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Impact of Globalisation (Revision Essay Plan)

Last updated 11 Jan 2022

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Here is a suggested answer to a question on the impact of globalisation on developed and developing countries.

Introductory Context

An estimated 9 percent of the global population still lives below the international poverty line of US$1.90 PPP a day.Success in reducing poverty in East Asia is clear with 7 percent of the population in the region living below the US$3.20 PPP line and 25 percent living below the US$5.50 PPP poverty line in 2018. However, almost 70 percent of Sub-Saharan Africa’s population lives on less than US$3.20 per day. Progress in cutting extreme poverty has been halted by the pandemic. The World Bank estimated that the pandemic pushed between 119 and 124 million people into extreme poverty around the globe in 2020. Many developing countries have limited resilience to the impact of economic shocks and threats from climate change.”.

Source: Adapted from the World Bank Poverty Report, 2021

To what extent have the economic benefits of globalisation favoured developed over developing countries? (25 marks)

KAA Point 1

Globalisation involves deeper integration between countries through networks of trade, capital flows, ideas, technologies and movement of people. One argument that globalisation has favoured high-income countries lies in the growing dominance of TNCs from advanced nations. TNCs base their manufacturing, assembly, research and retail operations across several countries, and many have become synonymous with globalisation namely Nike, Apple, Amazon, Google (Alphabet) and Samsung. Some have annual revenues many times higher than the GDP of smaller low-income countries and there has been fierce criticism of numerous TNCs for following tax avoidance strategies such as transfer pricing. This has reduced tax revenues for governments in developing nations which then hampers their ability to use fiscal policy to fund public services such as education and basic health care. The effect is to limit progress in reducing extreme poverty and improving human development outcomes.

Evaluation Point 1

A counter argument is that globalisation is associated with a steady reduction in import tariffs around the world which has then improved access to high-income markets for businesses from emerging countries. Many nations in east Asia have achieved reductions in extreme poverty driven by export-led growth. The extract says that only 7 percent of this region’s population now live below the US$3.20 PPP poverty line and continued high growth – as economies recover from the effects of the pandemic - will lead to improvements in per capita incomes and living standards. Indeed, sixty percent of the value of world GDP now comes from emerging market and developing economies and several countries have their own TNCs operating on a global scale. The recent success of countries such as South Korea, India and Vietnam is testimony to the opportunities that globalisation has offered developing nations who have developed competitive advantage across a range of industries.

KAA Point 2

A second argument supporting the question is that nations succeeding in a globalizing world have diversified economies, a workforce with flexible skills and governments with fiscal resources to overcome external shocks such as the pandemic. In contrast, poorer low-income countries rely heavily on the production and export of primary commodities or incomes from tourism, both of which have been hit by the global recession in 2020-21. Many poorer nations also haveinadequate infrastructure which increases the costs of trade and their direct tax revenues as a share of GDP are low because of sizeable informal economies and persistently low per capita incomes. This means that national governments rely heavily on external debt, and many have low currency reserves. They are therefore more exposed to economic, financial and public health shocks. This is evidenced by the differences in vaccination rates between rich and low-income countries. As of January 2022, only 9% of people in low-income countries have received at least one dose and per capita incomes may take years to reach pre-2020 levels.

Evaluation Point 2

In evaluation, the globalisation process has been a catalyst for economic reforms in low and middle-income countries. Consider the example of Vietnam which has transitioned to a socialist oriented market economy and successfully attracted inward FDI from companies such as LG and Samsung. FDIhas flowed in helped by low unit labour costs costs, improving infrastructure and human capital and a deregulated business environment whilst the Vietnamesegovernment has moved to a managed floating exchange rateto help reduce some of the risks from regional and global economic shocks. Vietnam is a good example of a country that has successfully progressed from a low income to a low-middle income nation over the last two decades. The valueof their external trade accounts for roughly 180% of national output, more than any other country at its level of per-person GDP. And their educational scores on standardized tests are on a par with Germany and Austria.

Final Reasoned Comment

Overall, it is hard to reach a firm view on this question because globalisation as a process is uneven and not inevitable. Before and during the pandemic, there was evidence of a switch towards “regionalisation” rather than full-throttled globalisation. For example, most sub-Saharan African countries have joined the African Continental Free Trade Area which seeks to boost intra-regional trade and investment and encourage economies of scale among African businesses so that they can better compete against the dominance of Western TNCs. Developing nations often struggle to compete with developed countries, therefore it is argued free trade benefits high-income economies more. Gains from globalisation will never be equitably distributed.And this sense of deepening inequality and opportunity risks a further shift to tariff and non-tariff barriers to trade and moves towards economic nationalism.

• Globalisation
• Deglobalisation
• Hyper-globalisation
• Transnational Businesses
• Developing countries

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Globalization and Economic Growth

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• Ishak Demir 7 , 10 ,
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• Taha Egri 9  

Part of the book series: Encyclopedia of the UN Sustainable Development Goals ((ENUNSDG))

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Demir, I., Canakci, M., Egri, T. (2021). Globalization and Economic Growth. In: Leal Filho, W., Azul, A.M., Brandli, L., Lange Salvia, A., Wall, T. (eds) Decent Work and Economic Growth. Encyclopedia of the UN Sustainable Development Goals. Springer, Cham. https://doi.org/10.1007/978-3-319-71058-7_90-1

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Concept and History of the Economic Globalization Essay

Globalization is the interconnection that has been experienced in the world through the improvement of communication, trade, and transportation. The aim of globalization is to enhance free movement of goods and services through international trade.

It also increases wealth in the process of distribution of goods and services. Regional economies and many cultures have been incorporated through free flow of information, easy transportation, and trade. There are many types of globalization, including economic globalization, technological globalization and cultural globalization.

However, the focus here is on the aspects of economic globalization. Economic globalization involves a global system that allows movement of goods, capital and resources; for example, the European Union. Economic globalization has improved interdependence of different countries across the world because of global trade. However, striving for better economies has affected different cultures as they tend to emulate countries that have successfully developed their economic systems.

Economic globalization has led to the interdependence of economies in the whole world due to the trades carried out across many borders. This has led to continuing expansion of the global market. Development of science and technologies are a driving force to economic globalization. These technologies have made transport and communication easy. The cost of shipping and airfreight has reduced to allow international trade.

Multinational Corporations have increased in number and they have planned production and distribution of resources and thus, have helped in profit maximization. As they are increasing all over the world, they are reforming the macroeconomics mechanisms of the process of the global economies.

Due to the high income, many industries are restructuring and upgrading. Many developed countries have entered into the developing countries to do business since there is no competition as compared to theirs, thus leading to economic globalization. Domestic and multinational organisations are striving to improve their image in the global market and many have turned to mergers and acquisitions (Joshi, 2009).

Similarly, economic globalization has brought in economic benefits because there is stiff competition, which has led to the decrease of prices and variety high quality goods. Production efficiency has also been improved as the domestic firms try to compete with the foreign competitors. Provision of financing has helped poor countries acquire capital for development.

There are many opportunities for finance all over the world. Before globalization, capitalists and companies could only get money from investors in their local countries, but as the economies are integrated, there are many sources of finance.

Developers in any country can get investors from another country. United States, for example, can give funds to countries such as Canada or in Asia. Not only the developed countries can have access to fund, but also the developing countries from Africa can also access funds from many international sources.

According to Bordo (2005), many countries have joined the world trade organization. For example, China and U.S signed an agreement to access the WTO. Through the signing of this agreement, it is clear that China is ready to transform its economic system and join other countries in the progression of economic globalization.

The US will also benefit because it will boost its exports to China, hence generating more jobs. China will also enhance its economic expansion on the US market share. Economic globalization has also decreased poverty in China from 20 to 15 percent.

Although globalization has changed the whole world in economical, social and political aspect, many people are losing their cultures. Free flow of information, transportation and communication has turned the whole world into a global village and thus, reduction in costs has change people’s tastes and preferences in the society and this has led to the negative effect of cultural values. Before the era of globalization, culture was well defined and the issue of loss of identity did not disturb people since they never knew that it would one day be an issue.

Later, the process of globalization busted the culture identities. Some of the countries like the United States are not affected by lose of culture identity since they are okay with their cultures exported around the globe and thus only the weaker cultures in underdeveloped countries are being affected. Waters (2001) concurs that culture identities have been lost and people and the specificities that make a society unique such as food, language and dressing have been changed completely.

They have replaced traditional foods with fast foods, and big clothing brands have replaced the unique traditional clothing. In short, people eat and dress the same despite the fact that they are from different societies and cultures in the world. Many societies are losing their identity and uniqueness that makes them different from the rest.

In conclusion, growth of trade through economic and financial globalization has benefited both the developed and the developing countries. Although there are risks involved such as unstable capital movements in globalization, bodies such as International monetary funds have put efforts to help economies to handle risks through economic analysis.

Globalization has been motivated by policies that have unlocked economies both locally and internationally. Many countries have taken up free market economic systems, which have increased their productivity and creation of many opportunities in global trade and investment. However, the all governments should understand how globalization works through analysis of issues and debates regarding globalization.

Bordo, M. (2005). Globalization in Historical Perspective . Chicago: University of Chicago Press.

Joshi, R. M. (2009). International Business. New York: Oxford University Press.

Waters, M. (2001). Globalization. London: Routledge.

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IvyPanda. (2019, August 20). Concept and History of the Economic Globalization. https://ivypanda.com/essays/economic-globalization/

"Concept and History of the Economic Globalization." IvyPanda , 20 Aug. 2019, ivypanda.com/essays/economic-globalization/.

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IvyPanda . 2019. "Concept and History of the Economic Globalization." August 20, 2019. https://ivypanda.com/essays/economic-globalization/.

1. IvyPanda . "Concept and History of the Economic Globalization." August 20, 2019. https://ivypanda.com/essays/economic-globalization/.

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IvyPanda . "Concept and History of the Economic Globalization." August 20, 2019. https://ivypanda.com/essays/economic-globalization/.

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Costs and benefits of globalisation

Globalisation is a complex and controversial issue. This is a look at some of the main benefits and costs associated with the greater globalisation of the world economy.

Definition of Globalisation The process of increased integration and co-operation of different national economies. It involves national economies becoming increasingly inter-related and integrated.

Globalisation has involved :

• Greater free trade.
• Greater movement of labour.
• Increased capital flows.
• The growth of multi-national companies.
• Increased integration of global trade cycle.
• Increased communication and improved transport, effectively reducing barriers between countries.

Summary of costs/benefits

Benefits of globalisation

1. Free trade is a way for countries to exchange goods and resources. This means countries can specialise in producing goods where they have a comparative advantage (this means they can produce goods at a lower opportunity cost). When countries specialise there will be several gains from trade:

• Lower prices for consumers
• Greater choice of goods, e.g food imports enable a more extensive diet.
• Bigger export markets for domestic manufacturers
• Economies of scale through being able to specialise in certain goods
• Greater competition

See: Benefits of Free Trade

2. Free movement of labour

Increased labour migration gives advantages to both workers and recipient countries. If a country experiences high unemployment, there are increased opportunities to look for work elsewhere. This process of labour migration also helps reduce geographical inequality. This has been quite effective in the EU, with many Eastern European workers migrating west.

Also, it helps countries with labour shortages fill important posts. For example, the UK needed to recruit nurses from the far east to fill shortages.

• However, this issue is also quite controversial. Some are concerned that the free movement of labour can cause excess pressure on housing and social services in some countries. Countries like the US have responded to this process by actively trying to prevent migrants from other countries.

See also: free movement of labour

3. Increased economies of scale

Production is increasingly specialised. Globalisation enables goods to be produced in different parts of the world. This greater specialisation enables lower average costs and lower prices for consumers.

4. Greater competition

Domestic monopolies used to be protected by a lack of competition. However, globalisation means that firms face greater competition from foreign firms.

5. Increased investment

Globalisation has also enabled increased levels of investment. It has made it easier for countries to attract short-term and long-term investment. Investment by multinational companies can play a big role in improving the economies of developing countries.

Costs of globalisation

1. Free trade can harm developing economies

Developing countries often struggle to compete with developed countries, therefore it is argued free trade benefits developed countries more. There is an infant industry argument which says industries in developing countries need protection from free trade to be able to develop. However, developing countries are often harmed by tariff protection, that western economies have on agriculture. Paradox of Free Trade

2. Environmental costs

One problem of globalisation is that it has increased the use of non-renewable resources. It has also contributed to increased pollution and global warming. Firms can also outsource production to where environmental standards are less strict. However, arguably the problem is not so much globalisation as a failure to set satisfactory environmental standards.

3. Labour drain

Globalisation enables workers to move more freely. Therefore, some countries find it difficult to hold onto their best-skilled workers, who are attracted by higher wages elsewhere.

4. Less cultural diversity

Globalisation has led to increased economic and cultural hegemony. With globalisation there is arguably less cultural diversity; however, it is also led to more options for some people.

5. Tax competition and tax avoidance

Multinational companies like Amazon and Google, can set up offices in countries like Bermuda and Luxembourg with very low rates of corporation tax and then funnel their profits through these subsidiaries. This means they pay very little tax in the countries where they do most of their business. This means governments have to increase taxes on VAT and income tax. It is also seen as unfair competition for domestic firms who don’t use the same tax avoidance measures.

The greater mobility of capital means that countries have sought to encourage inward investment by offering the lowest corporation tax. (e.g. Ireland offers very low tax rate). This has encouraged lower corporation tax, which leads to higher forms of other tax. (see: Tax competition )

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36 thoughts on “Costs and benefits of globalisation”

thaannkkss GREAT INFO

hey guys i’m looking for the benefits of developing countries and developed countries and have had no luck could anyone help?

I’ve just been reading a Stiglitz article (he used to be chief in the IMF/World Bank) and “globalization of knowledge” has been one benefit for developing countries. But sadly it depends on the side that you’re on. Economists will reel off the benefits of trade between countries, capital flow and labour flow. Anthropologists and social scientists will explain a lot of inequalities – the rich on a global scale have got richer and the poor, well guess what? yep, not a lot has happened there. Social science will detail (Stiglitz does too) how developed countries have profited off the poor, even via aid agencies and finance institutions such as the World Bank, IMF and WTO, who are supposed to be acting in developing countries best interests.

I think you can tell what side I’m on. Yes, I study anthropology and doing an essay on development as we speak 😉

what are the benefits of globalisation on both develoed and developing

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hey I am looking for how globalization affect reduction of cost

Hello, I am wondering if there are any disadvantages to consumer because of globalization. of course there are numerous advantages. can anyone please answer me. I would be grateful. thanks

if it were cheaper for a firm to produce/manufacture a good somewhere else can cause loss of jobs for people working for the firm. major multinational firms paying less tax in another country and not in the country they are earning will cause the government rely more heavily on smaller firms and consumers to gain tax mula.

Are those the only advantages of globalization on an economy?

what is the cost and benefits of globalisation on less developed countries?

Imagine thinking you are qualified to help people learn about globalization but not even knowing how to spell it.

We use British-English not American-English

How is less cultural diversity a cost of globalisation. Wouldn’t cultures spread worldwide from globalisation

no, globalization makes it easier than ever to access foreign culture, including food, movies, music, and art. This free flow of people, goods, art, and information is the reason you can have Thai food delivered to your apartment as you listen to your favorite UK-based artist or stream a Hollywood movie.

Once they get back they will be there and they are going on a walk in and the other is the same way as you can see the sun and earth is earth sun sky earth sun sun sky sun earth earth

A very useful piece of work

Love economics guys, absolutely love it, keep up this page, its greaaaaaaaaaatttttttt!!!!!!!!!!!!!!

Comments are closed.

ENCYCLOPEDIC ENTRY

Globalization.

Globalization is a term used to describe the increasing connectedness and interdependence of world cultures and economies.

Anthropology, Sociology, Social Studies, Civics, Economics

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Globalization is a term used to describe how trade and technology have made the world into a more connected and interdependent place. Globalization also captures in its scope the economic and social changes that have come about as a result. It may be pictured as the threads of an immense spider web formed over millennia, with the number and reach of these threads increasing over time. People, money, material goods, ideas, and even disease and devastation have traveled these silken strands, and have done so in greater numbers and with greater speed than ever in the present age. When did globalization begin? The Silk Road, an ancient network of trade routes across China, Central Asia, and the Mediterranean used between 50 B.C.E. and 250 C.E., is perhaps the most well-known early example of exchanging ideas, products, and customs. As with future globalizing booms, new technologies played a key role in the Silk Road trade. Advances in metallurgy led to the creation of coins; advances in transportation led to the building of roads connecting the major empires of the day; and increased agricultural production meant more food could be trafficked between locales. Along with Chinese silk, Roman glass, and Arabian spices, ideas such as Buddhist beliefs and the secrets of paper-making also spread via these tendrils of trade. Unquestionably, these types of exchanges were accelerated in the Age of Exploration, when European explorers seeking new sea routes to the spices and silks of Asia bumped into the Americas instead. Again, technology played an important role in the maritime trade routes that flourished between old and newly discovered continents. New ship designs and the creation of the magnetic compass were key to the explorers’ successes. Trade and idea exchange now extended to a previously unconnected part of the world, where ships carrying plants, animals, and Spanish silver between the Old World and the New also carried Christian missionaries. The web of globalization continued to spin out through the Age of Revolution, when ideas about liberty , equality , and fraternity spread like fire from America to France to Latin America and beyond. It rode the waves of industrialization , colonization , and war through the eighteenth, nineteenth, and twentieth centuries, powered by the invention of factories, railways, steamboats, cars, and planes. With the Information Age, globalization went into overdrive. Advances in computer and communications technology launched a new global era and redefined what it meant to be “connected.” Modern communications satellites meant the 1964 Summer Olympics in Tokyo could be watched in the United States for the first time. The World Wide Web and the Internet allowed someone in Germany to read about a breaking news story in Bolivia in real time. Someone wishing to travel from Boston, Massachusetts, to London, England, could do so in hours rather than the week or more it would have taken a hundred years ago. This digital revolution massively impacted economies across the world as well: they became more information-based and more interdependent. In the modern era, economic success or failure at one focal point of the global web can be felt in every major world economy. The benefits and disadvantages of globalization are the subject of ongoing debate. The downside to globalization can be seen in the increased risk for the transmission of diseases like ebola or severe acute respiratory syndrome (SARS), or in the kind of environmental harm that scientist Paul R. Furumo has studied in microcosm in palm oil plantations in the tropics. Globalization has of course led to great good, too. Richer nations now can—and do—come to the aid of poorer nations in crisis. Increasing diversity in many countries has meant more opportunity to learn about and celebrate other cultures. The sense that there is a global village, a worldwide “us,” has emerged.

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Related Resources

Globalisation

Characteristics of globalisation.

In economics, __globalisation __means the increased interdependence between the economies of individual countries and different regions of the world. This means that economic events in one part of the world are likely to have effects everywhere else. For instance, the financial crisis in 2007-8 soon spread from the USA to Europe and many other regions. There are four principal characteristics of globalisation:

• Free trade in goods and services – In recent decades there has been a fall in trade barriers , especially __tariffs __(taxes on imports). This makes it much easier for goods to be bought and sold across national frontiers.
• Free movement of labour – It is generally easier for people to choose to live and work in other countries than in the past. This is particularly true of the European Union, where the freedom to live, work or study in another EU country is a fundamental right.
• Free movement of capital – This refers to the freedom of businesses in one country to invest in another country. It includes direct investment (buying a foreign company or setting up a new one abroad) and indirect investment (buying shares in foreign companies or lending abroad)
• Free transfer of technology and knowledge – Companies can license the use of their technology to companies abroad or employ their own technological expertise in factories they own abroad. Gradually this leads to the more widespread knowledge and use of technology around the globe. For instance, China is now a major player in telecoms and digital technologies, with its own successful companies; it is no longer just a place for companies like Apple to assemble their products.

Causes of Globalisation

International trade and movement of people across the world has been going on for thousands of years, but the trend towards a more integrated world economy has greatly accelerated in recent decades. The main causes of globalisation are:

Falling trade barriers - Since the end of World War II in 1945, bodies such as the World Trade Organisation (WTO), the International Monetary Fund (IMF) and the World Bank have sought to reduce tariffs and other forms of barriers to free trade (see notes on 4.1.5 and 4.1.6). These organisations have also worked to help reduce barriers to the free movement of capital, making it easier for firms to invest abroad.

Emerging market economies – Countries like China, Brazil and India have emerged as major economies in the last 30 years and are now important producer and consumer nations. China is now the second biggest economy in the world, and will soon overtake the USA, currently in first place. These countries are important markets for American, European and Japanese companies, and also as suppliers of manuactured goods and services. China is also now a major souce of investment funds for the USA and Europe. (For instance, Chinese banks are providing the funding for the construction of several new nuclear power stations in Britain).

Technological change – The huge progress in digital and communication technologies makes it far easier (and cheaper) to trade in financial services, and to share knowledge and information. Call centres can be located thousands of miles away. It is also easier for firms to outsource research and development abroad when information can be accessed via secure computer networks.

Improved transport – Investment in road, rail, air and sea transport has revolutionised the movement of goods and people around the world. Them most important single development is probably containerisation . This is the movement of goods in steel containers of a standardised size, which can be easily transferred from lorries to trains or ships, greatly reducing the storage and handling costs of moving goods.

Multinational (or transnational companies) – A multinational company is one that operates in more than one country. Many now have production facilities in different parts of the world. Some are also owned by shareholders in more than one country. Car manufacturers like VW sell all over the world, but also have factories in Europe, N and S America and China. Apple is based in California, where it does most of the design and marketing of its products, but manufacturing is outsourced to a partne firm in China. The growth of multinationals has resulted in very complex supply chains, so that very few products are made completely in just one country.

The Effect of Globalisation

Changing Prices – The prices of many goods has fallen as production has shifted to low cost countries. The manufacture of phones, computers and cameras for instance has shifted to countries like China, where wages are much lower than in Europe or America. Similarly, the production of clothes is now mainly in South east and South Asia. This has resulted in much lower prices of these goods.

Some goods, however have risen in price, due to the increased demand resulting from rising incomes in emerging market countries. Food is a good example. With higher incomes, people in China now consume much more meat, driving up prices all over the world.

More choice – Increased international trade means consumers have a wider choice of goods and services from suppliers all over the world. The range of foods in supermarkets is a good example; we can now get almost any kind of food at any time of the year and no longer have to eat what is seasonally available locally.

Lower costs – Firms can now source materials and components from all over the world, finding the cheapest sppliers. Multinationals are also able to relocate production to low wage countries. Alternatively they may outsource the manufacturing or other activities such as customer service calls to countries such as India.

Increased interdependence – Globalisation has produced increasingly complex supply chains. This carries risks as well as benefits; a strike, natural disaster or political instability in a country whose firms supply businesses overseas can cause serious disruption for its customers. Equally, firms that depend on overseas markets for their customers may be adversely affected by events abroad over which they have no control. For instance the german car industry was badly affected by the financial crisis in the USA and Europe in 2007/8.

Tax avoidance – Multinationals are very good at exploiting loopholes to minimise their tax liabilities. Transfer pricing is one example. Suppose a firm produces components in country A which it then ships to country B, where they are assembled into a inished product.

Suppose that in country A profits are taxed at 30%, but only at 15% in country B. The firm can minimise its overall tax bill by ‘selling’ the components from its plant in country A to the plant in country B at a very low price. This means the plant in country B makes little profit (where tax is high), but a big profit in country B (where tax is low).

A well known online retailer (beginning with ‘A’) routes all its sales in the U.K. to an office in Ireland, where profits are taxed at a lower rate. The U.K government loses a lot of tax revenue as a result.

Employment – Some manufacturing industries, such as textiles and electronics have largely moved out of Europe and north America, and are now mainly located in Asia. This has produced a problem of structural unemployment in the countries losing these jobs, but has created millions of jobs in developing countries.

__Wages __ – Low skilled workers in rich countries are more exposed to competition from low paid workers in developing countries. This is particularly true in manufacturing industries, where firms can shift production or outsource it overseas. This will tend to drive down wages of low skilled workers in rich countries, but raise wages in developing countries for workers who leave very low paid work in agriculture and migrate to the cities to work in factories. Highly skilled professionals and workers in service industries are less exposed to competion from workers abroad. For instance, very few people travel abroad for a haircut.

Migration __ – There has been a big increase in the numbers of __economic migrants , as barriers to movement have come down. Workers from developing countries may be able to earn much more in the rich world. The impact on workers in the host country is complicated. Where migrants compete directly with indigenous workers, it is likely to drive down wages. But in many cases they don’t. For instance, very few British people want to pick fruit for a living; this is largely done by migrants. Also, some migrants help to fill vacancies where there are skill shortages, and so raise overall productivity and wages. Others may start businesses and create employment.

The environment

Increased world trade – The greater movement of goods by sea and air has contributed to the increase in greenhouse gases and global warming

Relocation of polluting industries – Multinationals have tended to relocate or outsource their polluting activities to developing countries where there is less environmental regulation.

Governments

Tax revenues – Multinational companies are able to shift production from high tax to low tax countries and can also avoid taxes through transfer pricing. The shortfall in tax revenues means either less public spending or higher taxes from households and domestic companies that can’t avoid taxes in the same way. But where foreign investment and trade contribute to economic growth, a government will benefit from higher tax revenues.

__Corruption __ – This is particularly (but not uniquely) a problem in developing countries, where officials are prone to accepting bribes in return for awarding contracts or granting planning permission to multinationals. This can result in bad decisions which harm the economy. For instance a contract to build a power station may be awarded to the firm paying the biggest bribe rather than the one that can build the most reliable and efficient power station.

Individual Countries

Some countries, such as China have been transformed through globalisation. China is now the world’s biggest manufacturer and living standards have risen dramatically. Smaller and less powerful countries, particularly in Africa have not benefited to the same extent. They have attracted much less inward investment in manufacturing and instead continue to rely on minerals and agricultural products for their livelihoods. The ownership of these resources is increasingly in the hands of foreign owners. These primary products are then processed into high value added goods abroad.

Essay on Globalisation

In this essay we will discuss about Globalisation. After reading this essay you will learn about: 1. Meaning of Globalisation 2. Characteristics of Globalisation 3. Advantages 4. Disadvantages  5. Globalisation of Indian Economy 6. Impacts.  

• Essay on the Globalisation and Its Impacts

Essay # 1. Meaning of Globalisation:

By the term globalisation we mean opening up of the economy for world market by attaining international competitiveness. Thus the globalisation of the economy simply indicates interaction of the country relating to production, trading and financial transactions with the developed industrialized countries of the world.

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Accordingly, the term, globalisation has four parameters:

(a) Permitting free flow of goods by removing or reducing trade barriers between the countries,

(b) Creating environment for flow of capital between the countries,

(c) Allowing free flow in technology transfer and

(d) Creating environment for free movement of labour between the countries of the world. Thus taking the entire world as global village, all the four components are equally important for attaining a smooth path for globalisation.

The concept of Globalisation by integrating nation states within the theme work of World Trade Organisation (WTO) is an alternative version of the ‘Theory of Comparative Cost Advantage’ propagated by the classical economists for assuming unrestricted flow of goods between the countries for mutual benefit, especially from Great Britain to other less developed countries or to their colonies. In this way, the imperialist nations gained much at the cost of the colonial countries who had to suffer from the scar of stagnation and poverty.

However, the advocates of globalisation, especially from the developed countries purposely limit the definition of globalisation to only three components, i.e., unrestricted trade flows, capital flows and technology flows. They do not want to include the free flow labour within the parameter of globalisation set by them.

According to Stieglitz, Nobel Prize Winner for Economics (2001) and former Chief Economists of the World Bank, “Globalisation is the closer integration of the countries and peoples of the world which has been brought about by the enormous reduction of costs of transportation and communications, and the breaking down of artificial barriers to the flow of goods and services, capital, knowledge, and (to a lesser extent) people across borders.”

Stieglitz is a powerful critique of globalisation and thus clearly pointed out the non-inclusion of fourth parameter of globalisation, i.e., free flow of labour in the present format of globalisation advocated by developed countries.

The World Commission on the Social Dimension of Globalisation (WCSDG) set up by ILO has also made some important observations on globalisation. The Commission observed. “The current path of globalisation must change. Too few share in its benefits. Too many have no voice in its design and no influence on its course.”

“We wish to make globalisation a means to expand human well being and freedom, and to bring democracy and development to local communities where people live.” But the advocates of the policy of globalisation argue that globalisation would help the underdeveloped, and developing countries to improve their competitive strength and attain higher growth rates. Now it is to be seen how far the developing countries would gain by adopting the path of globalisation in future.

In the mean time, various countries of the world have adopted the policy of globalisation. Following the same path India had also adopted the same policy since 1991 and started the process of dismantling trade barriers along with abolishing quantitative restrictions (QRs) phase-wise.

Accordingly, the Government of India has been reducing the peak rate of customs duty in its subsequent budgets and removed QRs on the remaining 715 items in the EXIM Policy 2001-2002. All these have resulted in open access to new markets and new technology for the country.

Essay # 2. Characteristics of Globalisation:

Main features of globalisation are as follows:

(i) Liberalisation:

Globalisation makes way for the freedom of the industrialist/businessman to establish industry, trade or commerce either in his country or abroad; free exchange of capital goods, service and technologies between countries.

(ii) Globalization of Economic activities:

Another characteristic of globalisation is the control of economic activities by domestic market and international market. It also established coordination among the national economy and world economy.

(iii) Free Trade:

One of the important characteristics of globalisation is free trade between counties. It also means absence of excessive governmental control over trade.

(iv) Connectivity:

Under globalisation, localities being connected with the world by breaking national boundaries; forging of links between one society and another and between one country and another through international transmission of knowledge, technology, ideas, information, literature and culture.

(v) Borderless Globe:

Globalisation makes way for establishing ‘borderless globe’, the ideal of which was articulated by Kemichi Ohmae. It results breaking of national barriers and creation of inter-connectedness.

(vi) A Composite Process:

Globalisation is a composite process through which integration of nation-states across the world can be made by common economic, commercial, political, cultural and technological ties. It also leads to creation of a new world order with no national boundaries.

(vii) A Multi-dimensional Process:

Globalisation is a multi-dimensional process. Economically, it simply means opening up of national market, free trade and commerce among nations, free flow of labour, capital and technology, and integration of national economies with the world economy.

Politically, it means limited powers and functions of state, more rights and freedoms granted to the individual and empowerment of the private sector culturally it means exchange of cultural values between societies and between nations; and ideologically, it means the promotion and spread of liberalism and capitalism.

(viii) A Top-down Process:

Globalisation originates from developed countries and MNCs based in those countries. Technologies, capital, products and services are allowed to enter from developed countries to developing countries. It is the developing countries which needs to be adapted with the changing situations and to accept those new ideas for attaining higher level of socio-economic development.

The above characteristics of globalisation simply suggests that there is a great need for global integration under the present global economic scenario. In view of the current global recession and financial crisis, there is a paramount importance of global integration.

Essay # 3. Advantages of Globalisation:

Following are some of the important advantages of globalisation for a developing country like India:

(i) Globalisation helps to boost the long run average growth rate of the economy of the country through:

(a) Improvement in the allocative efficiency of resources;

(b) Increase in labour productivity; and

(c) Reduction in capital-output ratio.

(ii) Globalisation paves the way for removing inefficiency in production system. Prolonged protective scenario in the absence of globalisation makes the production system careless about cost effectiveness which can be attained by following the policy of globalisation.

(iii) Globalisation attracts entry of foreign capital along with foreign updated technology which improves the quality of production.

(iv) Globalisation usually restructures production and trade pattern favouring labour-intensive goods and labour intensive techniques as well as expansion of trade in services.

(v) Globalisation makes domestic industries of developing countries to become conscious about price reduction and quality improvement to their products so as to face foreign competition.

(vi) Globalisation discourages uneconomic import substitution and favour cheaper imports of capital goods which reduces capital-output ratio in manufacturing industries. Cost effectiveness and price reduction of manufactured commodities will improve the terms of trade in favour of agriculture.

(vii) Globalisation facilitates consumer goods industries to expand faster to meet growing demand for these consumer goods which would result faster expansion of employment opportunities over a period of time. This would result trickle-down effect to reduce the proportion of population living below the poverty line.

(viii) Globalisation enhances the efficiency of the banking insurance and financial sectors with the opening up to those areas to foreign capital, foreign banks and insurance companies.

Essay # 4. Disadvantages of Globalisation:

Globalisation also has many disadvantages also. Following are some of these disadvantages:

(i) Globalisation paves the way for redistribution of economic power at the world level leading to domination by economically powerful nations over the poor nations.

(ii) Globalisation usually results greater increase in imports than increase in exports leading to growing trade deficit and balance of payments problem.

(iii) Although globalisation promotes the idea that technological change and increase in productivity would lead to more jobs and higher wages but during the last few years, such technological changes occurring in some developing countries have resulted more loss of jobs than they have created leading to fall in employment growth rates.

(iv) Globalisation has alerted the village and small scale industries and sounded death-knell to it as they cannot withstand the competition arising from well organised MNCs.

(v) Globalisation has been slowing down the process to poverty reduction in some developing and under developed countries of the world and thereby enhances the problem of inequality.

(vi) Globalisation is also posing as a threat to agriculture in developing and underdeveloped countries of the world. As with the WTO trading provisions, agricultural commodities market of poor and developing countries will be flooded farm goods from countries at a rate much lower than that indigenous farm products leading to a death-blow to many farmers.

(vii) Implementation of globalisation principle becoming harder in many industrially developed democratic countries to ask its people to bear the pains and uncertainties of structural adjustment with the hope of getting benefits in future. Thus, the human and social costs of globalisation usually multiply to such an extent that may tests the social fabric of the democracies in an unprecedented manner.

Essay # 5. Globalisation of Indian Economy:

While introducing economic reforms, Indian economy has been proceeding in the path of globalisation in a serious manner.

Following are some of the measures taken by the Government of India towards globalisation:

(i) Automatic approval for foreign direct investment has been raised from the earlier level of 40 per cent to 51 per cent foreign equity ownerships covering a wide range of industries.

(ii) In order to provide access to international markets, majority foreign equity holdings up to 51 per cent equity would be allowed specifically for trading companies which are primarily engaged in export oriented activities.

(iii) Government decided to give automatic permission for foreign technology agreements for royalty payments up to 5 per cent of domestic sales or 8 per cent of export sales or lump sum payment of Rs 10 million. Automatic approval will also given for all other royalty payments to those projects which can generate internally the foreign exchange so required.

(iv) The government has followed a shift in policy orientation from import substitution to export promotion, reduced tariff rates and removed quantitative controls. Moreover, quantitative restrictions were replaced by price-based system.

Other measures introduced in this direction include setting up of special economic zones (SEZs), full filling WTO norms and aligning EXIM procedures, removal of disincentives, export promotion through import entitlement.

Following the strategy of export-led growth during the last 20 years, Indian economy experiences lot of changes in its condition. As a result, Indian exports as a percentage of GDP have increased from 5.8 per cent in 1990-91 to 11.1 per cent in 2004-05 and then to 15.2 per cent in 2007-08. Simultaneously, Indian imports have also increased considerably from 8.8 per cent of GDP to 13.8 per cent and then finally to 23.5 per cent during the same period.

Moreover, foreign direct investment flows which were a mere amount of $ 97 million in 1990-91 increased to $ 46.55 billion in 2011-12. It is also important to look at another major benefit of globalisation, i.e., in terms of sharp increase in the export of invisible items, especially software exports.

A notable achievement of globalisation is the increase in net software export earnings in India to a level to $ 23.41 billion in 2003-04. The volume of software and ITES exports from India grew from Rs 28,350 crore in 2000-01 to Rs 58,240 crore in 2003-04 and then to Rs 1,03,200 crore in 2005-06 showing a growth of 32 per cent over the previous year.

The software export sector has also been able to recruit 3.45 lakh IT professional in 2004-05 as compared to 2.70 lakh professional in 2003-04. Thus as a result of globalisation India has taken a strategy to reach international standards in productivity and thereby competing in the global market effectively with reputation.

Moreover, the structure of Indian economy has also undergone considerable change in the last decade. These include increasing importance of external trade and of external capital flows. The services sector has become a major part of the economy with GDP share of over 50 per cent and the country becoming an important hub for exporting IT services.

The share of merchandise trade to GDP increased considerable to over 35 per cent in 2007-08 from 23.7 per cent recorded in 2003-04. If the trade in services is included the trade ratio is 47 per cent of GDP for 2007-08. Again, the rapid, growth of Indian economy during the period 2003-04 to 2007-08 also made India an attractive destination for foreign capital inflows and net capital inflows that were 1.9 per cent in 2007-08.

Foreign portfolio investment also added buoyancy to the Indian capital markets and Indian corporate began aggressive acquisition spree overseas, which was reflected in high volume of outbound direct investment flows.

Another important dimension of globalisation has been the high degree of external dependence on imported energy sources, especially crude oil with the share of imported crude in domestic consumption exceeding 75 per cent.

Therefore, a major change in international crude prices is bound to impact the Indian economy extensively as happened in early 2008-09 and in early 2013-14. Thus the present trend in globalization in Indian economy has to he analysed seriously from all angles for determining its future policy directions in a most rational manner.

Essay # 6. Globalisation and its Impacts:

The adoption of the policy of globalisation in India has resulted initially the following mixed impacts on its economy:

(i) Competition:

As a result of globalisation, Indian companies started to face growing competition from free flow of products produced by multi-national companies (MNCs). Unequal competition between the domestic companies and mighty MNCs has resulted closure of weak industrial units both under large, medium and small scale categories.

(ii) Mergers:

Globalisation has resulted growing number of mergers and collaborations of Indian companies with MNCs or TNCs.

(iii) Exports:

India’s share of World exports has been increasing slowly from 0.55 per cent in 1990 to 0.75 per cent in 1999 and then to 1.1 per cent in 2005. In the current EXIM Policy (2001-2002), the Government has set an ambitious export target of $ 75 billion by 2004-2005 up from the existing level of $ 43 billion in order to capture 1 per cent of the global trade. This would, however, require the exports to grow at the rate of 18 per cent per annum.

(iv) Trade in Services:

As a result of globalisation India has been able to gain in respect of trade in services, especially in respect of Information Technology industry. Indian software professionals have created a brand image in the global market.

As per the NASSOCAM (National Association of Software and Service Companies) Survey, more than 185 of the Fortune 500 Companies, i.e., almost two out of every five global giants outsource their software requirements from India.

The capability of Indian Software Industry is reflected in the very high capitalisation with a Market Cap of listed Software Companies in India estimated at US $ 55 billion as on 30th June 2000. There is also increasing demand for Indian IT professional from other countries like USA, Germany, Japan and Australia.

Moreover, India’s Software Industry has earned the distinction for providing quality services. As on December 1999, 170 Indian Software Companies have acquired international quality certification. Majority of the Multi-national companies operating in the area of information technology have either Software Development Centres or Research and Development Centres located in India.

Further, 30 per cent of the E-commerce starts up during the year 1999 in Silicon Valley, USA were initiated by Indians. Around 500 portals are being launched in India every month.

In export as well as domestic sector, Computer Software is a thrust area and its fastest growing sector. Software exports from India jumped from Rs 10,940 crore in 1998-99 to Rs 36,500 crore in 2001-2002, showing a growth rate of about 233.6 per cent. The domestic software industry has also increased its business from Rs 4,950 crore in 1998-99 to Rs 11,634 crore in 2001-02.

(v) Trade Conditions:

Globalisation has been creating an improved condition of trade for agricultural commodities and textiles, especially cotton textiles produced in India.

(vi) India’s Share in World Export of Goods and Services:

It would be better to study the India’s share in World merchandise exports and world service exports separately. Table 15.13 will clarify the position.

It is observed that during the 13-year period, i.e., during 1990 to 2003, merchandise exports of India increased from $ 17.97 billion to $ 55.98 billion, i.e., at the annual growth rate of 9.1 per cent as compared to that of much higher 16.2 per cent of China, 11.4 per cent of Mexico and only 6.1 per cent of the whole world.

Although India could realise some increase in its export growth rate from globalisation but the share of India in world merchandise exports could increase only marginally from 0.51 per cent in 1990 to 0.73 per cent in 2003.

However, the performance of India in respect of service sector exports was comparatively better during the same period. Accordingly, India’s service sector exports increased considerably from $ 4.6 billion in 1990 to $ 37.7 billion in 2003 recording an annual average growth rate of 17.5 per cent as compared to that of 17.4 per cent growth rate attained by China.

However, major position of the increase in services exports was realised from software exports. Thus the share of software exports out of total services exports of India increased from 42.7 per cent in 1990 to 75.9 per cent in 2003.

Again if we add together merchandise and services exports the total exports of India’s goods and services increased from $22.58 billion in 1990 to $ 93.7 billion in 2003 showing an annual average growth rate of 11.6 per cent. But if we compare the export performance of India with that of China, South Korea and even Mexico, the achievement attained by India cannot be considered significant.

Table 15.13 reveals that the share of China in World exports increased from 1.59 per cent in 1990 to 5.20 per cent in 2003 as a result of rise in the volume of its exports by 714 per cent. Similarly, South Korea and Mexico had also shown significant improvement in its share of World exports from 1.74 per cent to 2.42 per cent and from 1.13 per cent to 1.91 per cent respectively during the period 1990-03. But the India’s share of World export shown a marginal improvement from 0.53 per cent to 1.01 per cent during the same period.

Thus we find that India’s export performance was lagging far behind that of China.

Under the present context, a question that arises is that why India’s share of world exports failed to increase at a sharp rate? While answering this question we could observe that in absolute terms Indian export effort yielded some positive result and accordingly Indian exports have increased from US $ 18.1 billion in 1990-91 to US $ 26.3 billion in 1994-95 and then to US $ 35.0 billion in 1997-98 and finally to US $ 43.8 billion in 2001-2002.

But, the total value of Indian exports (both merchandise and services) increased from US $ 22.5 billion in 1990 to US $ 93.7 billion in 2003. But the export performance of the country would have been improved further if the globalizers did not followed the policy of protection on some cheap pretext like declaring Indian skirts as inflammable by USA, banning of azo dyes, imposition of anti-dumping duties etc. Thus such act of protectionism has been hitting our textile industry considerably.

Moreover, linking of labour standards with trade by the developed countries like USA on the pretext of use of child labour has also compounded the problem of exports in India. Unable to face competition from Indian products, developed countries have adopted a new term “social clause” to beat India’s claim. But multinational companies (MNCs), especially from USA, having been in advantageous position in telecommunications, insurance sector etc. are arguing for opening up the domestic market of the country for their smooth entry.

(vii) Greater Increase in Imports than Increase in Exports:

Globalizers were of the view that Indian exports would increase at faster rate than that of imports. Unfortunately, things are not moving in that direction. Indian exports which was 7.3 per cent of GDP in 1991-92 rose to 9.1 per cent of GDP in 1995- 96, declined to 8.4 per cent of GDP in 1999-2000 and reached the level of 15.0 per cent of GDP in 2006- 07.

But the volume of imports in India as percentage of GDP rose from 8.3 per cent in 1991-92 to 12.3 per cent in 1995-96 and then to 22.2 per cent in 2006-07. This shows how the access to foreign markets by Indians is growing slowly as compared to the entry of foreigners in our domestic market.

It is also observed that India’s trade deficit during the period 1996-97 to 2000-01 ranged between 3.1 per cent to 4.0 per cent of GDP. But the same deficit declined to 2.6 per cent and 2.5 per cent of GDP during 2001-02 and 2002-03 respectively. But in 2004-05, the same trade deficit increased considerably to 5.3 per cent of GDP. This simply shows that the access of Indian markets by the foreign producers has been increasing.

(viii) Slower GDP Growth Rates:

In-spite of high expectation that globalisation would facilitate attaining of higher GDP growth rate through export-led growth but that expectation has failed to materialize. Although in the initial years of globalisation, the GDP growth rates gradually rose from 5.2 per cent in 1992- 93 to 8.2 per cent in 1996-97 hut since then it gradually declined to 4.6 per cent in 1997-98, 6.2 per cent in 1999-2000 and again declined to 4.2 per cent in 2000-01 and 6.2 per cent in 2001-02 and finally to 3.5 per cent in 2002-03.

Thus the sluggish GDP growth rates experienced by Indian economy has reflected the failure of the policy of globalisation introduced in the country in raising its GDP growth rates and also raised its dependency burden on world economy. However, the GDP growth rates in India started to show an increasing trend in recent years, i.e., from 8.8 per cent in 2003-04 to 9.1 in 2005-06 and then to 9.2 per cent in 2006-07.

(ix) Foreign Investment Flows:

The advocates of globalisation has been claiming that globalisation would pave the way for greater inflow of foreign investment. But things are not moving in a right direction. Foreign investment usually enters in two forms—Foreign direct investment and Foreign Portfolio investment.

However, the FDI enhances the productive capacity and investment of the country but the portfolio investment encourages speculation activities.

During the period 1990-91 to 1994-95, the share of FDI was 24.2 per cent and that of Portfolio (FPI) investment was as high as 75.8 per cent. During the subsequent period, i.e., during 1995-96 to 1999-00, the share of Portfolio investment has declined to 45.2 per cent and the share of FDI has increased to 54.8 per cent.

Again during the period 2000-01 to 2005-06 the share of FDI has again declined to 46.1 per cent and the share of FPI has increased to 53.9 per cent. During the next 6 – year period, i.e., from 2000-01 to 2005-06, the share of FDI again declined to 46.1 per cent and the share of FPI further increased to 53.9 per cent.

Moreover, from the year-wise data of foreign investment as shown in table no. 15.11(a) reveals that the fluctuation in the flow of foreign portfolio investment is much sharper than foreign direct investment. It is observed from Table 15.14 that FPI flow to India declined from $ 3,824 million in 1994-95 to a negative level of (-) $ 61 million in 1998-99 and then again increased to $ 3026 million in 1999-00.

The flow of FPI again declines to $ 979 million (16.3 per cent) in 2002-03 and then again increased to $ 11,377 million (72.5 per cent) in 2003-04 and then to $ 12,492 million (61.8 per cent) in 2005-06. Thus the flow of FPI shows an erratic behaviour.

On the other hand, the flow of FDI shows a slow but gradual, upward growth from $ 97 million in 1990-91 to $ 3,557 million in’1997-98 and then to $ 6,130 million in 2001-02 and then finally to $ 7,722 million in 2005-06. Accordingly, total flow of foreign investment into India increased from $ 133 million in 1991-92 to $ 6,133 million in 1996-97 and then fell to $ 2,401 million in 1998-99 and then gradually increased to $ 6,014 million in 2002-03 and then to $ 20,214 million in 2005-06.

Thus in recent years, the proportion of FPI in total foreign investment is still very high. Again total average inflow of foreign investment into India during 1995-96 to 2000-01 was only $ 4.85 billion as against its target of $ 10 billion. Thus the expectation of the country in respect of entry of foreign investment as a result of globalisation has not been fulfilled.

Moreover, there is a peculiar tendency where there remains a wide gap between the level of foreign investment approved and its actual inflow.

(x) Slowing Down of the Process of Poverty Reduction and Growing Inequality:

Reduction of poverty is one of the important objectives of development. But in modern times the pace of poverty reduction is gradually slowing down. A World Bank paper prepared by Gaurav Dutt, Valerie Kozel and Martin Ravallion entitled “A Model-Based Assessment of India’s Progress in Reducing Poverty in the 1990s” observed that the key determinants of the poverty reduction rates at the state level are agricultural yields, growth of non-farm sector, development expenditure and the rate of inflation.

The main findings of this model is that the rate of poverty reduction in the 1990s is slightly less than that of 1980s. The reason behind this slow pace of poverty reduction is the pattern of growth that has been achieved following the policy liberalisation, privatisation and globalisation.

Such a growth pattern has affected geographical distribution. The globalisation has helped the industrially advanced states much more than the less industrialised states and also neglected agricultural sector leading to a skewed pattern of distribution in this post-reform period.

Thus the paradox of attaining higher growth rate of GDP and lower rate of poverty reduction is mostly resulted from unequal distribution of income between the richer section and the marginalized section of the population. Besides, this slow decline in poverty reduction is mostly resulted from the geographical pattern of growth promoted by the policies of liberalisation, privatisation and globalisation.

As a result of globalisation industrialised states are getting more benefit as compared to that of less industrialised and agriculturally based states leading to a geographical skewed pattern of growth attained during this post-globalisation period.

Moreover, globalisation has also resulted in a significant rise in rural-urban inequalities throughout the country and a sharp increase in the differences in wage/salary incomes between the urban and the rural sector. Thus globalisation has been resulting in widening inequality, growing concentration of wealth and slowing down rate of poverty reduction in the country.

(xi) Fall in Employment Growth Rates:

Globalisation has resulted in a fall in the employment growth rates. The annual growth rate of employment which was 2.04 per cent during the period 1983-94, but the same rate declined to a mere 0.98 per cent during the period 1994-2000.

As a result, the unemployment growth rates increased from 5.99 per cent in 1993-94 to 7.32 per cent in 1999-2000. This was despite the fall in the growth rate of labour force from 2.43 per cent during 1983-1994 to 1.31 per cent during 1993-2000.

Such a situation is mostly resulted from the deceleration in employment growth rates in agriculture and community and personal services. These two sectors contributed jointly around 70 per cent of total employment generated but they virtually failed to record any growth in employment.

Thus after making a review of performance of the economy for a decade after the introduction of globalisation, it is observed that the policy of globalisation has not been able to bring the required benefits to the people in general in terms of basic macro indicators such as GDP growth rates, employment generation, reduction of poverty, hike in investment, boost in merchandise exports.

It is only in respect of services export India has been able to record marginal gain due to its cheaper manpower resources.

Moreover as a result of globalisation, a good number of small and medium scale enterprises had to face closure due to unequal competition leading to loss of employment to a good number of workers engaged in these industrial units.

World Commission on Social Dimension of Globalisation (2004) unambiguously observed, “The goal of full employment and achieving decent work for all receives low priority in current international policies.”……… “There is no point to a globalisation that reduces the price of child’s shoes but costs the father his job.”

Thus globalisation has also failed to look fairly at the small enterprises, rural and informal sectors from where majority of people earn their livelihood. Thus under the present scenario, important steps need to be taken for integrating the growth objective with that of employment objective.

(xii) Growth of Trans-National Corporations (TNCs):

In its study on the progress of the corporate sector in recent years, the Institute for Studies of Industrial Development (ISID) has reported the impact of growth of 100 (top) TNCs in the post-reform period. It is further observed that the annual growth rate of profits before tax of these top 100 TNCs during the period 1991-92 to 1995-96 was 23.8 per cent.

Such enormous profits earned by TNCs will create an adverse impact on the balance of payments. While the exports to turn over ratio of these companies grow slowly from 8.1 per cent to 8.6 per cent during the period under reference but the import to turn-over ratio of these TNCs increase considerably from 6.9 per cent to, 12.9 per cent during the same period.

Accordingly, such workings of the TNCs has converted a net export position of Rs 270 crore in 1991-92 to a net import position of Rs 1,587 crore in 1995-96.

(xiii) Globalisation and its Threat to Indian Agriculture and Industry:

In respect of agriculture, there is also a threat to the Indian farmers from the trading provisions of WTO. Here the main fear is that with the implementation of WTO agreement and trading provisions, Indian market will be flooded with different farm goods from foreign countries at a rate much lower than that indigenous farm products leading to a death-blow to Indian farmers. Here the apprehension of Indian farmers cannot be ignored.

Countries like Australia, Canada, USA and New Zealand which have a large farm potential along with necessary resources to provide subsidies and improved farm management, will be in a advantageous position to market their farm products in a developing country like India, which are maintaining lesser efficiency and lower productivity at their farm activities.

This would naturally result unequal competition for the Indian farmers in respect of both price and quality. The other area of concern of farmers related to patenting and sale of seeds and conditionality of self- grown seeds are met satisfactorily. Accordingly, plant breeders’ right, farmers’ privilege and researchers’ privileges are also adequately safeguarded under the system of ‘Sui generis’ form of protection adopted by the Government of India.

We have seen that there are still some active threats to Indian agriculture and indigenous industrial units from the WTO commitments implemented by the Government.

In this connection, Mr. S. Venkatesh has rightly observed, “It would be unrealistic to say that opening up almost the entire Indian economy to global competition would not have an adverse impact on indigenous enterprises. Obviously, competition between a developing country and developed countries can hardly be on a level-playing field, whatever the so called safeguards and assurances. How much damage will be caused and the consequences of global competition will be known when all the provisions of the treaty obligations are fulfilled.”

Moreover, as a part of their combined strategy, the OECD countries and the USA recently have devised the Multilateral Agreement on Investment (MAI) and are trying to get the MAI incorporated in WTO provision. But adoption of MAI by WTO will provide unrestricted power to MNCs for exploiting resources of developing countries so as to extend their hegemony in various developing countries.

They also want to invade the economies of developing countries by adopting the path of globalisation. Thus such draft on MAI completely demolishes the concept of economic sovereignty of nations and extended the concept of neo-imperialism.

In this connection, Romesh Diwan observed, “Capital’s need is to move towards exploitable resources now available in materially poor countries. The ruling RNI type elite are already mesmerized by the “necessity and efficiency of foreign capital and the global markets”. The road to colonisation is paved with such ‘progress’. If MAI comes, can colonialism be far behind”.

Considering the present trend of threat appearing out of globalisation, Indian industrial firms, who initially welcomed the multi-nationals, have now started to develop second thoughts on unrestricted entry of foreign capital. The CII and ASSOCHAM have also become worried about the activities of multinationals in swallowing up Indian firms on some pretext.

Thus a consensus is now being emerged that free and whole sale globalisation should be replaced by a selective path of globalisation, giving due weightage to the national interest.

In this connection, former Prime Minister I.K. Gujaral while speaking at a Conference of Confederation of Indian Industry (CII) held on 16th August, 1997 observed, “The days of 19th century capitalism where any outsider could come and overwhelm you are over. Outsiders are welcome. But they will not be allowed to drown us and take over Indian Companies. They will be allowed to invest in sectors where we need them…….. Indian trade and industry will get all benefits of paternity and it will not be allowed to face unfair competition”.

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Poor Nations Are Writing a New Handbook for Getting Rich

Economies focused on exports have lifted millions out of poverty, but epochal changes in trade, supply chains and technology are making it a lot harder.

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By Patricia Cohen

Reporting from London

For more than half a century, the handbook for how developing countries can grow rich hasn’t changed much: Move subsistence farmers into manufacturing jobs, and then sell what they produce to the rest of the world.

The recipe — customized in varying ways by Hong Kong, Singapore, South Korea, Taiwan and China — has produced the most potent engine the world has ever known for generating economic growth. It has helped lift hundreds of millions of people out of poverty, create jobs and raise standards of living.

The Asian Tigers and China succeeded by combining vast pools of cheap labor with access to international know-how and financing, and buyers that reached from Kalamazoo to Kuala Lumpur. Governments provided the scaffolding: They built up roads and schools, offered business-friendly rules and incentives, developed capable administrative institutions and nurtured incipient industries.

But technology is advancing, supply chains are shifting, and political tensions are reshaping trade patterns. And with that, doubts are growing about whether industrialization can still deliver the miracle growth it once did. For developing countries, which contain 85 percent of the globe’s population — 6.8 billion people — the implications are profound.

Today, manufacturing accounts for a smaller share of the world’s output, and China already does more than a third of it . At the same time, more emerging countries are selling inexpensive goods abroad, increasing competition. There are not as many gains to be squeezed out: Not everyone can be a net exporter or offer the world’s lowest wages and overhead.

There are doubts that industrialization can create the game-changing benefits it did in the past. Factories today tend to rely more on automated technology and less on cheapworkers who have little training.

“You cannot generate enough jobs for the vast majority of workers who are not very educated,” said Dani Rodrik, a leading development economist at Harvard.

The process can be seen in Bangladesh, which the World Bank’s managing director called “one of the world’s greatest development stories” last year. The country built its success on turning farmers into textile workers.

Last year, though, Rubana Huq, chair of Mohammadi Group, a family-owned conglomerate, replaced 3,000 employees with automated jacquard machines to do complex weaving patterns.

The women found similar jobs elsewhere in the company. “But what follows when this happens on a large scale?” asked Ms. Huq, who is also president of the Bangladesh Garment Manufacturers and Exporters Association.

These workers don’t have training, she said. “They’re not going to turn into coders overnight.”

Recent global developments have accelerated the transition.

Supply chain meltdowns related to the Covid-19 pandemic and to sanctions prompted by Russia’s invasion of Ukraine drove up the price of essentials like food and fuel, biting into incomes. High interest rates, imposed by central banks to quell inflation, set off another series of crises: Developing nations’ debts ballooned , and investment capital dried up.

Last week, the International Monetary Fund warned of the noxious combination of lower growth and higher debt.

The supercharged globalization that had encouraged companies to buy and sell in every spot around the planet has also been shifting. Rising political tensions, especially between China and the United States, are affecting where businesses and governments invest and trade.

Companies want supply chains to be secure as well as cheap, and they are looking at neighbors or political allies to provide them.

In this new era, Mr. Rodrik said, “the industrialization model — which practically every country that has become rich has relied on — is no longer capable of generating rapid and sustained economic growth.”

Nor is it clear what might replace it.

There’s a future in service jobs.

One alternative might be found in Bengaluru, a high-tech center in the Indian state of Karnataka.

Multinationals like Goldman Sachs, Victoria’s Secret and the Economist magazine have flocked to the city and set up hundreds of operational hubs — known as global capability centers — to handle accounting, design products, develop cybersecurity systems and artificial intelligence, and more.

Such centers are expected to generate 500,000 jobs nationwide in the next two to three years, according to the consulting firm Deloitte .

They are joining hundreds of biotech, engineering and information technology companies including homegrown giants like Tata Consultancy Services, Wipro and Infosys Limited. Four months ago, the American chip company AMD unveiled its largest global design center there.

“We have to move away from the idea of classic development stages, that you go from the farm to the factory and then from the factory to offices,” said Richard Baldwin , an economist at the IMD in Lausanne. “That whole development model is wrong.”

Two-thirds of the world’s output now comes from the service sector — a mishmash that includes dog walkers, manicurists, food preparers, cleaners and drivers, as well as highly trained chip designers, graphic artists, nurses, engineers and accountants.

It is possible to leapfrog to the service sector and grow by selling to businesses around the world, Mr. Baldwin argued. That is what helped India become the world’s fifth-largest economy .

In Bengaluru, formerly known as Bangalore, a general rise in middle-class living attracted more people and more businesses that, in turn, attracted more people and businesses, continuing the cycle, Mr. Baldwin explained.

Covid sped this transition, by forcing people to work remotely — from a different part of town, a different city or a different country.

In the new model, countries can focus growth around cities rather than a particular industry. “That creates economic activities which are fairly diverse,” Mr. Baldwin said.

“Think Bangalore, not South China,” he said.

Free markets are not enough.

Many developing nations remain focused on building export-oriented industries as the path to prosperity. And that’s how it should be, said Justin Yifu Lin , dean of the Institute of New Structural Economics at Peking University.

Pessimism about the classic development formula, he said, has been fueled by a misguided belief that the growth process was automatic: Just clear the way for the free market and the rest will take care of itself.

Countries were often pressured by the United States and the international institutions to embrace open markets and hands-off governance.

Export-led growth in Africa and Latin America stumbled because governments failed to protect and subsidize infant industries, said Mr. Lin, a former chief economist at the World Bank.

“Industrial policy was taboo for a long time,” he said, and many of those who tried failed. But there were also success stories like China and South Korea.

“You need the state to help the private sector overcome market failures,” he said. “You cannot do it without industrial policy.”

It won’t work without education.

The overriding question is whether anything — services or manufacturing — can generate the type of growth that is desperately needed: broad based, large scale and sustainable.

Service jobs for businesses are multiplying, but many offering middle and high incomes are in areas like finance and tech, which tend to require advanced skills and education levels far above what most people in developing nations have.

In India, nearly half of college graduates don’t have the skills they need for these jobs, according to Wheebox , an educational testing service.

The mismatch is everywhere. The Future of Jobs report , published last year by the World Economic Forum, found that six in 10 workers will need retraining in the next three years, but the overwhelming majority won’t have access to it.

Other kinds of service jobs are proliferating, too, but many are neither well paid nor exportable. A barber in Bengaluru can’t cut your hair if you’re in Brooklyn.

That could mean smaller — and more uneven — growth.

Researchers at Yale University found that in India and several countries in sub-Saharan Africa, agricultural workers jumped into consumer service jobs and raised their productivity and incomes.

But there was a catch: The gains were “strikingly unequal” and disproportionately benefited the rich .

With a weakening global economy , developing countries will need to wring every bit of growth they can from every corner of their economies. Industrial policy is essential, Mr. Rodrik of Harvard said, but it should focus on smaller service firms and households because that is going to be the source of most future growth.

He and others caution that even so, gains are likely to be modest and hard won.

“The envelope has shrunk,” he said. “How much growth we can get is definitely less than in the past.”

An earlier version of this article misidentified the location of IMD. It is in Lausanne, not Geneva.

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Patricia Cohen writes about global economics and is based in London. More about Patricia Cohen

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PAKISTAN: Implementing an Ambitious, Credible and Clearly Communicated Economic Reform Plan Critical for Robust Recovery, Poverty Reduction, says World Bank

ISLAMABAD, April 2, 2024 —Pakistan’s economy is expected to grow by only 1.8 percent in the current fiscal year ending June 2024. According to World Bank’s latest Pakistan Development Update: Fiscal Impact of Federal State-Owned Enterprises released today, this subdued recovery reflects tight monetary and fiscal policy, continued import management measures aimed at preserving scarce foreign reserves, and muted economic activity amid weak confidence. The Update also highlights the high fiscal costs of federal state-owned enterprises (SOEs) and the critical reforms needed to improve their performance, efficiency, and governance, including via privatizations.

After a contraction in FY23, economic activity has strengthened over the first half of FY24 on the back of strong agricultural output. This, together with improved confidence, also supported some recovery in other sectors. But growth remains insufficient to reduce poverty, with 40 percent of Pakistanis now living below the poverty line. Macroeconomic risks remain very high amid a large debt burden and limited foreign exchange reserves.

“The structural reforms needed to durably improve the economic outlook are known. Developing a clearly articulated reform implementation plan that is ambitious, credible and that shows quick progress is now essential to restore confidence," said Najy Benhassine, World Bank Country Director for Pakistan.  “In particular, better fiscal management will help to lower inflation, narrow the current account deficit, improve financial sector stability and increase credit to the private sector, all of which are critical for robust economic recovery.”

A sustained medium-term recovery will require a prudent macroeconomic policy mix coupled with reforms to improve the quality of expenditures, broaden the tax base, address regulatory constraints to private sector activity, reduce state presence in the economy—including via privatizations, address challenges in the energy sector, and increase public investments to improve human development outcomes.

The Update includes a list of key reforms in ten areas that should be considered for priority implementation to initiate a strong, durable, and poverty-reducing economic growth recovery.

“The current macroeconomic outlook projects growth that is below Pakistan’s potential, with little poverty reduction and continued erosion of living standards,” said Sayed Murtaza Muzaffari, lead author of the report . “Risks to this outlook remain high, including uncertainty around policy commitments and reform implementation, financial sector risks, potential increases in world energy and food prices in the context of intensification of regional geopolitical conflicts, slower global growth, and tighter than expected global financing conditions .”

The Update highlights the high fiscal costs of SOEs operating in key sectors of the economy. These SOEs have been consistently making losses since 2016, and the government has been providing significant financial support through subsidies, grants, loans, and guarantees, leading to large and growing fiscal exposure.

“Direct government support to SOEs in the form of subsidies, loans, and equity investments accounted for 18 percent of the federal budget deficit and 2 percent of GDP in FY22,” said Qurat Ul Ain Hadi, co-author of the report .

To contain fiscal exposure from SOEs, the report recommends rapid progress with government plans for privatization, restructuring, and divestment—per the 2021 Triage plan. In addition, the Update recommends establishing new guarantee issuance rules, mitigating credit risks, ensuring adherence to International Financial Reporting Standards, and developing risk monitoring procedures. All SOEs, including those under the State Wealth Fund (SWF), should be covered under the purview of the SOE Act to ensure financial transparency and good corporate governance practices.

The Pakistan Development Update is a companion piece to the  South Asia Development Update , a twice-a-year World Bank report that examines economic developments and prospects in the South Asia region and analyzes policy challenges countries face. The April 2024 edition titled  Jobs for Resilience  shows growth in South Asia is again higher than any other developing country region in the world at 6 percent in 2024, but that persistent structural challenges threaten to undermine sustained growth. This is hindering the region’s ability to create jobs and respond to climate shocks. The report explores pathways countries can take to sustain long-term growth and reduce climate risks by boosting employment and increasing private investment.

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