion, which is 33.62 percent higher than previous year’s imports of US $ 57.651 billion in 2003-04.
Thus we can find out that the economic reforms in the Indian economy initiated since July 1991 has brought about significant changes in Indian economy like greater investment, higher growth rate, increase in foreign exchange reserve and technological development. This has helped the Indian economy to grow at a much faster pace.
A Comparison with Other Developing Countries
When it comes to global trade – There has been increase in merchandise export made by India; i.e. from .05% to .07% over the past 20 years. At the same period China’s share has tripled to almost 4%.
India’s share of global trade is similar to that of the Philippines an economy that is 6 times smaller – IMF
Over the past decade FDI flows into India have averaged around 0.5% of GDP against 5% for China and 5.5% for Brazil. FDI inflows to China now exceed US $ 50 billion annually. It is only US $ 4billion in the case of India.
Even though the paper concentrates mainly on the impact of globalisation on India, the story is somewhat same for other developing countries as well. Countries like Brazil, China, and Philippines have all gone through the same situation what India has experienced. According to various studies made by economic experts India and China will rule the 21st Century. And also India is the fourth largest economy in terms of purchasing power parity, and may even overtake Japan within 10 years.
Mostert, J. (2003). The Impact of Globalisation on Developing Countries. Prepared forESSA conference
The paper deals with some of the main issue of globalization with respect to developing countries like impact of globalization on unemployment, distribution of income and also the sovereignty of the nation. The high integration of the world economy provides ample opportunities for developing nation to grow and prosper, increase their standard of living but there are some risks associated with the process of globalization.
The paper also gives an insight on difference between Globalization and Regionalisation. Regionalisation is integration of different countries of a similar region. Regionalisation is somewhat similar to Economic integration. Globalisation is indeed an extension of regionalisation as it integrates not only countries of a particular region but also the different regional blocks.
Impact of Globalization on World Trade
According to the paper globalization process not only increased the wealth of developed country but also decreased the poverty level of developing nations. The improvement in economic growth in the Asian countries led to a reduction in the skewed distribution of income between developed and developing countries. Despite all this positive impact many countries who are not a part of international trade are still in poverty, so it is a major challenge to incorporate these countries into the international trade system. According to the paper mainly 3 regional blocks dominate the global economy; they are responsible for more than 43% of the total global transactions and around 57% of portfolio transactions. A conclusion can be drawn that the developing countries needn’t get the expected advantage from the process of globalization.
The impact of globalisation on the international distribution of income
The paper argues that the worldwide distribution in income is still very skewed. The income gap between the countries has increased substantially since 1960 . The article states that the average GDP growth made by developed countries is much higher than that of developing nations. According to IMF when the income of richest part of the world’s population increased 6 times from 1900 to 2000; the increase in income of poorest part of the world’s population was just 3%, during the same period.
According to the paper thirty developed nations that actively took part in the process of globalisation grew by 3.5% in the eighties and 5 % in the nineties. And those countries which did not actively take part in the international trading system did not realize any significant gains. Their growth was only marginal compared to those countries which actively took part in Globalization.
There was in increase in level of world production and also global trade even if globalisation resulted in more skewed distribution of income between nations. The shift to integrated economy and world market provided ample opportunities for developing countries for economic growth and got chance to improve their standard of living.
The impact of globalisation on unemployment
The main argument that is raised by people who oppose globalization is that; globalization will lead to increased unemployment in the developing countries. Because of low wages in the developing countries they started exporting jobs to the developed countries. And when there is technological development the demand for low skilled employees will decrease. According to the IMF there has been increased unemployment because of the fact that developing nations are becoming more service oriented where there is very less demand for low skilled workers.
The paper also discusses about impact of globalization on wages and labour standards. According to the author the process of globalization will lead to race to the bottom, which is resulted because countries will try and improve their competiveness by lowering wages, taxes and regulations. The author also suggest that the developing countries should improve their competitive wages as this will lead to debate on labour standards that can lead the way to the reduction of the participation of developing countries in the world economy.
Pinelopi, K. G., &Pavcnik, N. (2006).Distributional Effects of Globalization in Developing Countries.
Prepared for National Science Foundation
This paper mainly concentrates on Globalization and Challenges for developing countries. The paper argues that there are several key and interrelated elements to globalization and that the future gains will derive from the degree to which countries are willing to embrace them together rather than in a sequenced fashion. The rising flow of trade and capital has heightened the sense of vulnerability. Now production and trade is hugely dominated by transnational which use globalization to their advantage.
The developing countries need to use trade to promote development. Trade enlarges the market for domestic producers, allows them to reap scale economies and force them to develop new technologies for production. Export earnings also loosen foreign exchange constraints on the economy thereby helping in expansion of other sectors.
Developing countries needs to take initiative in launching new trade negotiations which could draw them into the mainstream of globalization. The danger is that if there is no initiative, the benefits of globalization will continued to be monopolized by few countries.
Another major facet of globalization is the vast increase in capital flows. These flows have become a major source of investment, a route for technology transfer and an accelerator to financial deepening. The government need to formulate policies in order to control the cash flows.
The paper also discusses the role of migration during the process of globalization. During the first phase of globalization, in the late nineteenth and early twentieth century, long distance migration paralleled trade and capital flows. In some countries, the desire on the part of young people to emigrate is the principal incentive to acquire useful skills and serves to maintain standards in segments of the educational system. In order to benefit the long-term benefits from migration countries must not only participate in the making of international institutions to manage and facilitate labour mobility but they also need to see migration as part of a larger process of opening and integrating their economies.
The paper also suggests that globalization has facilitated technology transfer. Technological change has proceeded slowly in developing countries for a variety reasons. This is a major reason for slow growth and the widening gap in incomes between rich and poor countries. The blame is placed on the weaknesses of skills, the educational system, incentives, research facilities, the business culture and traditions influencing the quest for new knowledge. Adopting new technologies and pushing outward the technology frontier requires a capable research and extension infrastructure and the active involvement of the business sector. Few of the low income countries have made much headway in utilizing or extending agricultural technology by creating high quality, competitive and commercially oriented research entities.
The author believes that even if globalization has the following advantages it can never be seen as the ultimate solution for development. Everything requires discipline and checks limit the negative impacts of globalization. Developing countries need to engage in active negotiations so as to integrate with the international economy on terms which will give them the best possible trading opportunities in commodities in which the enjoy comparative advantages and promise the desired level of food security
Different people have different views about Globalization, some say that globalization is a beneficial process and some who are against globalisation believe that it will only be beneficial to a specific group of countries. The essay tries to explain how globalization can affect the developing countries. Developing countries are also known as emerging economies or countries on the path to development.
This essay mainly discusses about the impacts Globalization on developing nations. Globalization is an opportunity and not a threat to developing countries. The impacts of globalization can have direct or indirect effect; it is so far- reaching that nothing is being left out. Globalization has resulted in an explosive expansion in world trade. The economic integration of countries such as India, joined by China, other South-East countries, also Latin American countries has resulted in the widespread expansion of international trade. It just took 10 years for China to double its per capita income. Countries like France, Germany, and Britain took around 50 years to achieve just.
The rapid expansion of foreign trade made by developing countries generated a demand for resources and energy. The so called emerging countries consume about 50% of global energy production. Emerging manufacturers have also specialised in building highly technical products that compete effectively in world markets. Around 50% of computers produced come from China. The developed countries are now in enormous pressure to compete by developing new product and methods of production to sustain them in the International market.
This doesn’t mean that globalisation do not have any negative impacts on developing countries. Globalization can have adverse effect on domestic industries. Domestic industries will be under mounting pressure in order to comply with international completion; their rates of unemployment may even rise. The government can play a vital role in minimising the impact on domestic industries by formulating policies and laws.
The labour market is under a great deal of pressure due to globalization and requires constant adjustments and changes. Due to the abundance of low cost labour there is rising difference in personal incomes. Eve though there is unfavourable employment conditions in many developing countries; it is not because of the fact that there is a great deal of pressure on the unskilled work force due to globalization. And also advancement in the area of technology is another cause for lower demand for unskilled workers. Globalization has forced different nations to lift the migration barriers. In Europe, the European Union has opened the gates to millions of workers from formerly communist countries where labour productivity was low. Their migration usually improves working conditions in the countries.
Workers should consider globalization as an opportunity to acquire knowledge in order to compete in the global economy where they have to meet global standards. Countries are now trying to concentrate on developing education and health in order to improve the quality of work force.
One of the major challenges of globalization would be to integrate all sectors and countries that do not participate in the globalization process. But not all countries, sectors, or firms have access to global financial markets and services or can take advantage of the benefits induced by globalization.
Conclusively, may it be developed or a developing country, Globalization can work for all. But it is not an easy task. The negative impact of globalization can be minimized by constant adjustment and control measures. Globalization is considered to be a great opportunity to prosper and develop in the internationalised world economy. Problems like inequality in income, uneven development, and outsourcing can all be controlled by proper policy actions.