Globalization and Developing Countries - Essay Example

Globalization and developing countries This essay examines the objective evidence for whether globalization has negative or positive effects on developing countries. This is a much debated economic issue, but here it will be argued that all in all, globalization has a net positive effect on these countries through the increased wealth it brings and the jobs it creates. This conclusion will be based on sound logical reasoning and supported by empirical evidence. Globalization Globalization is a process that increases the connectivity of markets around the world and the interdependence of businesses operating in them. The mid 1980s saw a wave of globalization. As travel and communication have become easier with technological advancement, business involving cross-border relationships has increased ( Halfkin and Taggart, 2002) In particular, the Internet and improved telecommunication have had an important role in creating new opportunities as well as increased competition (International Labour Organization, 2001). Financial globalization refers specifically to global links created through cross-border financial flows. It has resulted in a surge of capital movements that affect both industrialized and developing countries Usually, capital inflow is deemed positive for developing countries because it helps raise growth rates. Sometimes, though, it has resulted in a collapse of the growth rate and created temporary financial crises (Frankel, 2000). Such potential negative macroeconomic and social effects have given rise to the debate over whether globalization has an overall positive or negative impact on developing countries. Effects of Globalization Members of the anti-globalization forum argue that people in poverty-stricken countries are adversely affected by globalization because it brings increased competition with which they are unable to cope. By contrast, the pro-globalization lobby believes that increased competition raises the efficiency of production ( Easterly, et al., 2000). None of these arguments can be validated on the basis of impressionistic evidence. Confirming the effects of globalization on developing countries requires a proper assessment of the empirical evidence. Specific consideration needs to be given to its contributions to economic growth, its impact on macroeconomic volatility, and to the factors that help maximize the benefits of financial globalization (Yusuf, 2001). Measures of growth The benefits of growth are measured by expanding output and increased consumption levels. Consumption is the better measure for assessing growth outcomes because it is linked to changes in purchasing power. However, fluctuations in consumption may also have negative effects. Other measures that reflect growth effects include Gross Domestic Product, Consumer price Index, Producer Price Index, Employment indicators, Retail Sales Index, National Association of Purchasing Management Index, and Consumer Confidence Index (Prasad, et al., 2003). Financial globalization, too, can increase the growth rate in developing countries, albeit through different channels. Some of these channels are direct, such as increased domestic saving and technology transfer effects in the financial sector, and some are indirect, such as growth in production and improvements in macroeconomic policies (Frankel, 2000). Many studies have considered the effects of globalization. Indications are that developing countries with open economies experience greater growth rate increases than do those less open to trade. But, there is no substantive evidence that it is financial globalization particularly that causes such higher growth rates. Other main reasons for this outcome are the many ‘soft’ factors linked to globalization, including improvements in the law of the land and governance (Easterly, et al., 2000). Nevertheless, it needs to be recognized that all such factors may support or hinder growth. For this reason, developing countries have sometimes found themselves in a temporary crisis due to currency management problems or excessively costly banking. In such cases, domestic policies and financial institutions continue to have a very important role (Yusuf, 2001). The Survey Evidence A survey conducted by Pew Global Attitude (PGA) found that economic integration is good for the entire world. The survey covered 38,000 people in 44 countries. In expressing dissatisfaction concerning certain aspects of their situations, those in developing countries blamed the government of their country rather than globalization. Attitudes towards globalization were actually more positive in these countries than in the developed world. Specifically, the PGA survey found that in sub-Saharan Africa, 56% of people responded that entry of multinationals has a positive effect on their country, while in developing Asia the proportion was 37%. In the US and Western Europe only 28% agreed with this assertion. People in the developing world want increased growth of foreign trade and investment. Today, examining the fast-growing economies will reveal that these are the ones most rapidly integrating with the rest of the world. However, the survey also exposed some areas of concern and concluded that to cover the risks and maximize the benefits, proper planning for complementary domestic institutions and policies is required. In response to a question asking whether globalization has been bad for a country, 27% of respondents in the US and Western Europe agreed, whereas only 9% from developing Asia and 10% from sub-Saharan Africa felt the same. Further inquiries revealed that 72% of the population in Africa felt the effects of WTO, World Bank, and IMF interventions had been positive in their country, with only 28% supporting the anti-globalization movement. These figures indicate that in the developing world, the general population is quite happy and satisfied with the effects of globalization. Data collected by the World Bank also provides evidence of positive effects on GDP growth and poverty reduction. In the period 1992-98, the per capita GDP growth has been 1.5% in Pakistan, 3.1 % in Bangladesh, 4.6% in India, 6.4% in Vietnam, and 9.2% in China. At the same time, the figures for poverty reduction are 0.5% in Pakistan, 2.1 % in Bangladesh, 5.4% in India, 7.5% in Vietnam and 8.4% in China (Dollar & Kraay, 2001,World Bank). In a paper prepared by the World Bank entitled ‘Trade, Growth and Poverty’, it was revealed that the top third of developing countries were those most globalized, including Mexico, Brazil, India, Bangladesh, and China. Their per capita growth rate accelerated in the 1990s to a population weighted average of 5% compared to 2% in developed countries. Further Evidence There are many other facts that can be cited to support the claim that globalization has had a positive impact on developing countries. According to David Dollar, the World Bank’s Director of Developmental Policy, the decrease in the number of people living in extreme poverty after 1980 when globalization began to take hold indicates that it has helped increase economic prosperity and reduce inequality. Dollar’s view is that the notion of globalization being favourable for wealthy nations and destructive for the developing world is baseless (2003). Indeed, his contention is that it has been more beneficial for low-income countries than it has for the already prosperous ones. Consideration of the facts relating to the increased economic opportunities in developing countries that have resulted from globalization supports claims of its positive impact. One example from the International Labour Organization relates to some 300,000 long-distance telephone call kiosks that have been set up in India with an investment of USD2,500 and created employment for 600,000 people (Ramani, 2005). Such evidence lends strong support to the claim that benefits flow to developing nations as a result of globalization. In the service sectors of these countries, further instances of the positive effects of globalization can also be identified. For example, many information processing jobs have been relocated from developed countries to developing countries because of comparatively low labour costs (Poirson, 2000). The wage rate for data entry in the Philippines is USD4.00-6.00 per hour, whereas it is USD1.00 per hour in Jamaica. Medical transcription positions carry an annual salary of USD25,000 plus in the US, while in India, the same position may bring USD1,200 (Mitter, 2000). Such cost advantages are attractive for foreign enterprises (Mitter, 1995), a fact that brings increased job opportunities to developing countries and improves their economic conditions. Conclusion Globalization has opened up the commercial boundaries between countries and has created a more level playing field for all economic participants. In the process, some developed countries have lost many jobs and services because of the shifts to countries with lower labour costs (Mitter, 1995). It is evident that in poorer countries where there is high unemployment and people are willing to work for lower compensation, greater commercial profitability will also generate higher incomes for those in these countries. Similarly, the manufacturers and traders of developing countries will have found new markets for their products at a competitive prices (Poirson, 2000). Such improved business opportunities mean that consumers and business owners alike will prosper. If there are any immediate losers in the push for globalization it is the highly-paid employees of the developed countries. It is they who have been displaced by people from developing countries with similar qualifications being available at a lower cost. All in all, then, there should not be any dispute that globalization has had a positive impact on developing countries and created more jobs and wealth for their people. References Dollar, D. (2003), Yale Global, Yale Center for the Study of Globalization, 23 June. Easterly, William, Roumeen, Islam, and Stiglitz, Joseph E. (2000), ‘Shaken and Stirred: Explaining growth volatility’, Mimeo, World Bank, Washington D.C. Frankel, Jeffrey A. (2000), ‘Globalization of the Economy’, NBER Working Paper No. 7858, August. Halfkin, N. and Taggart, N. (2002), ‘Gender, Information Technology and Developing Countries: An Analytical Study’, Retrieved from http://learnlink.aed.org/Publications/Gender_Book/executive_summary/4gender_impact.htm International Labour Organization (2001), ‘The Information Technology Revolution: Widening or bridging gender gaps’, ILO's World Employment report, 2001 Mitter, S. (1995), Who Benefits? Missing Links: Gender Equity in Science and Technology for Development DRC/INIFEM/IT:1995.   Mitter, S. (2000), ‘Teleporting and Toleration in India: Combining Diverse Perspectives and Visions’, Economics and Political Weekly, 24 June, p. 2247. Poirson, Helen (2000), ‘Factor Reallocation and Growth in Developing Countries’, IMF Working Paper WP/00/94, IMF, Washington, DC. Prasad, E. S., Rogoff, K., Wei, Shang-Jin, and Kokse, M. A. (2003), ‘Effects of Financial Globalization on Developing Countries, Some Empirical Evidence’, International Monetary Fund. Yusuf, S. (2001), ‘World Bank DECRG, Globalization and the Challenge for Developing Countries’, available on http://www1.worldbank.org/economicpolicy/globalization/documents/wps2168.pdf David Dollar and Aart Kraay, 2001, "Growth Is Good for the Poor," World Bank Policy Research Department Working Paper No. 2587 (Washington). This paper can also be found on the web at http://www.worldbank.org/research/growth. S. Ramani, Internet Kiosks in India, (INTECH).  UNIFEM and UNU/INTECH. "Gender and Telecommunications: An Agenda for Policy," 2000 OR http://learnlink.aed.org/Publications/Gender_Book/executive_summary/6gender_political.htm Finance & Development, A quarterly Magazine of the IMF, Trade, Growth and Poverty, By David Dollar and Aart Kraay, September 2001, Volume 38, No.3, http://www.imf.org/external/pubs/ft/fandd/2001/09/dollar.htm   Read More