Effects of Integrating Developing Countries into the Global Economy - Essay Example

Effects of Integrating Developing Countries into the Global Economy Introduction The globalization of the world has made it easy for nations to trade without considering the boundaries. This has in turn led to improvements and availability of goods and services throughout the world. Today, many economies are thriving from globalization because of the ability to save on the cost of production, as well as the availability of the ready market. Similarly, some nations, more so developing countries have benefited from multinational organizations, which set distribution centers as well as looking to tap the emerging markets. Through this, the developing nations have recorded improved growth compared to last decades before globalization. However, there are many challenges experienced with the global integration of the economy. The developing countries are the most affected because of the competition, unequal economic strength, and level of developments. Their level of growth is not same as the first world nations making third world nations lag behind in terms of infrastructure provisions among other things. Hence, developing nations experience stiff competition from the developed nations that has sophisticated equipment and tools of the trade to leverage them. Moreover, the integration of the developing nations into the world economy creates imbalance owing to the nature of industrialization in the first and third world countries. Therefore, developing countries are harmed by the integration of the global economy because they have very little to offer on the global market compared to the developed nations. The rest of the paper will examine the effects of integrating developing countries into the global economy. Effects Increased capital available to developing countries The integration of third world nations into the global economy has facilitated the flow of capital from the developed or middle economic nations to the developing world countries (CEPAL 2). Today, many third world nations have developed economic trade ties with major drivers of world economies that have seen the flow of capital. Before the integration, developing countries had no option of getting circulating funds because of their insignificance in terms of contribution and share in the global economy (CEPAL 3). Similarly, many developing nations are receiving cash flow in terms of grants, soft loan, and donation, which help in steering development projects. Different oversea agencies such World Bank among others assist the developing nations in overcoming their financial challenges as well as initiating development projects. However, the increased capital flow does not only contribute to equal growth in developing nations; continuous mobility leads to volatility that is costly for growth (CEPAL 4). In some instances, developing nations receive loans from the developed countries at higher interest rates. This is dangerous since it takes the nations longer time to complete hence interfering with their fiscal budget. The integration into the global economy implies nations are on the same platform, and they compete with one another for the markets (CEPAL 4). In some cases, the developing nations have signed agreements, which bind them to the competition in the global arena hence experiencing challenges coping with the emerging trends. Unequal capital flow The globalization of world economy casts a powerful barrier to uneven capital flow to the developing nations. Over the past decades, money has flowed from the developed nations to developing nations in some parts of Asia, and Africa as well as to the Caribbean nations or Latin America. However, there is an unequal flow of capital that affects the development of the third world nations. For instance, the capital flow is unequally distributed as per the region, nation hence bringing disparity in development. Moreover, unequal distribution of money is also witnessed in terms of sector, social group, type of firm and geography (Bussière et al. 150). This has an adverse effect on the developing nations because it creates tension and division between the losers and winners. Therefore, the integration of developing nations into the global economy is contributing to unequal development, which also increases pressure and divides the nations. It makes others feel that the movers of the economy favor certain regions or countries, hence others would want to isolate themselves. For instance, The US supports Tanzania compared to other nations because of its political stability. This has in turn affected its relationship with neighboring nations such as Uganda who believes it is sidelined in terms of the capital flow leading to the creation of tension. Moreover, the volume and volatility of capital flow puts the developing nations at risk in relation to banking and currency crisis (Goldberg 6). It affects nations with weak financial institutions. Financial globalization promotes growth The financial globalization helps the developing nations to increase their rate of growth through different channels, directly or indirectly (Prasad, Rogoff and Kose 4). For instance, financial globalization increases domestic saving, reduces the cost of capital, transfer of technology and establishment of financial sectors (Prasad, Rogoff and Kose 5). Today, there are many financial service providers in the developing world, which is of benefit to the nations. Economic globalization helps in the transfer of technology that in turn helps in the management of financial sectors. This is a good move since the disintegration of the developing nations from the global economy would not allow the transfer of technology due to different policies. Moreover, third world countries can seek grants and loans easily from the developed world with low or no interest as opposed when left on their own (Prasad, Rogoff and Kose 6). These are possible impacts that developing nations have realized. Moreover, developing nations benefit from the globalized financial sector due to increased production specialization because of better risk management (Prasad, Rogoff and Kose 9). It also leads to an improvement of macroeconomic policies as well as institutions created by competition pressure. The regulation of the financial sector allows the developing nations to benchmark hence bettering risk management. The establishment of macroeconomic policies makes the developing world compete effectively with other nations, hence leveraging their capability (Prasad, Rogoff and Kose 12). Emigration of labor force Globalization of the developing nations into the world economy has led to the migration of the labor force from the source nations (Mishra and Topalova 4). This has led to a reduction of the labor force in developing nations such as Jamaica by 20%. The formation of a regional trade bloc called the Organization for Economic Cooperation and Development (OECD) allows for emigration hence affecting the source nation. In the US, immigrants form 15% of labor force, which is lower than the OECD member nations (Mishra and Topalova 6). Therefore, the shortage of the skilled workforce due to migration has led to increase in wage earning in volatile nations such as Mexico. On the other hand, the unskilled have their wages reduced hence contributing the wage inequality in developing nations (Mishra and Topalova 8). Moreover, the immigration led to high remittance inflows in the developing nations which is sometimes welcome owing to the poverty characterized by these nations (Mishra and Topalova 9). Increased standard of living Integration of developing nation to the global economy has led to improved living standards because of the benefits and opportunities (McCubbrey 4). The global economy has shifted its focus to the developing nation where they fund different projects aimed to improve the living standard of the citizens. For instance, most of the developing countries have acquired funding for infrastructure projects like health care centers, roads, education, and other social services hence are transforming the lives of the local population. In many cases, the developing nations use these funds for a collective gain and on projects uniting the people. Because of this, countries that embarked on such projects have improved the lives of their people hence great benefit. However, it is contrary to countries that focus on the selective development as it discriminates others. The result of such attempts is the civil war as in the case of Egypt where one area believes they are sidelined from development. Access to new markets Developing countries have benefited from the open market in the developed world. This has benefited them by finding a ready market for their products and services (Varadarajan 8). The globalization had led to free trade between countries, hence benefiting the nations participating in such trade. The fall of trade barriers between the developing and developed countries have increased market access for the developed nations making them access the international market (Varadarajan 13). Therefore, many third world countries have benefited from the new markets by developing new technologies and producing new goods and services. However, the removal of trade barriers has benefited the developed nations more than third world countries (McCubbrey 8). Most of the produce from the developing nations does not reach or sell in the developed nations because of their quality. Hence, opening the global economy does not assist the developing nations, but open them for exploitation by other developed nations. For instance, the international media have created a perception in the developing nations that foreign products are superior and quality compared to domestic products (Varadarajan 14). Therefore, opening the market through the globalization of the economy makes the foreign companies sell their products because of the nature of their quality. Hence, domestic companies owned by the locals or people from developing nations cease to operate due to competition and increased the cost of production. Because of this, globalizing the market and removing the trade barriers works against the developing nations since they face stiff competition from oversea products, which are sold cheaply and are of quality. Developing nations are at the edge of losing their cultural uniqueness in favor of homogenization and universal culture propagated by the developed nations (McCubbrey 15). For instance, the developed nations will override the production of third-world countries, hence losing their uniqueness to the Americanization. This spells doom for the developing nations because they will be unable to produce goods and services as preferred, but the developed world will dictate. Therefore, the integration into global economy leaves them with little or no chance of maintaining their culture and uniqueness. They are likely to play and dance to the tune of the developed nations. Widening disparity income There are many studies suggesting that the integration of the developing nations into the global economy widens their disparity in incomes (McCubbrey 14). The influx of foreign companies in the developing countries because of open borders and increase of capital flow reduces unemployment and poverty. It also leads to widening wage gap between the educated and the uneducated hence causing a wage disparity. As many companies flock the new markets in the third world, the educated, and skilled personnel acquire a bargaining power leading to increasing in wages. On the other hand, the less educated become poor and oppressed by the foreign firms. This leads to the income disparity between the skilled and the unskilled. Besides the income gap, integration of developing nations into global economy reduces unemployment making it have a positive impact on the people. The influx of foreign companies promotes employment of the skilled individuals (Mashayekhi and Kidane 15). However, most of the firms from the developed nation are associated with technology and automation of services that sometimes works against the wish of the people. For instance, the automation of services in agricultural production renders the unskilled jobless leading to unemployment. Hence, lack of infrastructure to train the unskilled may strain a nation leading to more problems (McCubbrey 13). Therefore, it is paramount for developing nations to control mechanization or the use of technology that might render it population jobless. Similarly, developing nations can overcome this by training its unskilled population on technologies to put them in a better position to reap from the globalized economy. Disregards to the needs of the local Globalization of the economy leads to an influx of multinational corporations or companies that maximizes profits at the expense of the locals (Birdsall 7). For instance, transnational corporations are dominating the global economy, and they seek to maximize profits without regarding the wellbeing of the local. Hence, the integration of the developing nations to the global economy leads to an influx of multinational organizations, which disregards the needs of the local population. Through this, they pollute the environment by releasing toxic substances, as well as environmental degradation through the use of machines and technology. For instance, multinational organizations in most African nations have depleted the natural resources for their use without regarding the wellbeing of the locals (Guo 14). This endangers the lives of the locals since they depend on their land for all that they do. Protectionist policies Most of the developed countries have enacted policies that protect their interest, hence barring the weak economies (CEPAL 7). For instance, the European Union has policies, which bars most of the developing nations from trading in some commodities. Similarly, the policies prevent the third world countries from exporting some goods to their market hence bias to some points. For instance, most of the agricultural products from African states are not permitted in the European Union market because they contain certain chemical dangerous for lives. Similarly, the EU makes some claims with no justification to lock out African countries from accessing their market. Therefore, there is an imbalance in trade since the developing world restricted export market for the goods and services. Conclusion The world has become globalized and is under one roof. The advancement in technology has facilitated the globalization hence opening borders literally. However, there is a debate on the integration of developing nations into the global economy. Their inclusion has advantages as well as disadvantages. For instance, it promotes income inequality between developed and underdeveloped nations, promotes the domination of transnational organizations, and development of policies that bars third world nations from exporting to first world nations. Moreover, high flow of capital increases the risk of banking for nations with weak financial institutions. On the other hand, it helps in creating job opportunities and opening the border for more opportunities. It also opens the global market for the third world products and increased access to capital in the global arena. Works Cited Birdsall, Nancy. Globalization and the developing countries: The Inequality risk. 1999. Online Bussière, Matthieu, Simona Delle Chiaie, and Tuomas A Peltonen. Exchange Rate Pass-Through In The Global Economy: The Role Of Emerging Market Economies. IMF Economic Review 62.1 (2014): 146-178 CEPAL. Globalization and liberalization: the impact in developing countries. 2001. Online Goldberg, Pinelopi. Distributional effects of globalization in developing countries. NBER Working paper Series. 2007. Online Guo, Xiaoling. Living In a Global World: Influence of Consumer Global Orientation On Attitudes Toward Global Brands From Developed Versus Emerging Countries. Journal Of International Marketing 21.1 (2013): 1-22. Mashayekhi, Mina and Kidane Martine. Integrating developing countries in the global service economy. ICTSD Policy Paper on Trade in Services and Sustainable Development, 1-32 McCubbrey, Don. Negative and positive effects of globalization for developing country business. 2015. Online https://www.boundless.com/users/235420/textbooks/business- fundamentals/international-business-for-the-entrepreneur-14/globalization-opportunities- and-threats-to-developing-country-business-55/negative-and-positive-effects-of- globalization-for-developing-country-business-253-15556/ Mishra Parachi and Topaliva, Petia. How does globalization affect developing countries? International Monetary Fund Research. 8.1 (2007): 1-13 Prasad, Eswar, Rogoff, Kenneth and Kose Shang-Jin. Effects of financial globalization on developing countries: some empirical evidence. International Monetary Fund, 2007, 1-76 Varadarajan, Rajan. Toward Sustainability: Public Policy, Global Social Innovations For Base- Of-The-Pyramid Markets, And Demarketing For A Better World. Journal Of International Marketing 22.2 (2014): 1-20 Read More