The extension of globalization since 1980 - Essay Example

? To What Extent Have the Processes of Globalization Since 1980 Resulted in a More Even Distribution of Income? Contents Contents 2 Introduction 3 Key Processes of Globalization 4 Definitions and Measures of Inequality 4 Results of Key Studies on Changing Income Distribution 7 Changing Nature and Distribution of International Production, Trade and FDI 8 Conclusion 9 References 11 Abstract The project deals with the globalization period since 1980. It will talk about the major processes of globalization with emphasis on inequality measures. It will also take into account the various studies on income distribution and contributions of globalization to income distribution and will try to reach a conclusion based on those studies. Introduction Globalization forced from trade has taken the steep rising path (Wild and Han, 2009). Globalization has contributed to laying the path of opening up of new opportunities and acts as the catalyst in speeding up the process of growth. It also contributes to reducing the poverty level. However, it can be argued that globalization has contributed positively in case of the developing countries. The gains that are accrued to the less developed countries do not match with the gains of the developed ones. Along with globalization, inequality also tends to rise and one cannot ignore that notion of globalization contributes to raising inequality. Therefore, the countries, especially the less developed ones, are opening up to the external shocks (United Nations Conference on Trade and Development, 2004, p. 2). To accrue from the benefits of globalization, it is necessary to create a sustainable environment based on differentiated trade policies. Under the recognized challenges, the international trading system has to accustom itself with the ever changing environment. According to the United Nations Economic and Social Commission, the concept of globalization means elimination of the barriers of trade with the aim to facilitate an easy flow of capital goods and services (United Nations Conference on Trade and Development, 2008). As an example of globalization, the cruise industry can be held. The number of ports facilitating the cruise industry is on the high and the personnel are spread throughout the globe. The industry serves multinational clients and posits social and political implications. The current situation attracts the tourists to take sea voyage and so the industry exploits the interests of the consumers as well as targets a huge consumer base (United States Environment Protection Agency, 2008). Key Processes of Globalization The processes of globalization initiated with the evolution of capitalism in the fifteenth century. Consequently, it speeded to different parts of the globe. The processes of globalization were initiated in Latin America, North America and Asia (Santos, 2002, p. 67-68). After the emergence the processes of globalization were rooted with imperialism. During this period the nature of globalization depended much on the thoughts of the leaders of imperialism. They created distinctions among the people in terms of social strata and took on the policy to exploit the relatively less developed countries. The interimperial commercial activities constituted the second step. The emergence of trading possibilities among the European countries gave birth to competition for capturing the market. Globalization can be viewed to be cyclic in nature as it changes in different phases of economic development. Definitions and Measures of Inequality The widening gap between the rich and the poor is used to define inequality. By the concept of economic inequality, the disparities in the distribution of assets among the group of individuals are meant (World Bank, 2005, p. 27-28). Among the many other causes of inequality, the foremost is the difference between the wages and the salaries of the employed persons. Inequality emerges in many markets but inequality in the labor market leads to concentration of power under a few hands. Some other types of inequality include racial inequality, gender inequality, loopholes in the tax base and the increasing social costs of education. The distributive inefficiency takes the downward curve by economic inequality. The total personal utility is also reduced by distributive inefficiency. There are many ways of controlling the measures on inequality. One of the popular measures is to arrange the population from the poorest to the richest and decipher the percentage of spending attributable to each group. Gini coefficient is one such measure (Cullis and Koppen, 2007, p. 2-3). The range is from 0 to 1. Gini coefficient is derived from the Lorenz curve which arranges the population in the same fashion. The Lorenz curve is drawn using the cumulative proportion of the population and the cumulative expenditure on the horizontal and the vertical axis respectively. It is difficult to compute the Gini coefficient. Other measures of inequality are Thiel’s T and Thiel’s L. Using the above mentioned approaches, it is possible to measure the inequality arising from within areas because of income differences. The crude measure of inequality is Atkinson’s class of inequality. It measures the decile percentage ratio which is computed as the expenditure decile of the rich divided by the spending decile of the poor. Atkinson’s class on inequality is often helpful to decompose inequality into a number of subgroups such as groups on occupation and groups according to income. It is used to identify the policies that will deal with inequality and will contribute to dragging the inequality at a moderate level (World Bank, 2005, p. 1). The following graphs will provide a clearer picture. Results of Key Studies on Changing Income Distribution Some researchers tried to conduct a study based on the available data for G20 countries. The purpose of the research was to identify the determinants of both levels as well as the trend in economic inequality. They related the findings to the progress of globalization. They argued that the rich nations of the OECD have benefitted from the fruits of globalization while there have been uneven distribution for the other nations. They concluded that globalization is nothing but just a factor behind widening inequalities in income for the rich OECD countries. They have not been able to sort out the relation between economic inequality and growth. They supported the fact that globalization in the rich countries acts as the catalyst in raising the income level for people belonging to the higher income class. In the globalized world the choices of the countries on economic and social grounds are also a factor in overall distribution of income (Smeeding, 2002, pp. 1-28). Atkinson in 2000 concluded that income inequality rise is not inevitable. He put forward the example of Denmark where income inequality has not taken the step rising path. Atkinson and Brandolini conducted a research where they discussed the comparability of the estimates of income inequality with growth or globalization. They have shown that improving the comparability of data can affect the result of econometric investigation of the determinants of Gini coefficient with the help of time series data for 16 nations belonging to the OECD. A study of Heshmati consists of two composite indices relating to globalization. The research indicated the countries which have become most global and how the process of globalization developed with respect to time. The indices were composed of four components regarding economic integration, technology, personal connections and political involvements. The results depicted that the low ranks of the process of globalization can be accounted for political as well as personal factors while the possibilities for the less developed countries are limited. The countries that are ranked higher share similar patterns in distribution of components. The results of the study showed that internal as well as external conflicts can act to reduce the globalization perspectives of the country. They showed that globalization with technological factors play a part in ranking of the regions. Globalization has been viewed in the study as a possible source and one of the driving forces in differences in inequality across the countries with respect to time (Heshmati, 2003, p. 20). Changing Nature and Distribution of International Production, Trade and FDI It is possible to identify three types of changes in trade. The interindustry flows contribute to reinforcing the previous specialization of a certain country whereas the marginal and interindustry flows contribute to decreasing the specialization of the country. The World Trade Organization is entrusted with the regimes of international trade. The organization is responsible for regulation of trade within participating countries. The authority is concerned with the free trade agreements and guides the countries so that they can abide by the rules and regulations of the regime. The aim of the government should be to direct the economy in the way to gather pace. Therefore, they tend to adopt various trade policies that will advance to achieve the objectives in an efficient fashion. In countries where trade liberalization is in the interest of the country, they have not been able to find sudden reductions in import protectionism rates. The logic behind comparative advantage states that a country should produce those goods that they will produce most efficiently and import all other goods which they can produce less efficiently. The devices of protection, namely tariffs and quotas, tend to impose dead weight loss to the society. The import protection diverts resources from the efficient sectors to the sectors operating less efficiently. The formulation of trade policies until recently has been dominated by some government and inter-governmental agencies. The trade policies were dispersed among some public sector organizations as well. They share the responsibilities which often overlap. There is lack of coordination among the public sector organizations. The nature of the policies is diffuse due to the weak structure of public sector institutions. Even some ad hoc interference tends to influence policy formulations. The civil society lacked the potential to take part in the structural frameworks. The civil society was looked upon with suspicion. The policies involving trade play their role within the framework of macroeconomic policies. The rising prominence of FDI in the nations has been the top global discussion and regional outward investors are the elements responsible for overall changes in international capital flows. The countries need to boost up the possibilities of inward FDI as some countries lacked the prominence and stayed back compared to the other developed countries in the world. To take care of the situation, various surveys were conducted to determine the reason for low inward FDI in some countries. The most common factor was a high cost of special items such as office rents, and personal costs were highly expensive as compared to other countries. The second reason was the demand of customers along with the complex channel of distribution, high tax rate, and cultural difference making the entry much more difficult for foreign investors. Conclusion From the initiation of the process of globalization, the leaders of imperialism had the central part to play. Although trade played an important part in the process of globalization, the gains from trade have not been too successful for the less developed countries. Therefore, the benefits from globalization have been centered on the developed nations. The researchers conducted based on globalization and inequality showed the same story. The researchers opined that globalization has contributed to widening the income gap between the rich and the poor as the rich have the capability to reap the benefits and exploit the poor. Only the study by Atkinson on Denmark showed no role of globalization in income distribution. But globalization is not the only factor for such an outcome. The other factors include political and social factors with the choices made by the nations. Trade also acts as the catalyst to boost the process of globalization. As more countries are opening up the trade barriers, the choices of consumers are increasing. In this way the gate is opening up for technology transfer, but the benefits are getting accrued mostly to the more powerful ones. References Cullis, J. and Koppen, B., 2007. Applying the Gini coefficient to measure inequality of water use in the Olifants River water management area, South Africa. [Pdf] Available at: http://www.iwmi.cgiar.org/publications/iwmi_research_reports/pdf/pub113/rr113.pdf [Accessed: 30th October 2012]. Heshmati, A., 2003. The relationship between income inequality and globalization. [Pdf] Available at: http://www.soc.iastate.edu/sapp/GlobalizationOutcomes4.pdf [Accessed: 30th October 2012]. Santos, B., 2002. The processes of globalization. [Pdf] Available at: http://fabrikaknjiga.co.rs/rec/68/67.pdf [Accessed: 30th October 2012]. Smeeding, T., 2002. Luxembourg income study working paper series. [Pdf] Available at: http://www.lisproject.org/publications/liswps/320.pdf [Accessed: 30th October 2012]. United Nations Conference on Trade and Development, 2004. Development and globalization. [Pdf] Available at: http://unctad.org/en/docs/gdscsir20041_en.pdf [Accessed: 30th October 2012]. United Nations Conference on Trade and Development, 2008. Globalization for development: the international trade perspective. [Pdf] Available at: http://unctad.org/en/docs/ditc20071_en.pdf [Accessed 30th October 2012]. United States Environment Protection Agency, 2008. Cruise ship discharge assessment report. [Pdf] Available at: http://water.epa.gov/type/oceb/upload/0812cruiseshipdischargeassess.pdf [Accessed: 30th October 2012]. Wild, J. and Han, J. 2009. International business: the challenges of globalization: global edition. UK: Pearson Education. World Bank, 2005. Chapter 6. Inequality measures. [Pdf] Available at: http://siteresources.worldbank.org/PGLP/Resources/PMch6.pdf [Accessed: 30th October 2012]. World Bank, 2005. Income inequality. [Pdf] Available at: http://www.worldbank.org/depweb/beyond/beyondco/beg_05.pdf [Accessed: 30th October 2012]. Read More