Globalisation From the 20th century to today, with advanced communication and transport possibilities, grows the ratio of companies and countries providing wide scale of investments and business activities internationally. Moreover, the number of people migrating across the globe is significantly increasing. In other words, the world as we know it today, is different than the world of yesterday. Thus, it is changing into one huge, global, village. The term ‘globalisation’ interprets “worldwide integration and development. ” (Dictionary. om 2012) Like every change, especially those of such a massive volume, also the model of globalised and integrated world is dividing society, not only academic, into two different argumentative positions. Proposition and opposition. Many people believe that the globalisation causes more negatives than positives on the economies of countries in the world. This essay discusses various impacts of globalisation on economies considered from two common points of view. Primary are compared positives and negatives caused by integration of countries worldwide.
Subsequently, it is necessary to realize the importance of the ‘Third world’ in the process of globalisation, therefore this essay also investigates the case of developing countries and various benefits for them as well as the crucial damages caused by liberalisation of their economic environment and entrance of powerful multi-national corporations into local markets. One of the basic characteristics of an integrated world is that countries are more likely to help each other in the case of economic problems, because they are interdependent.
Companies invest internationally, governments cooperate and sign bilateral or multilateral international agreements and establish unions (Commonwealth, NAFTA, EU,…) to simplify trade and flow of capital. Moreover, bank sector operates with the assets all around the world. All these examples belong to the category of international trade. With the formation of world market and multinational investments is strongly connected the sharing of interests spread worldwide.
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Therefore, “international trade is taken to be an indicator of interdependence, its high and with some interruptions rapidly growing values are accepted as evidence of the increasing interdependence of nations. ” (IMF 2001) If conditions in countries are sound and economic environment healthy, businesses are making profit, export goods and pay income tax and CLO fees. On the other hand, if one country has various financial or debt problems, economic performance of particular region is weak. Businesses are making loss or are less likely to enter the market and international trade decreases.
This fact motivates states to protect each other from the bankrupt and keep economic environment healthy. For example in European Union is established European Financial Stabilisation Mechanism for the purposes of protecting states from the bankrupt and keeping economic performance satisfactory. “This mechanism provides financial assistance to EU Member States in financial difficulties. ” (European Commission 2012) Globalisation leads to increase in rich-poor gap. In terms of rich-poor gap is meant the difference in wealth between ‘rich north’ and ‘poor south’, in other words, developed and developing countries.
Only wealthy companies can provide financially demanding investments across the borders. Considering fact that firms are profit-maximisers, substantive reason for investing of capital and resources in developing countries is expense reduction; consequently they are enlarging profit. Costs of labour and production intakes, as well as taxes, are not inconsiderably lower than in developed countries. However, all the profit made in developing world flows back to the developed world. According to United Nations Conference on Trade and Development, in year 2007 was net inflow of capital into developing countries 196. bill. USD and overall export of capital was 772 bills. USD. (UNCTAD 2007) Moreover, companies investing abroad are so rich and powerful, that they can rule the market in smaller countries and take a competitive advantage. In developing countries are various problems to be solved by the businesses, beginning with poor infrastructure or lack of qualified workforce, ending with weak financial performance of local businesses to overcome these issues. On the other hand, multi-national companies have much more resources available to enter the market and their strong background provides them a competitive advantage. While local firms often find it difficult to compete with these firms, MNCs appear to be doing very well in spite of the competitive challenges faced. ” (Ogutu and Samuel 2011, p. 1) Globalisation contributes to the improvement of the economies in developing countries. Firms enter the undeveloped market and invest their capital. Afterwards, these companies start to produce goods, employ people and sell their products and services. Furthermore, expands import and export of various supplies and materials in and from a specific country.
Market in particular regions evolves and becomes liberalised as an impact of product exchange and international investments. “…liberalisation leads to further development of a country's financial system which in turn is thought to enhance productivity in the real economy…” (Arestis and Singh 2010, pp. 11-12) In addition, the national budgets of countries benefit mostly from CLO-fees, income tax and GST set on all sold goods and services. Furthermore, citizens can take an advantage of working opportunities, including personal improvement and further qualification, provided by international companies and, of course, their income increases.
Living standard of the population rises. As the evidence of such globalisation impact is considered the increase in GDP and improvement of economies in developing countries. For instance: “Globalization in India had a favorable impact on the overall growth rate of the economy…growth rate in the 1970’s was very low at 3%... above 8% was an achievement by the Indian economy during the year 2003-04. ” (Goyal 2006, p 168) Contrasty, in the long run vantage point, globalisation causes various damaging negatives to each economy, mostly of smaller, not very powerful (developing and less developed) countries.
The circle of naturally changing periods of productivity and recession in economy is considered to be an economic law. During the recession, which is regularly repeating status of each market economy in the world, the liberalised markets of particular countries, depending on multi-national corporations (foreign bank sector, several industrial sectors), are very threatened. Once recession begins, firms are reducing their production, closing factories and releasing employees. As a consequence is possible to observe fall in productivity, decrease of economic performance and increasing unemployment.
Arestis and Singh assume, that “the financial crisis…” (the period of recession) “…of August 2007 and the subsequent spread of it in the rest of the economy and the world, does not augur well at all for the poor, especially so in the developing world. ” (Arestis and Singh 2010, p 7) If economies depend on those corporations and world market in general, they could find themselves in a disastrous situation. “Impact of the crisis can be realized by dramatically reduced capital inflow and a large private external refinancing…that all reflects on the reduction of export performance and a drastic fall in export markets. (Djordjevic and Stoiljkovic 2009 p 264) For completion of the story of India it is important to adjust situation of Indian economy after year 2006. “Due to globalization, the Indian economy cannot be insulated from the present financial crisis in the developed economies. “ (Prasad and Reddy 2009) Furthermore, according to Prasad’s and Reddy’s research, the Indian economy was affected in various sectors from increase of unemployment, fall in investments and exports,… This whole model of Indian economy describes clearly short- and long-run effects of globalisation process and interdependence of countries in the world.
The integration of economies brings definitely benefits in the short run, but has destructive consequences in the long run, spreading the crisis between countries rapidly. Investigating and considering of all proposing and opposing arguments relevant for the discussion about globalisation, it is possible to conclude that the process of integration and development might have several positive effects on cooperation of the countries and, in addition, short-run positive affect on economies of developing countries.
However, in long-run it is possible to recognize several problems with financial help of the states between each other, based on enormous amounts payable for the countries which have debts. (Greece, Spain, Italy,…) As Dixon suggests, “the bailout fund doesn’t have enough money to rescue both Madrid and Rome. ” (Dixon 2012) Moreover, considering the outflow of capital from developing countries and therefore enlarging the rich-poor gap and profits of multi-national companies, improvement in economies of developing countries could appear as irrelevant.
Destructing effect on the people living in third world countries is in long-run very possible. At least the risk of possible damage is so enormous that it is significant that the globalisation causes more harm than good on the economies not only of the ‘Third world’ countries. Reference list Arestis, P & Singh, A 2010, ‘FINANCIAL GLOBALISATION AND CRISIS, INSTITUTIONAL TRANSFORMATION AND EQUITY’, Centre for Business Research, University of Cambridge, Working paper No. 405, pp. 11-12. Available from www. cbr. cam. ac. uk [22. 9. 2012]
Djordjevic, M & Stojilikovic, S 2009, ‘GLOBALIZATION AND THE CHALLENGES OF THE WORLD ECONOMIC CRISIS’, FACTA UNIVERSITATIS Series: Economics and Organisation Vol. 6, No. 3, 2009, p. 264. Available from: http://facta. junis. ni. ac. rs [22. 9. 2012] Goyal, K A 2006, ‘Impact of Globalization on Developing Countries (With Special Reference To India)’, International Research Journal of Finance and Economics, Issue 5 (2006), p. 168. Available from: www. eurojournals. com/finance. htm [22. 9. 2012] http://blogs. reuters. com/hugo-dixon/tag/european-central-bank/ http://ec. europa. eu/economy_finance/eu_borrower/efsm/index_en. tm http://www. imf. org/external/pubs/ft/fandd/2001/06/streeten. htm Ogutu, M & Samuel C n. d. , STRATEGIES ADOPRET BY MULTINATIONAL CORPORATIONS TO COME WITH COMPETITION IN KENYA, University of Nairobi, Nairobi Kenya, p. 1 Available from: http://www. aibuma. org/ [22. 9. 2012] Prasad, A & Reddy,P 2009,’Global Financial Crisis and Its Impact on India’, J Soc Sci 21(1): 1-5 (2009), 2009. Available from: http://www. krepublishers. com United Nations Conference on Trade and Development 2008, DEVELOPMENT AND GLOBALISATION: Facts and Figures, United Nations Publication, Geneva, p. 16
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