Nayyar's Globalization Process - Essay Example

Nayyars Globalization Process Introduction Globalization is mainly a multifaceted process of economic and structural transformation that bears diverse meanings and interpretations. Globalization infers a strategy of development grounded in the rapid integration with the world economy. Globalization has yielded enhanced integration of national economies via trade liberalization, financial sector deregulation, and capital account liberalization and flows derived from foreign direct investment (FDI) by transnational corporation. Globalization has opened fresh opportunities to opportunities to low and middle income countries via enhanced market access, enhanced flows of FDI, frequently integrating them into global value chains or global production networks and hastened technology transfer (Nayyar 2006, p.138). Discussion For the last three decades, globalization has generated exceptional levels of both economic growth and economic risk. The advent of globalization has rendered markets more open, allowing governments and firms to invest more freely. With the growth of global finance, development has become more complex. Globalization has over the years created unparalleled opportunities for development, but also unique challenges for development. Globalization has heralded opened societies and economies, which has enhanced opportunities for innovation, entrepreneurship, and wealth creation (Nayyar 2006, p.139). Despite the pervasiveness of globalization, the reality is that some countries and people have been excluded from globalization, partly due to the logic of markets, which furnish more to those who have and deprive those who do not have. In fact, for the majority of the developing countries, globalization has yielded underdevelopment, divergence, and exclusion (Kaminsky 2006, p.504). Globalization has accentuated inequalities via mechanisms such as trade (financial) liberalizations, privatization, and deregulation. It is apparent that the spread of globalization has been uneven, which has led to the exclusion of some people and countries from the process, especially from the arena of international trade, international investment, and international finance. The benefits of globalization have been accrued only to the industrialized world and a small number of developing countries. For the majority of developing countries and their population, the process of integration within the world economy has not produced gains in terms of economic growth or poverty reduction since they did not create the essential preconditions and the process of integration was too swift (Kaminsky 2006, p.504). Pro- globalization promoters assert that globalization has led to enhanced growth, reduced poverty, and has heralded decreased inequality. The anti-globalization critics, on the other hand, assert that globalization has heralded slower, but more unstable growth and that globalization has led to increased poverty in many parts of the world, as well as increased inequality. Despite the contest, there is little dispute regarding some apparent dimensions of reality. The world has made significant economic progress during the second half of the twentieth century. In fact, the world GDP grew twelvefold while per capita income more than trebled in the last five decades (Howells and Bain 2008, p.5). The growth has been remarkable even within the developing world, especially when compared with the underdevelopment and decline registered during the colonial era and the early 20th century. However, the growth has not been all encompassing as development has been rough within and between countries (Nayyar 2006, p.142). The pattern of growth recorded has yielded amplification in the economic distance between the recently industrializing countries and the least developed countries, besides an increase in the economic inequality between regions and people within countries. Global Financial Crisis and International Production and Governance The global financial crisis that significantly hurt economies around the globe originated from the 2007-2010 meltdown of the U.S. mortgage market, which quickly spread to other countries including the UK, Spain, and Ireland. The financial crisis has been unparalleled since the Great Depression (1929-1932) and associated with massive toxic debts, slumping share prices, and declining confidence in private consumption, investment, and international trade. The crisis also heralded rising rates of unemployment and job insecurity, as well as minimization in consumer spending (Alcorta and Nixson 2011, p.2). The financial crisis that had its roots in the financial sector of the advanced economies inflicted immediate reverberations within developing countries that manifested close links to the global financial markets. Most governments responded by attempting to boost activity through two main channels; automatic stabilizers (bailouts) and fiscal stimulus. The impact of financial crisis has overall been highly uneven between countries depending on the integration of the country within the world economy. Countries manifesting policies of financial sector and trade liberation, as well as through promotion of export oriented industrialization are highly vulnerable to external shocks (Alcorta and Nixson 2011, p.3). The financial crisis has also impacted heavily on countries already facing substantial economic challenges in the manufacturing sector, weak infrastructure, high import dependence, deficiencies of skilled labour, or inadequacies of competitiveness and limitations in indigenous technological capabilities (Alcorta and Nixson 2011, p.3). The initial impact of the financial crisis on developing countries was, however, less evident as the countries remained marginally integrated into the global financial markets. With the worsening of the fiscal crisis manifested by credit freezing and the striking decline in the market value of private wealth, the crisis grown into a calamity within the real economy. Most developing countries were affected during this later stage of real economic crisis. Developing countries are, in principle, the most susceptible to external shocks, due to their comparatively low levels of development and widespread and deep-rooted poverty. Although developing countries cannot be categorised into a homogenous group, the countries are predominantly marginal participants in the international trade, especially regarding trade in manufactured goods (Alcorta and Nixson 2011, p.6). Developing countries mainly suffer from elementary structural weaknesses, disproportionate balance of payments, and occasional fiscal constraints. Most of the developing countries are immensely indebted and aid dependent, partly due to limited industrialization. The global economic crisis yielded a significant fall in world trade and a quick decline in commodity prices. Similarly, foreign direct investment (FDI) flows have overall been reducing rapidly since the start of the financial crisis. The decline in FDIs also shapes one of the channels through which developing countries have been affected, as well as the reduction in migrant workers remittance flows partly due to the rising unemployment in advanced economies and the reduction in the migrant labour demand (Kaminsky 2006, p.505). The deterioration in the fiscal position for most developed countries has piled pressure on the Official Development Assistance (ODA). In the age of globalization, global public goods have been gaining significance more and more. Global public goods in this case entail international stability and security, an international law order, an open and all-encompassing economic system, an effective global welfare system, and a collective commitment to resolve regional and internal conflicts (Alcorta and Nixson 2011, p.6). This has contributed to enhancing predictability within international relations, besides minimizing the risk of conflict. The reduction in transaction costs mainly ends to enhance cooperation and efficiency in this arena. As demonstrated, the impact of the global financial on developing countries is multifaceted and affects different countries in diverse ways, depending on the extent of integration of the developing countries in the global economy and the make-up of the countries’ domestic economy. Despite the uncertainty regarding the depth and length of the economic recession within developed countries, it is apparent that the global crisis has significant implications for growth and poverty within developing countries, especially on the attainment of the Millennium Development Goals (Alcorta and Nixson 2011, p.5). The international security environment has been altered significantly, especially under the pressure of the international financial crisis where countries have to deal with risks and threats that can alter the security environment significantly. Practically, the global financial crisis has exposed weaknesses for global governance, and heralded fresh, long-term risks. This shapes the rationale for effective governance, an enhanced leadership that would re-establish faith, to enhanced international cooperation and enhanced convergence (Minsky1981, p.6). A new global governance paradigm can aid to bail out the international economic scene. At the centre of global governance are the notions of efficiency, transparency, democracy, and related principles of sound governance regime. The uncertainty within the international system heralded by the economic recession has revealed the defect, and gaps of global governance, and eroded confidence on the efficacy of global security or economic institutions functioning. The extent of the financial crisis exposed the inclination to retrenchment form globalization to both developing and developed countries (Minsky1981, p.8). The tendency is enhanced for the latter category owing to the pressure exercised on their economies. The financial crisis reveals growing frustration in having a collective action via the present global governance. Amid the financial crisis, countries manifested a growing difficulty in accommodating the trade-off between economic growth and environmental costs. Negative growth heightens the risk and complicates the capability to deal with long run risks efficiently devoid of disregarding the environment, the resources, or geopolitical tensions (Kaminsky 2006, p.506). Conclusion Development revolves around bringing about an improvement in the wellbeing of people. In rethinking development, it is essential to appreciate the significance of economic conditions, the value of institutions, the significance of politics in economics, and the crucial function of sound governance. The financial crisis of the 2007-2010 reveals that economic crisis usually undermines international cooperation, as well as the institutions of global governance. Economic crisis usually bears detrimental effects on international cooperation. This is informed by frustrations in arriving at mutual policy adjustments critical to cooperation and sustenance by international institutions as it becomes too costly, especially for politicians facing incomparable economic distress. References List Alcorta, L. & Nixson, F. (2011). The global financial crisis and the developing world: Impact on and implications for the manufacturing sector, Vienna, United Nations Industrial Development Organization (UNIDO). Pp.1-5. Howells, P. & Bain, K. (2008). Economics of Money, Banking and Finance: A European text, New Jersey, Prentice Hall Financial Times. pp.5-10. Kaminsky, G. L. (2006). Currency crises: Are they all the same, Journal of International Money and Finance Vol.25, pp. 503-527. Minsky, H. (1981). Financial Markets and Economic Instability: 1965-1980, Nebraska Journal of Economics and Business, Vol. 20, pp. 5-16. Nayyar, D. (2006). Globalisation, history and development: A tale of two centuries, Cambridge Journal of Economics, Vol.30, No.1, pp.137-159. Read More