Debating Globalisation - Essay Example

? Debating Globalization Globalization can be described as a spatial phenomenon that is interconnecting the world with growing interdependence between states due to intensification of political social and economic activities. There have been two distinct developments due to globalization. The first is the ‘technical unification’ of states. With the development of technology the cultural and social barriers between countries are getting reduced and hence political, social and economic interactions are increasing among the economies. The second development is the breaking down of the national boundaries by transnational economic forces. (Globalization, n.d.) Increasing international trade and financial flows are integrating the economies. Some countries integrate with the world economy more aggressively than others. For small economies openness to the world economy allowed flow of goods and services and capital inflow that the domestic economy could not provide. In some cases the geographical area of the country can also help in increasing globalization of the economy. The multinational companies acted as the key initiator of globalization. The process of globalization gained momentum in the second half of the 20th century and significantly developed over the last 20 years (Schlamberger, n.d., Kearney, 2001, pp 56-58: OECD, 2005, p.16). In order to understand the true meaning of globalization one needs to study the changes in a country’s environment due to the phenomenon and measure it properly to justify the changes. Measurement of globalization Globalization cannot be directly measured but its level might be gauged through different indicators. The method is quantitative and statistical which conducts classification based on globalization of operations. Traditional use of statistics will not be enough in measuring the magnitude and the extent of globalization and needs to be supplemented with other indicators. Many new concepts are developing in the global economy, which needs to be defined properly and added to the existing tools, for constructing a suitable analytical framework. Moreover the existing International Standards need to be adjusted for considering the new developments through globalization. The two group properties that need to measure are the degree of globalization and the result of globalization. (Schlamberger, n.d.; Vujakovic, 2010) Globalization needs to be measured in three broad dimensions, the social, political and economic aspects (Globalization, n.d.). The elements of globalization are increase in the free movement of goods and services across borders, increase in the unrestricted flow of capital and labor across national boundaries and also transfer of technology. Along with this globalization also include flow of different ideas, information and culture from one county to the other. Though globalization is not a new phenomenon and has its roots in the industrial revolution of the east but the present wave has been initiated by a set of new factors like deregulation of financial services in many economies, emergence of modern and smooth transport and communication system and the development of the emerging economies most importantly. The transition in the field of information technology and the third generation revolution of technological changes boost the process of globalization as a whole. The key measures of globalization are firstly the share of the international trade in the total gross domestic product of the country; secondly the inflow and outflow of foreign direct investment in the country, and the inflow and outflow of portfolio investment as measured by the percentage share in GDP. The third indicator is the cultural measure of globalization indicated by the percentage of international tourists in the total population of the country and the measurement of income from tourism as a share of the total income of the country. The record of the international telephone calls of a country along with the percentage of Internet user of the country in the total population is also a basis of measuring globalization in the context of country wise measurement. There exists heterogeneity in the degree of globalization over time, across countries as well as within a country. (Kearney, 2001; Bhandari & Heshmati, 2005, pp 1-5; Drehel, 2005) The international organizations have played important roles in the process of globalization. The globalization of trade in goods and services have been extended by encouraging free trade between countries, reducing tariff barriers through trade negotiations by the World Trade Organization. International trade opens up new markets, which are increasingly vast. The globalization in the financial market have been boosted by the growth in investment portfolios, easy and smooth movement of short term capitals which allowed the investors and the borrowers to interact in an unified world. The International Monetary Fund has played a significant role in ensuring the smooth and proper functioning of the international monetary system. Need for new strategic considerations for enterprises emerge with the globalization of competition. The globalization of technology, corporations and industries has been led by the sharp increase in foreign direct investments, relocation of enterprises and the increasing speed of innovations. The consequence has been the fragmentation of the production process. So the main indicators or measures of globalization are foreign direct investment, economic activities of multinational firms, international trade and the international spread of technology. (OECD, 2005, pp 19-20) Principles behind the indicators of globalization The foreign direct investment as an indicator of globalization considers the flow of investment through equity participation across borders. The globalization of an economy can be measured by the importance of financial and income flows across countries and the percentage of FDI in the total GDP of the country. The contribution of the investment can be measured as a percentage of the total investment. Increase in any of these indicates an increase in the contribution of globalization activities to the host country’s economic sectors. The returns on these FDI indicators inform about the profitability of the direct investment in the enterprises of that country. If the percentage of FDI in the total inward stock increases then it implies that the profitability of direct investment has increased making them more attractive to investors. Moreover if the share of reinvestment increases in comparison to the dividends and distributed profits then it suggests the desire of expanding investment in the host country in the long term. Thus more FDI implies more open economy and fewer restrictions hence increased globalization. (Foreign Direct Investment, 2007: OECD, 2005, p-22) The activities and emergence of the multinational enterprises has a huge impact on the concept of globalization and they played an important role in this transformation of the world economy. Globalization has increased the international reach and mobility and hence countries are competing among each other for MNCs through rendering facilities based on tax revenue, employment opportunities and increased economic activity within the country. The Multinational companies account for most of the foreign direct investment in the country, facilitate trade and transfer technology and knowledge across borders thus contributing to globalization. Moreover with increasing competition the global firms are constantly emerging as new markets showing great potentiality of success thus again increasing globalization. (Fatima, 2007) The oldest and still the most substantial form of the integration of the world economy is the trade. Trade can be designed at the country level, sector wise or for a particular industry. A country is said to globalise if a good proportion of the production of the country are exported. The percentage measure is the total export to the total GDP of the county at a particular year. Intra-firm trade is also a good indicator of globalization. The technology up gradation reduced the transport cost and hence facilitates trade. Moreover the governments of countries are realizing the gains from free trade and hence liberalizing their economy with reduction in trade barriers and opening up the economy thus facilitating trade and increasing the globalization of the economy. (World Bank, n.d, p-66) The development of the information technology and communication in the recent years has been the most significant improvement in the field of internationalization of the world economy. The more the extent to which a country could contribute to the innovation of new technology for the world market the more globalised becomes the economy. Moreover the adoptions of technological changes by economies also represent the internationality of the economy. (OECD, 2005, pp 25-26) Analysis of problems in application and measurement Different organizations in different period of time have constructed indices for measuring globalization. But still it cannot be said that globalization of a particular economy can be exactly and rightly measured. The first problem that the economists face is that conceptual clarity regarding globalization is missing and often the indicators used to measure globalization reflects different phenomenon. Thus globalization needs to be clearly distinguished from economic integration, openness of economy, internationalization and westernization. Secondly the relative importance of the chosen indicators in the index for measuring globalization needs to be considered. All the indicators are significant in measuring globalization and hence there is need for proper weights. But the problem lies in understanding which indicator is more significant than the other as it varies with the economy and also with time. System of using flexible weights may solve this problem to some extent. Third problem is that the indicators are interdependent and related. One indicator influences the other and hence there is always the problem of double accounting. For example foreign direct investment increases production and hence trade, again the functioning of the MNCs also depends on the former. Finally it can be said that the efforts to include information on globalization need to be balanced with the requirements of efficiency and transparency (OECD, 2008, pp 4-6) Solving Contradictions in the measures The question of globalization, which incorporates the use of separate measurement trends, excites the growth of many contradictions and criticisms. To counter the level of criticisms and to arrive at a common solution, economists of many countries arrived to take universal consideration of the A.T. Kearney Foreign Policy Globalization Index as the best measure of globalization trends of the different economies. Further the economists are also endeavoring to cite developments in the AT Kearney’s Globalization Index to make the system further case sensitive so as to counter developing market trends. Though the index endeavors to cite the economic developments of a country in terms of internationalization and liberalization policies and has been agreed by many economists yet again others criticize it. This measurement trend earns a major support for it endeavors to measure the globalization for a total of 62 countries around the globe. These economies for which the index measures the rate of globalization stand to be the countries with high economic and population intensities. These economies account for around 96 percent of the total gross domestic product of the world and also amount to around 85 percent of the global population. Thus the mentioned trend for measuring globalization can be observed to be a mean in solving the intensity of contradictions and debates regarding the different measurement patterns (Putko, 2006, p.11, 14). Analysis of the trends of globalization with variation in time and country The degree of globalization differs among countries and also with time. Country wise comparisons of the different indicators of globalization can justify the phenomenon of its varying impact. Countries within the same region also differ in the degree of being globalised. Let the economy of Hong Kong under China and India be held as the countries under comparison. The two countries are within the same continent of Asia but they differ in their impact of globalization. Hong Kong is generally described as a global city as it became integrated to the world economy at an early stage in comparison to the other Asian economies (Sassen, 1994). Hong Kong has been centrally placed in the ranking of the world cities in terms of strength of the economy, the political stability of the country, the status of the country as the regional centre of finance and also the growth opportunities of the surrounding economies. The economic growth of the country in the post war period along with the decision of the government of the country to construct a ‘cyber port’ in the year 1999 to mark the development of the modern technology in the country in response to the changes due to globalization also marked the country’s ranking in the world economies. Hong Kong has an excellent climate for entrepreneur, a suitable infrastructure and a ‘pro-business’ government. Moreover the close link of the country with the massive manufacturing base of China added up to the advantage. (Lam, 2002, p-62: Common, 2001: Altman, 2006) India on the other hand of comparison is an emerging economy that is experiencing huge expansion in the recent years. The country’s dependence on agriculture, inward looking strategy of the government of the country has resulted in a late opening up of the economy. But in present day world the country is experiencing a remarkable growth of the economy. With a cost effective and labor intensive economy the country is gaining hugely from outsourcing and the industrial frame work with export orientation is favoring the growth of the country (Indian Economic overview, n.d.). According to World trade organization report of 1999 India ranks thirty-two in the list of the exporters of world trade and twenty-six in the list of the importers. It contributes to 0.6% in the total exports and 0.8% of the world imports. The export of the country is likely to increase by 9 % in the corresponding year and import by 4%. Hong Kong ranks 11th in the list of the exporters and 9th in the list of the countries imports. It contributes 3.1% in the world export and only 0.5 in the world share of imports. The position of India improved in the list of the exports in the year 2005 with a ranking of thirty while Hong Kong maintained the previous ranking. In the list of imports Hong Kong faces a two-position fall while a three-position lift for India. Thus it can be concluded that international trade, one of the indicators of globalization varies among countries and also with time. (World Trade Organization, 2000, 2005) Evaluation of Overall Trends Considering the indicator of foreign direct investment, the FDI in Hong Kong increased from 33,617,699,019 US $ in the year 2005 to 48,449,317,379 US $ in the year 2009. On the other hand the FDI of India in the year 2005 was 7,606,425,242 US $ which hugely increased to 34,577,177,468 US $ in the 2009. Thus the rate of increase in the FDI from 2005 to 2009 is more in India than Hong Kong though the absolute value of the investment is high in the latter (Foreign Direct Investment, 2011). Similarly another indicator of globalization shows that in Hong Kong the amount of exports grew by around 17 percent from 2006 to 2007 as the quantity of exports grew to $84.7 billion during 2007 from $72.4 billion during 2006. During 2008 the amount of exports in the region grew by 9 percent with the amount of exports increasing to $92.3 billion from $84.7 billion recorded in 2007. The region also reflected the growth of imports, which grew from $36.9 billion in 2006 to $42.6 billion during 2007. The rate of growth of imports during this period was around 15 percent. However, the rate of growth of imports slowed down during 2007 to 2008 recording around 8 percent growth. The quantity of imports however grew from $42.6 billion during 2007 to $45.8 billion in 2008. (Economic and Trade Information on Hong Kong, 2009). The economic activities of India were also affected owing to the growth in the dimension of international trade. During the period 2005 to 2006, the region reflected a growth rate in exports amounting to 21.6 percent. However during the same period, India’s rate of imports from other foreign countries also grew. This accounted for the growth of imports by around 32 percent. This high rate of growth of imports, which surpassed the exports, accounted for a huge deficit of around Rupees 2 crore. Another estimate produced for the time period ranging from the month of April to December of 2006 to 2007 showed that the rate of exports grew by around 26 percent. However, during the same period the rate of imports also grew by around 29 percent. This reduction in margin of the differences of rate of growth between exports and imports led to the reduction in the trade deficit, which was estimated, to be around Rupees 1.9 crore (Trend’s in India’s Foreign Trade, 2007). Conclusion It can be concluded that Hong Kong is a more globalised country in comparison to India but the Indian Economy is showing drastic changes in these aspects. Considering the two broad indicators of Globalization namely international trade and FDI it can be concluded that different indicators behave differently across countries and over time. The relative importance of these indicators in the total impact of globalization on economies is tough to measure and need more specified tools and it varies among economies. So globalization is a difficult concept of measurement and it is ever changing. References 1. Globalization (nd), Retrieved on February 5, 2011 from: 2. Schlamberger, N (nd), Globalization, what, why and how to measure, Statistical office of the republic of Slovenia, Retrieved on February 5, 2011 from: 3. Vujakovic, P (2010), How to measure Globalization, Atlantic Economic Journal, vol-38, No-2 Retrieved on February 5, 2011 from: 4. Globalization-Measurement of globalization, Global Oneness, Retrieved on February 5, 2011 from: 5. Kearney, A, T (2001), Measuring Globalization, Foreign policy magazine 6. Bhandari, A, K & A Heshmati, (2005), Measurement of globalization and its variations among countries regions and overtime, Institute for the study of labor 7. 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