Financial Globalization, Economic Growth and the Crisis - Essay Example

? Globalizing World Globalizing World Humans have always settled within their own localities where they have been acquainted to as their homes and comfort zones. This has been the case for over many centuries. The constant characteristic of humans to explore and learn new things has changed this notion. Humans have continuously been on the move as some look for new settlement places while others are just curious and want to explore new things. Others have been forced to move to new vicinities due to pressure resulting from uncontained population growth and eventual explosion or being displaced due to wars, hunger or other natural disasters. This movement that is limited to surrounding localities has increased significantly to a point that people have been able to cross borders and travel far and wide for business, educational or exploration purposes. This has led to imminent sharing of cultures, ideologies and interaction between different nations and continents. The processes involving all these activities are referred to as globalization. Extensively, it is described as the integrations of all the activities involved in globalization including transportation, information sharing and rise of new communities (Ritzer, 2005, 78). This has been accustomed to advances in technology, the internet, robust road network, reliable air travel and trusted transport system. Centuries ago human interaction over long distances was a daunting task but still feasible. This was made possible by the fact that people needed to trade the goods they had for what others had. They occasionally used animals such as donkeys, horses and camels to travel over long distances. Globalization is not just about crossing borders and settling on the other side. It also involves close interaction and relationship building between people and systems already set in such places. Such systems include labor unions, immigration and education policies. People have been able to interact through other avenues like international events such as the Olympics, which has been able to unite people of different nationalities and cultures (Sua?rez 2004). For instance, soccer is clearly a global sport that unites and socializes nearly the entire world. It is understood as a re design of social topography marked by the growth of transnational and inter territorial interactions between people. There have been significant gains derived as a result of globalization. Economic Scholars and economists regard increasing capital accounts liberties and unregulated capital flows as a stumbling block to global financial stability. This is attributed to constant change in the market price of the popular goods and leading currency earners such as coffee. This has led to calls for capital controls and introduction of taxes on international Asset trade. Other scholars have argued that increased transparency in the market have brought about stability in countries that are already industrialized and brought an improvement in the upgrade of income of developing countries. This is as seen lower class to middle class. Finance in a globalizing world requires that countries and major economies make relevant economic policies in order to stay in the world economic platform. Many developing nations are still in their infancy stage of financial globalization and therefore look up to the already developed nations for financial opening. Developing countries do face numerous challenges in their quest to make a significant step towards improving their economy. A lot of decisions have to be made concerning the policies that need to be laid down for these countries and the rate at which they are to be implemented. Financial globalization has more than often been blamed for the economic crisis that faced a number of developing countries. When decision on economic prosperity is made without considering the impact it may have on the global market may lead to major risks including large scale bankruptcies. For instance, the financial turmoil that rocked Latin America lead to major crisis that affected Mexico and other Asian countries. The impact if the crisis leads to the financial meltdown of their economies and the resultant was accusations and counter accusations on who might have been responsible. These crises were attributed to hasty decision making. Some developed economies claimed that the relaxation of certain financial constraints could have been a contributing factor to the situation. This has ignited much debate and consequent research to investigate the causes and eventual effects of economic globalization on world economies. This is research has been based on arguments for and against policies that are made to support integration of emerging markets to the world markets (Scholte, 2005, 57). The research and eventual findings state that the benefits of globalization outstretch issues that stand against it. Therefore, the policies that are formulated thereafter by emerging market are .aimed at managing the processes of integration into the global market. There has not been a consensus on the issue that seems to be complex and does not seem to finding a lasting solution. The clear information on what ways they direct us are clear enough to guide policy makers on making the right decision. The debates that have been carried out by various stake holders have been done with a view of creating an understanding onto help developing countries. The main aim is to analyze their various policies and how they influence decision making in their economies. They concentrate on investigating how the volume of the financial flows has changed over several decades. Research shows that the volume of financial flows has changed significantly for a long run and it has been in a greater capacity for advanced countries. This has resulted to a surge or a reduction on the financial flows of developing countries. There is difference in the economic activities of these groups of countries between the developing and the already advanced countries. The advanced countries have their economic policies and implementation strategies laid out for them. They are the market leaders and are likely to control the entire market. They dictate and make the major economic decisions that affect the entire world market. This is a disadvantage their developing counterparts who are behind and on their way to making integration policies with the fast markets. Their economic inflow varies differently and they are bound to face financial crisis. If the bigger market players make blunders and are affected financially, the effect is felt throughout other world economies including those of developing countries. There are systems that are put in place to protect them from depression which includes debt financing by financial institutes created to cater for such disputes. Research state that there is hope in the findings of the approaches used by the market players to assist in them in getting out of extreme financial crisis. There is no adequate financial evidence that would show and express the resultant needs of the emerging markets. There is also no evidence that states that financial and capital liberalization is the main cause of the financial crisis that has affected developing economies for the last decade. Research show that new approaches employed by decision makers of the emerging markets are derived on the benefits that they accrue on from globalization. Literatures reviews have also revealed that different economies view the benefits of globalization differently. The earlier views state that developing countries derived the benefits of globalization from long term capital flows from their advanced counterparts. This is made possible by the fact that the advanced countries are rich in capital whereas the developing countries are relatively poor. Some of the information derived from these literatures is that they turn out to be conflicting especially on the subject of growth. This is more so especially when the information provided states that some economies developed out of their own policy and did not have to depend on some other advanced economies to get on their feet. The main idea in the analysis of the newer literature is that the benefits of a proper and successful globalization are impulsive and does not have a direct impact on many economies. The benefits are then stated to be not a result of the direct and improved access to the financing of domestic or local investment. There is proof of little but increasing evidence that financial transparency can promote and improve economic well being of developing countries. This is achievable if the developing countries insist on maintain a disciplined financial culture that are guided by strict policies that has been to be followed to the latter. The emerging economies should create efficiency gains among domestic companies by exposing them to the advanced world markets. This in return would unleash forces that that would result in better corporate and public governance. The idea that financial globalization affects growth towards indirect channels has significant implications. This can be used for designing economic policies to guide on economic growth and integration. Emerging economies are motivated to initiate and implement economic reforms to strengthen their economic ventures. These reforms should be key in determining financial priorities that are of importance that can be implemented as a priority. They can now develop strategies that they can use to design approaches so as to join the already advanced markets. Research findings propose that economic policies sponsoring financial sector development, institutional excellence and trade transparency are proper not only in their own right, but in assisting developing economies obtain the gains of globalization. Equally, sound macroeconomic regulations appear to be a significant requirement for making certain that financial incorporation is gainful for these countries. It is also evidenced that excessive dependence on unchanging exchange rate trends has been one of the main contributing issues to financial turmoil in developing countries over the past decade. Migrating to more elastic exchange rate systems is likely to reduce some of the dangers that countries tolerate as they become financially incorporated (countries that are not financially integrated, may find fixed exchange rate systems to be a good choice). Additionally, countries that face problems continuously are associated with government debt. They are likely to benefit from financial globalization if their administrations concurrently take policy procedures to avoid an excessive increase of debt. Capital has lately been moving in upward direction from countries that are poor to those that are rich. This is evidently, non industrial countries appears to have a positive link between a country’s present account surplus and its subsequent rate of development. This leads up to the studies of the proposition of these rather bad experimental observations for economic strategies in light of the most recent investigations. There is agreement that these findings are generally reliable with the policy repercussions curtailing from the structures of security gains and entry issues. The resultant investigation analyzes the macroeconomic repercussions of capital management. Some immediate stops and turnaround of gains of foreign capital have catalyzed expensive financial turmoil in emerging market economies; capital management and control have recovered their effectiveness, among some scholars and financial policymakers. The useful policy tools to used to reduce the difficult implications of financial global integration. There has been increased cross border trade with many foreign nations increasingly sharing their products dubbed exports and imports. It has led to an economic boom across nations as foreign investors opt to invest directly in other economies thereby improving their gross domestic product as a country (Schirm, 2007, 35). Research indicates that politically, globalization has led to harmonization and control of, authoritarian dictatorial, regimes. The decisions by governments to liberalize international trade have eased the propagation and increase of globalization. International trading blocs have been formed as a result of globalization, and the use of a unitary monetary system such as the euro has cropped out, as well. Describing the idea of financial globalization requires stakeholders to tackle a number of expression and trade issues. Solving these problems is significant in analyzing the repercussions of financial globalization. It is in designing successful policy measures to utilize its benefits that meaningful gains are seen (Clift, 2007, 98). When discussing the measurement issues, the literature reviews about the growth of the extent of financial globalization using a number of well defined measurements and then alter sums up the issues motivating the process of financial integration. Since there has been considerable advancement in developing better and more robust metrics of capital controls, all of the measurement components suffer from a number of comparable challenges. Firstly, they do not accurately replicate the extent of transparency of the capital established as they are partly supported on various constraints that are associated with foreign exchange trading that may not really hinder capital flows. Secondly, they do not translate or express the extent of enactment of capital management (as the usefulness of that implementation strategy). This can change over time even if the legal constraints that remains unhampered with. Thirdly, the metrics of financial globalization do not often replicate the definite extent of incorporation of an economy into oversees capital markets, this is as been noted. For instance, China has not been able to control its inflows despite the influx of speculative markets (Cline, 2010, 67). The decline in financial flows to developing economies, including the shifts in the factors influencing the financial flows. This can be broken down into “pull” and “push” features. They are related to certain issues that include; (i) The policies and other expansion projects in developing economies and (ii) changes in global financial systems. The first group describes factors like policies corresponding to capital and trade accounts. The immediate quality and government initiated practices and policies towards making state owned firms private. For instance, there has been a significant increase in the number of countries who follow liberalized capital trading accounts. In addition, more financially integrated countries gone ahead and made an effort to study the market and have registered the largest increase in the extent of trade transparency over an instance of time. It has been discussed that some economic policies related to pull factors can influence the macroeconomic outcomes of financial globalization. This is as evidenced through their results seen on the amount and structure of their financial flows. It has been discovered that standard one-sector neoclassical growth model, has been very instrumental in the execution and the creation of economies that can support themselves and thereafter make substantial growth when integrated with the entire world market. Theoretically, the financial flows that are depended on should complement limited local income saving in capital-poor countries; this is achievable by reducing the cost of capital, allowing increase in investment. Some financial flows can generate technology overflows and serve as a medium for controlling top level management and other forms of institutional skills from more developed countries. There are a couple of challenges that have been drawn from globalization. Instances such as civil strife and mass murder of the Jews orchestrated by the Nazis are under the leadership Hitler are some terrifically grim retrogression of globalization. A recent occurrence of territorial conflict is the invasion of Kuwait by Iraq that resulted in a humiliating submission (Marmolejo, 2011). All this conflicts were occasioned by greed and lust of material wealth. Racism is a vice that is yet to diminish while it has been a significant evil that emerged as a result of globalization. An example is the massive racial massacres that happened in America. References Cline, W. R. (2010). Financial globalization, economic growth, and the crisis of 2007-09. Washington, D.C., Peterson Institute for International Economics. Clift, J., & Diehl, E. (2007). Financial globalization: a compilation of articles from Finance & development. Washington, D.C., International Monetary Fund. Marmolejo, M. (2012). Globalization: Opportunities and implications. S.l.: Iuniverse Inc. Ritzer, G. (2011). Globalization: The essentials. Chichester, West Sussex: Wiley-Blackwell. Schirm, S. (2007). Globalization state of the art and perspectives. Routledge, New York, N.Y. Scholte, J. (2005). Globalization: a critical introduction. St. Martin's Press: Palgrave Macmillan, New York, N.Y. Sua?rez-Orozco, M. M. (2004). Globalization: Culture and education for the new Millennium. Berkeley, Calif: Univ. of California Press. Read More