The Influence of Globalization

The Influence of Globalization

Despite its positive features, globalization has created a system where more developed countries profit from less developed countries, leaving them in the dust.
Globalization, economic integration through trade, migration, capital flows and communication flows has been officially around since 1870. This new concept could noticeably profit if based on D. Ricardo' economic theory of comparative advantage. The latter theory states that each country should produce those products/services, which they can produce/provide with the lowest opportunity cost and total production cost. Hence, allowing all countries to produce and trade in the most efficient way so that the highest attainable welfare for all countries is reached.

Globalization has allowed a better communication flow amongst More Developed Countries (MDC's) and Less Developed Countries (LDC's). It has enabled trade to grow, capital and education flows to increase and a better allocation of resources to be met around the world. There are many gains from globalization for companies around the world, some Multi-National Enterprises (MNE's) that locate themselves in LDC's bring along growth and development, like for example employment, technology knowledge, profit reinvestment among other factors to host countries.

Nevertheless, there are several negative aspects about globalization as well. For instance, MDC's have a tendency to profit from globalization in various ways when negotiating with LDC's. MNE's that go to LDC's for example, gain from cheaper labor force, cheaper land and tax rates. In the end however, some MNE's end up negatively affecting the host country's economy by taking all profits back home, socially, by polluting the environment and finally also politically by paying bribes to the local governments to reduce tax rates or other fees.

In spite of its controversial position in different regions, some countries like the Asian tigers or the Asian New Industrial Countries (NIC's) have gained incredibly from globalization in the past 30 years. Other continents however, have proved themselves not yet ready for such a change. An example of the latter is Africa and South America, where due to different factors like corruption, low education level, weak political policies and poor transport infrastructure globalization hasn't been able to benefit them in a high rate like in Asian. It is therefore up to each county to decide and control Foreign Direct Investment (FDI) and gain from it or not.
Globalization has enabled trade to grow, capital and education flows to increase, and a better allocation of resources to be met around the world.

Summing all of the above, globalization does not necessarily bring a negative outcome to LDC's. As noted with the NIC's, they have profited and develop into a more successful region due to globalization. However, countries that are not able to successfully participate in the globalization process because they are lacking crucial factors for globalization to develop and perform beneficially. Some of the decisive factors they lack are, good geographic location, institutions and supporting policy. If a country has a bad geographic market location, it will not be able to trade optimally, thus not profiting enough. Good institutions and supporting policies are needed to fight against corruption and poverty in some other cases. When a country has a good geographic location, good institutions and policies it is able to focus on its real competitive advantages.

Contributed by Chun Liew. Reprinted with permission from Development Gateway.

To read another Global Envision article about globalization and less developed countries, see Global Growth Includes Help for the World's Poor.


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