Assess the Impact of Globalisation on a Developed Economy and a Developing Economy Essay
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For developed countries, the direct economic interest provided by globalization is the greater market whatever for labor or sales or investment, which brings generous profits, and globalisation can promote the economic and technical cooperation between developed countries and the others. The main positive effects are listed below: Firstly, globalisation provides broader range of economic activities to the developed countries. So that they can play an increasingly critical role in the world economic stage depend on their advantages, and then expand their influence to obtain maximum economic interest.
Secondly, the accelerated development of globalisation promoted the formation of the world’s multilateral trading system, which strengthens the international trade’s effects on global economy. And the developed countries not only become the biggest beneficiaries but also the cornerers in international trade. It’s because that these countries’ development and application of science and technology can be derectly used to progress the growth of international trade. And their increasing foreign direct investment simultaneously becomes the main driving force of global trade.
As Nicolas Pologeorgis (2010) argued that Foreign Direct Investment’s impact on economic growth has had a positive growth effect on wealthy countries and an increase in trade and FDI resulted in higher growth rates. At the same time, the expansion of developed countries’ foreign trade reinforces the integration of regional economy and trade, which will benefit the collaboration of the developed countries. Take EU and NAFTA as examples, they are both the influential regional trade blocs whose main members are developed countries.
Thirdly, Economic globalisation greatly promotes the development and global expansion of the multinational corporations in developed countries. As the primary carrier of International economic relations, TNCs control the major trade of raw materials and fuel. Moreover, 40% of the global production, 50%-60% of the international trade, 60%-70% of the international technology trade, 80%-90% of the research and development, 90% of the international investment are dominated by Multinational Corporation.
Globalisation promotes the rapid expansion of developed countries’ multinational corporations, and TNCs further accelerated the growth of economic globalisation. In this process of reciprocal causation, the multinational corporations play an increasing important role, especially in of foreign direct investment; they act as the dominant force. Data shows that more than 90% of the multinational investment comes from developed countries, morever, 1% of the largest multinational companies control the 50% of the total world foreign direct investment.
The developed countries’ foreign direct investment increases from approximate annual 145 billion US dollar in 1985-1990 to about 294. 7 billion US dollar in 1996. And the soar of foreign direct investment reflects the continuous expansion of the developed countries’ multinational corporations. Finally, economic globalisation will promote the developed economy to become technology and capital-intensive industries, which can expend poduction and management in global scope and then win the world market only when they keep continuous innovating in high-tech, researching, developing products with high technology and knowledge of new products.
However, globalisation also brings some negative effects on develpoed countries, and here listed below: Firstly, the competitions and challenges from rising developing countries are increasing. As Nicolas Pologeorgis (2010) argued that domestic industries in some developed countries may be endangered due to comparative or absolute advantage of other countries in specific industries. Globalisation create favourable conditions for the development of some developing countries, it highlights some huge developing countries like China and India.
Although the developed countries play a dominant role in world economic pattern, but the proportion in total GDP and total foreign trade is decreasing. In contrast, the proportion of ten big developing countries include the BRICs is uninterrupted increasing. The rising developing countries show their industrial advantage, take China and India as examples, China shows it’s great competition on secondary sector and manufacturing, and India displays it’s core competition on service industry especially Software development industry.
Moreover, globalisation may cause unemployment in the developed countries due to the comparative advantage of the foreign labor resource. And another possible harmful effect is overuse and abuse of natural resources to meet the demand of production. In addition to that, globalisation exacerbates the internal imbalance of developed countries, the gap between the rich and the poor continuous expanding, and the income of the middle and lower classes generally shrinking. According to a report from the U. S. conomic institutions, the income gap between the rich and the poor is expanding significantly, the average annual income of the wealthiest family is more than seven times as that of the most underprivileged family. Further more, globalisation intensified the economic and social contradictions within developed countries. In the context of globalization, some problems on developmental pattern of the developed countries are highlighted. High wages, high benefits and the slow economic development are overwhelming. Lastly, globalisation affect the process of regional integration .
Because of the various internal factors, the developed countries’ awareness and influence on regional integration are weakened. From the development trend, the process of the developed countries’ adjustment and innovation will be continuing. They will insist on promoting economic globalisation, and occupy the international resource and market. And they will also implement economic nationalism to keep the international competitive advantage and relieve the domestic political pressure, which will provide profound effects on the development of the international political and economic order.
For developing countries, like the two faces of one coin, the globalization has its advantage and vice versa. Here listed some positive effects. Firstly, as Rodriguez and Rodrik (1999) argued that as far as poverty reduction is concerned, trade and foreign direct investment are supposed to be beneficial to developing countries’ economic growth. Numerous developing countries achieved sustained and rapid economic development due to rapid integration of the globalization process, acquired capitals and technologies through globalization and economical cooperation.
With the collaboration of production management, the level of national economic and technological development has been increased tremendously.?? Secondly, economic globalization enables those developing countries to absorb more overseas direct investment. According to the figures disclosed from ‘World Investment Report 1997’ released by The United Nations Conference on Trade and Development, there was an overseas direct investment of 129 billion US dollars flow into those developing countries in 1996, which is 37% of the world total direct investment compared to the proportion of 30% in year 1995.
And the growth will continue. As a result of such environment and conditions that globalization creates, the developing countries expend its scale of overseas direct investment and rapid growth.? Thirdly, economic globalisation promotes the development of the multinational corporations in developing countries and strengthens their competitiveness in the global market. The development of these corporations is not totally equal.
Some of them are just at the early-stage while some have a rapid growth, moreover, a portion of them have transferred their focus to the field of international production and high-tech area, furthermore, which can not only involve in the competition of international market but also have the ability to challenge the other companies from developed countries. But overall, a major portion of the multinational corporations in developing countries focus on small-scale and labor intensive production with low technology content due to their later start and comparative low level of development.
But along with the development of economic globalization, these companies in developing countries will seize the opportunities to broadly participate in international competition and acquire soaring growth.? Furthermore, globalisation can also accelerate the optimization of the export system in developing countries. This is because that these countries must adjust the industrial structure to produce favorable products according to the needs of domestic and international markets so that the developing countries can attract more foreign direct investment and get increasingly development.
Last but not least, globalisation could provide lots of employment for developing countries. As Lall (Lall 2004, pp. 73-101) argues that when a developing country opens its borders to foreign capital, foreign direct investments will generate positive employment impacts both directly and indirectly through job creation within suppliers and retailers and also a tertiary employment effect through generating additional incomes and so increasing aggregate demand.
In the context of economic globalisation, a mass of foreign direct investments enter the developing countries, which inevitable provide abundant opportunities of employment. Globalisation also provides some negative effects to developing countries, as Krishn A Goyal (2006) argued that rapid growth and poverty reduction in China, India, and other developing countries that were poor 20 years ago, has been a positive aspect of Liberalization Privatization and Globalization (LPG).
But Globalization has also generated significant international opposition over concerns that it has increased inequality and environmental degradation. And here listed a portion. Firstly, the increasing growth of the capital from multinational corporations not only inject vigour into the developing economy but also challenge the immature market in developing countries. And the domestic economy faces growing pressures and challenges especially when the international financial market is full with flowing capital from developed countries.
Which will be destructive to the financial market of developing countries if used improperly or without necessary prevention. Moreover, which can destroy the finance and banking system, such as Mexico’s financial crisis in 1994-1995 and Southeast Asian financial crisis in 1997, these are all relative to globalisation. Secondly, along with the development of economic globalisation, developed countries increasingly transfer the labor and resource intensive industries and polluting industries such as chemical industry and papermaking companies to developing countries.
Although it has developed the labor and resource intensive industries in developing countries, but the cost is the pollution of natural environment and the destruction of ecological balance and the serious waste of resources, what is most critical is that it is helpless to develop the high-tech industry or accelerate the scientific and technological progress in developing countries. Thirdly, economic globalisation leads to imbalance of the economic development, which not only reflect in the economic gap between the developed countries and developing countries but also reflect in the interior of developing countries.
And the developing countries show less participance in globalisation than the developed countries. While some developing countries with slow economic development show less participance in globalisation than the comparative developed. Fourthly, the sovereignties of developing countries face some challenges due to the development of the economic globalisation and the continuous expansion of multinational corporations from developed countries.
Furthermore, financial globalization, investment globalisation, enterprise internationalization, and trade liberalization all have the negative effects on the sovereignties of developing countries. Which not only change the face of the world economy but also change the nature of sovereignty of the developing countries. Conclusion Economic globalisation is the inevitable trend for world economic development. Along with the rapid growth of the worldwide productivity and science and technology, the world economy is increasingly closely linked to be a correlative dependent and indivisible whole.
Economic globalisation’s effect on world economy is profound and complex, on the one hand, it promote the efficiency of the allocation of the world resources and overall growth of world economy, because of: The process of globalization easily becomes a self-fulfilling prophecy, both a cause and effect of change. Globalization requires business to become more cosmopolitan, and the cosmopolitans who rise to leadership in these companies promote further globalization. Kanter 1995:60, cited by Waters, 1995: 85) It also can accelerate the international trade and international investment. But on the other hand, we must find that economy globalisation also brings some negative effects for both developed countries and developing countries, such as inequality and environmental degradation. As Krishn A Goyal (2006) argued that a country must carefully choose a combination of policies that best enables it to take the opportunity – while avoiding the pitfalls.
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