Globalisation Resulted in a More Even Distribution of Economic Activity Across the Globe - Case Study Example

To what extent have the processes of globalisation resulted in a more even distribution of economic activity across the globe? FacultyName Course Name Date Table of Contents I. Introduction II. Globalisation growth in the 20th century III. Economic Indicators of a Country IV. Data Analysis of 181 Countries V. Conclusion Reference I. Introduction Globalisation has changed the way business was done traditionally. It has impacted economies of various countries in some or other ways. This paper is an effort to understand the extent to which globalisation have impacted the economic activities of various countries in 20th century. The first part of the paper broadly discuss about the process of globalisation in 20th century. The next part explains economic factors of any country followed by data analysis and conclusion of the entire paper. II. Globalisation growth in the 20th century Globalisation is one of the crucial factors of the present age economies. Globalisation has opened avenues for various multinational organisations to operate in new markets, establish their manufacturing units and branches in new locations and many other things. It has resulted in better inflow of foreign currencies in terms of foreign direct investments and profits earned by organisations in foreign locations. It has contributed to the overall world economy. However there have been certain drawbacks and limitations associated with it. From the past business organisations have been exploring new markets for their products or business. Even in 1820’s business enterprise have explored the new avenues beyond the borders of their countries. Thus the efforts were limited due to lack of transportation and communication facilities. Apart from these the legal, sociological and cultural environments had too much of variance and rigidity. The efforts till 1850’s had been in the form of smaller investments. Firms such as the German-owned electrical company Siemens and US-owned Singer Sewing Machines, which established their first overseas plants in the 1850s and 1860s respectively, were among the first manufacturing multinationals in history. (Jones, 2005) Overseas banking operations had been started to support the business persons to invest in the cross border factories. These kinds of operations have started in Australian, Canadian, and West Indies colonies. These did not enjoyed exclusive rights as companies enjoy today. The risks of investments were high. However many enterprises and manufacturer were able to sustain and bring profits to the home countries. After 1850’s the pace of multinational operations have increased. The outbreak of World War I in 1914 began a process which saw the beginning of the end of the first global economy. There had already been signs of a backlash against globalisation in the previous decades. The most visible sign was the shift towards trade protectionism. (Jones, 2005) The beginning of 20th century was full of uncertainties and war between nations having conflicts in their selfish ambitions. This resulted in lack of trust in investments in several parts of the world. Several business entrepreneur and enterprises restricted their business activities to their country or the friendly neighbour countries. This restricted the pace of globalisation. During the 1980s the pace of globalisation intensified. By then the overwhelming influence of the United States on the world economy had given away to a situation whereby wealth was distributed more equally between the Triad of North America, Western Europe, and Japan, which accounted for around three-fourths of world manufacturing production. (Jones, 2005) There have been various factors which have impacted the globalisation process. One of the main factors contributing in the globalisation process is technological developments and advancements. It provided the perfect manure for the growth of the globalisation. It was in the area of communication, transportation and various manufacturing and operations related fields. The globalisation along with liberalisation has helped various economies to grow tremendously. One of such countries is China. China have gained sustained growth in the last few years and have been able to manage its real Gross Domestic Product to 9 percent between yeah 1979 to 2003 (Jones;2005) The sustained growth was result of many factors like government policies, development of adequate infrastructure, providing proper environment and availability of cheap labour. By 2004 Chinas steel production was larger than the United States and Japan combined, and the country had become the worlds second largest importer of oil after the United States. Foreign trade growth averaged almost 15 percent between 1979 and 2003. (Jones, 2005) The overall economy was shifting from manufacturing to the service sector by the end of 20th century. Communication and technology was still growing and contributing to that. The Asian economies were one of the most benefited economies by the process of globalisation. Countries like China and India offered cheap labour and favourable government policies and attracted foreign direct investments. These investments brought employment opportunities to these countries. These countries also offered attractive new markets. The foreign companies explored both the manufacturing and new market opportunities in these countries. The process is still continued and is expected to continue till it reaches to some kind of equilibrium. Organisations by the end of 20th centuries had more opportunities and flexibility to invest and operate in various other countries as compared to 19th and 18th centuries. The bilateral relationships, special economic zones and various trade agreements have also encouraged investors to invest in various countries. Production and selling of goods and services to the cross border consumers had become easier and profitable. A striking manifestation of these trends was a rapid growth of intra-firm trade in manufacturing, especially in high technology industries such as automobiles and machinery which had experienced the greatest rationalization on a world scale. In 1970 intra-firm trade was estimated to account for around 20 percent of world trade. By 2000 the share was over 40 percent. Multinationals were the drivers of world trade growth. (Jones, 2005) Graph 1: Waves of Globalisation1 By the end of 20th century the world economy have been said to have the moment of free market. There were various macroeconomic policies of various nations which were the key to the success of globalisation in these countries. The policies were related to investments, deregulation, privatization, export-import and many others. The effective functioning of international organizations like World Bank, Organization for economic cooperation and development (OECD), United Nations Development programs and ASIAN and many others asserted the economic growth in 20th century. The microeconomic aspects contributed to the growth of globalisation. There were various global strategies adopted by multinational organizations. These were related to the conception of markets, integration of various strategies and changes in the strategies according to the external environmental factors specially related with government policies. The changes in the external environment impacted the strategically decisions at investment level, operations, expansion plans as well as the internal organization decisions related to operations like outsourcing or in-house decisions, human resource related decisions, organizational structures and many other decisions. III. Economic Indicators of a Country The integration among various policies, organisation operations, commercial and financial activities is better than the past today. In the paper by Irwin, Bordo and Eichengreen entitled "Is Globalisation Today Really Different from Globalisation a Hundred Years Ago?" the authors argue rightly that the measures of globalisation such as the proportion of goods trade in a countrys GPD or the ratio of (net) capital flows in a countrys GDP are deceiving. Those percentages were equally large or even larger in the pre-WWI wave of globalisation. (Mikic, 2000) The economic indicators of any country by the end of 20th century were not only GDP, National savings and income but also the foreign direct investments it was receiving. It was an indicator of the stable and long lasting relationship between different countries and economies. It was directly done from investing country to the country where it was investing. The multinational corporations or the companies from the investing company invested in the other based on the FDI rules and regulations of that particular country. FDI impacted the economy of the country it is being flow in various ways. The employment increased, the flow of technical knows how and knowledge transfer increased, offered companies opportunity to promote their products in new markets and impacted the international trade. It supported the economies by providing a source of capital to them. It was mainly in the form of economic activities of the multinational companies and globalisation of trade. Again, while policymakers, economists, international organizations and corporate lobbies argue that international production by multinationals is in everybody’s interests, these companies have increasingly come under attack. 58 The best known example of this critical mood is the failure of attempts by the Organization for Economic Cooperation and Development (OECD) to codify and harmonize the rights of investing companies all over the world in a Multilateral Agreement on Investment (MAI). (As cited in Went, 2002) Graph 2: Structure of Production (Page 206) As per the Graph 2 the GDPs of middle income, lower middle income and low income economies have increased significantly from 1965 to 1985. This growth was across the sectors of agriculture, manufacturing, industry and services. IV. Data Analysis of 181 Countries When one compares data of last two decades of various countries, most of the countries have shown significant growth in the GDPs. For the data analysis of last two decades the data has been categorise as following: 1. Countries with GDP range between 0-3 Billion US Dollars in 1980 2. Countries with GDP range between 3-5 Billion US Dollars in 1980 3. Countries with GDP range between 5-10 Billion US Dollars in 1980 4. Countries with GDP range between 10-20 Billion US Dollars in 1980 5. Countries with GDP range between 20-30 Billion US Dollars in 1980 6. Countries with GDP range between 30-90 Billion US Dollars in 1980 7. Countries with GDP range between 90-300 Billion US Dollars in 1980 8. Countries with GDP range between 300-3000 Billion US Dollars in 1980 Countries with GDP range between 0-1 Billion US Dollars in 1980 From 1980 to 2000 growth in the GDPs of various economies have been evident. Switzerland is one among the highest growth rates. This was due to the stable political and economical conditions and high exports of watches and other products. This led to inflow of foreign currency in the economy increasing the overall gross national income. Graph 3: Countries with GDP range between 0-3 Billion US Dollars in 1980 Countries with GDP range between 1-5 Billion US Dollars in 1980 In this category developing and low economic countries like Sri Lanka, Panama, Lebanon, Nepal and various others have shown growth from in last two decades. Growth of economies indicates the positive health of overall economies over these years. In the countries like Sri Lanka and Nepal, tourism is one of the main industries which not only attracts foreign currencies but also is one of the largest employing sectors. These countries also offer cheap labour. The employment opportunities have been increased due to the globalisation. Graph 4: Countries with GDP range between 1-5 Billion US Dollars in 1980 Countries with GDP range between 5-10 Billion US Dollars in 1980 Here also the similar trend is appearing. The growth in last two decades can be seen here. However in some countries like Angola, Sudan and others the unstable political social conditions, continuous natural disasters etc had impacted the population and economy adversely. This is the reason that these countries do not show growth in economy. The instabilities in these countries have distracted the investors and companies. This is the reason inflow of foreign currency in terms of foreign direct investment or profits are least in these countries reducing the value of GNI for these countries. Graph 4: Countries with GDP range between 5-10 Billion US Dollars in 1980 Countries with GDP range between 10-20 Billion US Dollars in 1980 Even in this category the results have been different for different countries. Countries like Singapore, Bangladesh, and Ecuador etc have shown consistent growth in GDP whereas others have shown drops in their level of GDPs which is an indicator of unstable situations in these countries. Graph 5: Countries with GDP range between 10-20 Billion US Dollars in 1980 Countries with GDP range between 20-30 Billion US Dollars in 1980 Most of the countries have shown significant growth in their GDPs in this category. Highest among these are Hong Kong, Israel, Ireland etc. Apart from growing GDPs these countries have inflow of foreign income which adds to its GNI significantly. Graph 6: Countries with GDP range between 20-30 Billion US Dollars in 1980 Countries with GDP range between 30-90 Billion US Dollars in 1980 Korea and Taiwan province of China tops this category with maximum level of GDP. Each of them has also been able to invest and attract foreign direct investment to their countries increasing the level of GNI. Graph 7: Countries with GDP range between 30-90 Billion US Dollars in 1980 Countries with GDP range between 90-300 Billion US Dollars in 1980 Canada tops this list with maximum growth in GDP in last two decades. This list consists of fast growing economies or developed economies. The fast growing economies have been able to attract high level of FDI and foreign currency inflow while the developed economies are foreign income is high due to the return on investments made by these countries in other economies. Graph 8: Countries with GDP range between 90-300 Billion US Dollars in 1980 Countries with GDP range between 300-3000 Billion US Dollars in 1980 In this list as well there is consistent growth in the GDPs of various countries and added to that the foreign income is also high for these countries. China has been attracting highest level of FDI whereas US based companies are operating in various nations and making good profits which they bring to home and add to the GNI of US. Graph 9: Countries with GDP range between 300-3000 Billion US Dollars in 1980 V. Conclusion Globalisation has increased the opportunities for various companies to explore new markets for their products and services and establish manufacturing units. In last two decades overall world economy has grown. At the starting of 20th century the process of globalisation had slowed down due to the war and unstable conditions. By the end of 20th century the process have got its on pace and delivered good results in terms of growth of economies of various countries. Usually most of the countries analysed have indicated consistent and even growth in their economies. Reference Went, Robert (2002) The Enigma of Globalisation: A Journey to a New Stage of Capitalism. Routledge: London. Mikic, Mia (2000) Globalisation and International Trade Liberalisation, Continuity and Change. Journal Title: New Zealand Economic Papers. Volume: 34. Issue: 2. Publication Year: 2000. Page Number: 287. COPYRIGHT 2000 New Zealand Association of Economists; COPYRIGHT 2004 Gale Group Pires-OBrien, Joaquina (2002) Globalisation Now and Then, Magazine Title: Contemporary Review. Volume: 281. Issue: 1640. Publication Date: September 2002. Page Number: 149+. COPYRIGHT 2002 Contemporary Review Company Ltd.; COPYRIGHT 2002 Gale Group Whalen, Charles J.( Editor) (1996) Political Economy for the 21st Century: Contemporary Views on the Trend of Economics., M. E. Sharpe: Armonk, NY. Jones, Geoffrey (2005) Multinationals and Global Capitalism: From the Nineteenth to the Twenty-First Century, Oxford University Press: Oxford. Chossudovsky, Michel (1998) Global Poverty in the Late 20th Century, Journal Title: Journal of International Affairs. Volume: 52. Issue: 1. Publication Year: 1998. Page Number: 293. COPYRIGHT 1998 Columbia University School of International Public Affairs; COPYRIGHT 2002 Gale Group Measuring Globalisation, OECD Handbook on Economic Globalisation Indicators (2005) retrieved on November 1st 2006 from http://www.realinstitutoelcano.org/materiales/docs/OCDE_handbook.pdf Data retrieved on 1 November 2006 from http://www.imf.org/external/pubs/ft/wp/2000/wp0044.pdf accessed on November, 1, 2006 Read More