Globalisation and development

GOAL

For students to assess the ways in which globalization affects development in the region.

OBJECTIVES

1. Examine how development in in the region is influenced by social, political, economic, social, technological and environmental factors.

Globalisation is defined as the International integration of goods, labour, technology, and capital. (Slaughter and Swagel, 1997). Globalisation embraces the concept of ‘level playing field’. Therefore, globalisation as a process erodes the distinction from one place to another. The process that results in the creation of a global market and economy is characterised by : The world being one huge market Use of the most advanced technology Creation of competitive world market Resource and technology as the most valuable source

More controlling power as technology advances

Capitalist states control world’s economy

FACILITATORS OF GLOBALISATION AND DEVELOPMENT

INTERNATIONAL MONETARY FUND (IMF)

The IMF or International Monetary Fund is an international organisation of 188 member countries that works to ensure the stability of the international monetary and financial system. The IMF’s mandate includes facilitating the expansion and balanced growth of international trade, promoting exchange stability, and providing the opportunity for the orderly correction of countries’ balance of payments problems. The IMF was established in 1945.

WORLD TRADE ORGANISATION (WTO)

The WTO or World Trade Organization is an international organisation of 160 members that deals with the rules of trade among nations. With Russia’s accession in August 2012, the WTO encompasses all major trading economies. The WTO works to help international trade flow smoothly, predictably, and freely, and provides countries with a constructive and fair outlet for dealing with disputes over trade issues. The WTO came into being in 1995, succeeding the General Agreement on Tariffs and Trade that was established in 1947.

WORLD BANK

Also known as the International Bank for Reconstruction and development, came into being following the Bretton Wood Conference in 1944 and began operation in 1946. The world bank provides long term loans to assist economic development.

ROLE OF THE WORLD BANK IN GLOBALISATION

The World Banks assist low income countries in that they play a vital role by working with governments to ensure strong governance, effective judicial systems, and a robust financial system. All these would help fight corruption. If these initiatives are not taken, attracting foreign and domestic investment would be difficult. The World Banks also assist middle-income countries, 80% of the world’s poor live in middle-income countries. These are the countries which require utmost help for a strong financial stability. For that, the structural and social reforms should be in place for the next stage of development. The mission of tackling global poverty is the main agenda and the only important tool to achieve overall development. The World Bank is focuses on Securing long-term funding Giving advisory services Creating the right policy and institutional framework Addressing weaknesses in the social, structural, and sectoral policies

IMPACT OF GLOBALISATION

POSITVE IMPACTS OF GLOBALISATION ON LABOUR

International integration of goods, labour, technology, and capital. (Slaughter and Swagel,1997)

International integration in commodity, capital and labour markets. (Bordo et al., 2003)

EPA

Increased demand for skilled workers and decreased demand for less-skilled workers.

Increased technology and communications facilitates higher education.

Ease of travel allows labour to compete on an international scale.

Decentralisation of labour market to industry hubs.

POSITVE IMPACTS OF GLOBALISATION ON LABOUR

A rise in worker remittances. Increased accessibility of employment in new areas.

Rapid technological change may be responsible for a more abrupt price decline in skill-intensive industries rather than in unskilled labor-intensive.

NEGATIVE IMPACTS OF GLOBALISATION ON LABOUR

Difficulties of integration into the host community.

Increase in poverty as a result of the concentration of low skilled and low-paying jobs .

Dramatic income inequality between the more and the less skilled in some countries.

Unemployment among the less skilled in other countries.

Limited employment protection

IMPACT OF GLOBALISATION ON INDUSTRY

The reduction of barriers to cross-border trade and capital flows, along with progress in transport and communication, has made it easier for firms to move parts of their production to less costly foreign locations a process referred to as offshoring.

The location of production has become much more responsive to relative labor costs across countries.

An actively trading country benefits from the new technologies that spill over to it from its trading partners, such as through the knowledge embedded in imported production equipment.

The productivity enhancing effect from trade in intermediates is large and trade in intermediates reduces the costs of production.

COMMERCE

Trade can be viewed as effectively shipping from one country to another the services of the workers engaged in the production of traded goods.

(Matthew J. Slaughter and Phillip Swagel)

IMPACT OF GLOBALISATION ON COMMERCE

More and more output in the advanced economies consists of largely non-tradeable services: education, government, finance, insurance, real estate, and wholesale and retail trade.

Developing countries’ imports have been growing faster than those of advanced economies and the share of advanced economies’ exports going to developing countries has been rising.

Changes in product prices are the result of trade rather than other, purely domestic, influences.

Global competition has brought down international trade prices.

RESPONSES RESPONSE OF LABOUR TO GLOBALISATION

Decentralisation of labour market to industry hubs. Persisting large cross-country differences. Reductions in the tax wedge. Deregulation of product markets

RESPONSE OF INDUSTRY TO GLOBALISATION

Changes in product prices brought about by competition from imports.

Firms shift resources toward industries in which profitability has risen and away from those in which it has fallen.

GOVERNMENTS OFTEN

Prohibit or reduce selected imports by introducing quotas

Make imports more expensive and less competitive by imposing tariffs.

RESPONSE OF COMMERCE TO GLOBALISATION POLICIES SHOULD SEEK TO:

Improve the functioning of labor markets Strengthen access to education and training; Ensure adequate social safety nets that cushion the impact on those adversely affected, without obstructing the process of adjustment.

THE ADJUSTMENT COSTS CAN BE MINIMISED BY:

Encouraging flexible labor markets and by reducing structural rigidities facing firms

Staffing requirements, and hiring and firing costs.

CONCLUSIONS

There is a common belief that globalisation harms the interests of workers, especially unskilled workers, either directly through immigration or indirectly through trade and capital mobility.

Moreover, the belief that globalisation threatens wages and jobs is contradicted by the historical evidence that free trade along with labor and capital mobility improve global welfare and tend to improve national welfare for all countries involved.

Finally, cheaper imports have increased the size of real total labor compensation, implying that workers have participated in the benefits of the bigger economic pie, although their share of it has declined.