Globalization and development

GOAL

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

OBJECTIVE

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

Globalization is defined as the international integration of goods, labour, technology and capital (Slaughter and Swagel, 1997). Globalization embraces the concept of ‘level playing field’. Therefore, globalization 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 of world’s economy.

INTERNATIONAL MONETARY FUND (IMF)

The IMF, or International Monetary Fund, is an international organisation of 188 member countries; it 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 ORGANIZATION (WTO)

The WTO, or World Trade Organization, is an international organisation of 160 members; it deals with the rules of trade between 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 of Reconstruction and Development, it came into being following the Bretton Woods 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 GLOBALIZATION

The World Bank assists low-income countries in that it plays 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 Bank also assists 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.

POSITVE IMPACTS OF GLOBALIZATION 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)

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.

Decentralization of labour market to industry hubs.

POSITVE IMPACTS OF GLOBALIZATION 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 ones.

NEGATIVE IMPACTS OF GLOBALIZATION ON LABOUR

Difficulties of integration into the host community. Increase in poverty as a result of the concentration of lowskilled 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 GLOBALIZATION 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 lesscostly 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 GLOBALIZATION ON COMMERCE

More and more output in the advanced economies consists of largely non-tradable 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.

RESPONSE OF LABOUR TO GLOBALIZATION

Decentralization of labour market to industry hubs. Persisting large cross-country differences. Reductions in the tax wedge.

Deregulation of product markets benefits from the bigger economic ‘pie’, although their share of it has declined.