Impacts of Globalization on Developing Countries - Essay Example

Impacts of Globalization on Developing Countries Name Name of Institution Contents Impacts of Globalization on Developing Countries 2 Impacts of Globalization on China 3 References 8 Impacts of Globalization on Developing Countries Globalization has been increasing substantially over the past years and is assessed to be creating several opportunities for both developed economies and more so developing countries. The largest impact however has been found to be on developing countries that are now able to attract significant amounts of foreign investments and trade opportunities that have led to economic growth and development. Globalization, even in the developing countries where it is desired, has led to both positive and as much negative impacts almost in equal measure and it is the particular kind of impacts (positive and negative) that have been the subject of many debates concerning the issue of globalization. Globalization leads to economic growth and development through various channels such as cross border information flows, technological transfers, capital transfer from industrialized to developing economies, widening of markets for domestic products, improvements in human capital. Over and above this, globalization also leads to direct economic growth (Zhang, 2001). There are also negative effects of globalization majorly identified as influencing income distribution, employment, environment and even economic growth (Dollar & Kraay, 2001). Income inequality is one of the most fronted adverse externalities of globalization and that as the nature of globalization keeps changing, so does the channels through which the distribution of resources is affected (Goldberg & Pavcnik, 2007). But it is the validity of these premises that are questioned since in as much as there are countries in which globalization has led to inequality, like is the case In China, there is no worldwide trend (Dollar, 2003). Most arguments against globalization also seems to be based on genuine concerns, there are fears of erosion of social and environmental standards, high poverty rates and a higher frequency of hard-hitting financial crises (Dreher, 2006). However, some arguments seem note that though globalization may lead to economic growth, then the magnitude of this effect is always overestimated, for instance, that if financial integration is found to have a positive impact on economic growth, there is yet no clear, verifiable and robust empirical proof that the effect is quantitatively significant (Rogof et al, 2003). While the scrutiny into the particular effects of globalization on the economies of developing countries persist, it is crucial to note that globalization, as important as it appears to the economies of developing countries, it is only a necessary but no a sufficient condition for economic prosperity. Moreover, there seems to be a consensus in existing body of literature that for the positive benefits of globalization to materialize, there is need for developing countries, who are the perceived major beneficiaries of globalization, to strengthen their legal and institutional frameworks. It is advanced that countries with better institutions tend to trade more, and develop more (Dollar & Kraay, 2003: Dollar & Levin, 2006). This paper seeks to look in-depth into this perceived positive and negative effects of globalization on the economies of developing countries using a country case study. China is picked as the focus of this paper due to its 1978 Opening-to-the-outside-world national economic policy which led to an array of political, social and economic transformations. China’s recent history offers a quasi-natural experiment on the consequences of embracing globalization (He et al, 2008). Impacts of Globalization on China China, a communist nation in East Asia with the highest population has become the center of attention on matters economic growth in the past three decades as economists try to evaluate the underlying factors that led to its rapid economic growth. Since 1978, the country has moved from a closed centrally planned economy to a market-oriented system that has assumed a crucial global role which culminated in it being ranked the largest exporter in 2010. Even today, by promoting domestic efficiency and productivity, and providing a friendly environment for exports and foreign investments, globalization and economic reforms lie at the heart of China’s improved economic prospects (Fujita & Hu, 2001). It is believed that, having adopted a market-oriented system, the country’s GDP experienced an exponential growth due to a multiplicity of factors as this policy led to transformations in Chinese policies on social security, education, health services, employment, physical infrastructure and social services (Guan, 200). This raft of measures immediately led to an improvement in the Chinese living standards and economic prosperity with an average growth rate of 9.5 percentage points in 1978-99, the world’s largest growth rate in that period (Zhang, 2001). This impressive growth attributed to globalization was even to persist. In 2000, China’s growth rate was 2.33 percentage points higher as compared to 1975, a year when the economy was closed and centrally planned (Dreher, 2006). Poverty also significantly reduced during this period as the proportion of the Chinese living below the poverty line reduced immensely due to its fast-globalizing nature compared to its developing counterparts in sub Saharan Africa (Lee & Vivarelli, 2006). But the improvements in the Chinese living standards were yet to get better, with the imported technology impacting positively in the transport and communication sector where distance was cut short and this led to overall operational efficiency even in the production industry. This is consistent with the findings elsewhere in the world where globalization-led technology is found to be a critical in improving telecommunication and transport in developing economies (Lee & Vivarelli, 2006). The positive effects of globalization in China are therefore manifest in its emergence to a crucial global economic player, complete with and economic and political muscle to channel her advances and influence world economy. The fact that this economic upsurge began immediately after adopting a liberal economic blueprint is a testimony to the positive prospects of globalization (Fujitu & Hu, 2001). However, this economic glory catalyzed by the force of globalization only came at a cost. Quite a significant one at that. Globalization in China led to several adverse negative effects that many economists have come to estimate as superseding the accrued benefits and this has characterized the acrimonious debate between the advocates and the critics of globalization (Lee & Vivarelli, 2006). Anyone would not help noting that the empirical literature on the adverse externalities of globalization in China is well ahead of the theory. The most discussed effect of globalization that seems to cut across all the other effects is that of income inequality. It is observed that globalization has created and substantially increased income inequality in China than it has anywhere else in the world. Of as much interest are the channels through which globalization enhances inequality in China, where globalization stimulates industrial clustering along the coastal line while at the same time, decentralization leads to protectionism and industrial dispersion (He et al, 2008). Even the most ardent critics of globalization seem to agree that globalization promotes growth in overall Chinese incomes, only that it simultaneously rises over time and becomes stronger in the coastal than in the interior region of the country (Zhang, 2001). These distributional illusions are much more pronounced in the inter-regional comparisons within China than at the national level, in fact, it would be a gross mistake to conclude from national aggregates that globalization has led to inequality (Wei & Wu, 2001). The other mostly advanced channel through which globalization influence inequality is through the provision of factor mobility which leads to economic liberalization and ultimately convergence and agglomeration economies (Fujitsu & Hu, 2001). This has led to unpropotional economic and demographic distribution which are viewed as mutually reinforcing and further, if the migration policies are not changed, regional disparity will persist in China. Globalization in China is also found to have adverse environmental impacts but the exact impact is yet to be ascertained though it is believed instead that Global ties increases self-regulation pressures while also taking note of the fact that low regulation might be production platforms for pollution-intensive firms (Guan, 2000: Christmann & Taylor, 2001). Effects of globalization on trade and industry in China can also not be overstated. Although there are several channels through which globalization can affect trade and inequality, it does so majorly through wage inequality by changing relative demand for skilled labour, a mechanism that is very common in the Chinese industries (Goldberg & Pavcnik, 2007). There is also the fear that global technology, particularly that which is exotic to China leads to unemployment as the Chinese workers’ skills become obsolete. Moreover, globalization also created considerable unemployment in China as there was a mass influx of Multinational Enterprises (MNEs) and automation especially in agriculture led to the shading off of unskilled labour which initially had formed the foundation of the sector before the adoption of the liberalization blueprint. However, given the possible distributional effect of “imported” skill-based technology, the Chinese policy on education has a crucial role to play in increasing supply of skills (Lee & Vivarelli, 2006). From the Chinese experience of globalization, there are several issues that emerge most of which equally apply to all other developing countries. First, traditional macroeconomic and structural policy measures should be rigorous and overly flexible if the benefits of globalization are to be derived and its associated risks simultaneously kept in check. It therefore follows that poor macroeconomic and structural policies can result in not only the accentuation but also the persistence of the hazards of globalization which might even be self-reinforcing at worst (Rogof et al, 2003). Second, the instantaneous transformation the Chinese economy from a closed, centrally planned economy to a market oriented liberal economy in 1978, a year described by many as a watershed year for China and the world economy, might have had several adverse effect as it made the economy immediately susceptible to the hazards of globalization as much as it benefits, being overly vulnerable as it had no previous experience with this relatively new phenomenon before. There was need to structure a cautious, gradual transition plan into liberalism as pointed out by (Wei & Wu, 2001) as it would not only transform the economic life of the Chinese populace but also their social, cultural and political orientations. Liberalization would essentially be an overhaul of the lifestyle, both a physical reality and a state of the mind. Finally, and most importantly, the kind of institutional structures existing in a particular economy are key to determining the extent to which an economy can harness the opportunities of globalization (Dollar & Kraay, 2003; Dollar & Levin 2006) and most importantly, how the resulting negative externalities can be reduced. References Christmann, P., & Taylor, G. (2001). Globalization and the environment: Determinants of firm self-regulation in China. Journal of international business studies, 439-458. Dollar, D., & Kraay, A. (2003). Institutions, trade, and growth. Journal of monetary economics, 50(1), 133-162. Dollar, D., & Levin, V. (2006). The increasing selectivity of foreign aid, 1984–2003. World development, 34(12), 2034-2046. Dreher, A. (2006). Does globalization affect growth? Evidence from a new index of globalization. Applied Economics, 38(10), 1091-1110. 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