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Economics Open Closed System

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Impact of Globalization on Socio-economic and Political Development

Impact of Globalization on Socio-economic and Political Development by mahathir rafsanjani on Scribd

Negative Effects of Globalization for Developing Country Business

Negative effects of globalization for developing country business

Critics of global economic integration warn that (Watkins, 2002, Yusuf, 2001):

• The growth of international trade is exacerbating income inequalities, both between and within industrialized and less industrialized nations
• Global commerce is increasingly dominated by transnational corporations which seek to maximize profits without regard for the development needs of individual countries or the local populations
• Protectionist policies in industrialized countries prevent many producers in the Third World from accessing export markets;
• The volume and volatility of capital flows increases the risks of banking and currency crises, especially in countries with weak financial institutions
• Competition among developing countries to attract foreign investment leads to a "race to the bottom" in which countries dangerously lower environmental standards
• Cultural uniqueness is lost in favor of homogenization and a "universal culture" that draws heavily from American culture

Critics of economic integration often point to Latin America as an example where increased openness to international trade had a negative economic effect. Many governments in Latin America (e.g. Peru) liberalized imports far more rapidly than in other regions. In much of Latin America, import liberalization has been credited with increasing the number of people living below the USD $1 a day poverty line and has perpetuated already existing inequalities (Watkins, 2002).

Positive effects of globalization for developing country business

Conversely, globalization can create new opportunities, new ideas, and open new markets that an entrepreneur may have not had in their home country. As a result, there are a number of positives associated with globalization:

• It creates greater opportunities for firms in less industrialized countries to tap into more and larger markets around the world
• This can lead to more access to capital flows, technology, human capital, cheaper imports and larger export markets
• It allows businesses in less industrialized countries to become part of international production networks and supply chains that are the main conduits of trade

For example, the experience of the East Asian economies demonstrates the positive effect of globalization on economic growth and shows that at least under some circumstances globalization decreases poverty. The spectacular growth in East Asia, which increased GDP per capita by eightfold and raised millions of people out of poverty, was based largely on globalization—export-led growth and closing the technology gap with industrialized countries (Stiglitz, 2003). Generally, economies that globalize have higher growth rates than non-globalizers (Bhagwati and Srinivasan, 2002).

Also, the role of developing country firms in the value chain is becoming increasingly sophisticated as these firms expand beyond manufacturing into services. For example, it is now commonplace for businesses in industrialized countries to outsource functions such as data processing, customer service and reading x-rays to India and other less industrialized countries (Bhagwati et al, 2004). Advanced telecommunications and the Internet are facilitating the transfer of these service jobs from industrialized to less industrialized and making it easier and cheaper for less industrialized country firms to enter global markets. In addition to bringing in capital, outsourcing helps prevent "brain drain" because skilled workers may choose to remain in their home country rather than having to migrate to an industrialized country to find work.

Further, some of the allegations made by critics of globalization are very much in dispute—for example, that globalization necessarily leads to growing income inequality or harm to the environment. While there are some countries in which economic integration has led to increased inequality—China, for instance—there is no worldwide trend (Dollar, 2003). With regard to the environment, international trade and foreign direct investment can provide less industrialized countries with the incentive to adopt, and the access to, new technologies that may be more ecologically sound (World Bank Briefing Paper, 2001). Transnational corporations may also help the environment by exporting higher standards and best practices to less industrialized countries.

Source: Don McCubbrey. “Negative and positive effects of globalization for developing country business.” Business Fundamentals Boundless, 20 Sep. 2016. Retrieved 21 Jan. 2017 from https://www.boundless.com/users/235420/textbooks/business-fundamentals/international-business-for-the-entrepreneur-14/globalization-opportunities-and-threats-to-developing-country-business-55/negative-and-positive-effects-of-globalization-for-developing-country-business-253-15556/