Globalization has set in motion a process of far-reaching change that is affecting everyone. New technology, supported by more open policies, has created a world more interconnected than ever before. This spans not only growing interdependence in economic relations – trade, investment, finance and the organization of production globally – but also social and political interaction among organizations and individuals across the world.
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A minimum level of social protection for individuals and families needs to be accepted and undisputed as part of the socio-economic ‘floor’ of the global economy, including adjustment assistance to displaced workers. Donors and financial institutions should contribute to the strengthening of social protection systems in developing countries.
Rich countries have long been preaching to their poorer partners about the supposed benefits of economic globalization. They have argued that economic growth can only be achieved through open markets and free trade. Some developing countries such as China and India have listened to the suggestions and actually achieved substantial growth and global competitiveness.
Globalization clearly opens up opportunities for development. We are all aware -and rightfully so- that national strategies should be designed to take advantage of the potential and meet the requirements associated with greater integration into the world economy.
Quoting Greg Mankiw, “It is a maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy”.
If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it from them with some part of the produce of our own industry employed in a way in which we have some advantage.
Globalized nations tend to pursue policies that achieve faster economic growth, lower inflation, higher incomes and greater economic freedom. The least globalized countries are prone to policies that interfere with markets and lead to stagnation, inflation and diminished competitiveness. A nation that become more integrated into the world economy, tend to maintain fewer barriers to trade and the movement of money. They are less likely to impose punishing corporate taxes and onerous regulations. Their technology policies are more favorable to innovation. Nations more open to the world economy score above the less globalized countries in respect for the rule of law and protection of property rights. More globalized countries also offer greater political stability.
A nation open to trade can achieve greater production efficiency and a higher standard of living by specializing in those goods for which it has a comparative advantage to wit:
- Countries that are open to trade typically enjoy greater prosperity. A report said, among developed nations, the open economies grew at 2.3 percent per year, while the closed economies grew at 0.7 percent per year Among developing nations, the open economies grew at 4.5 percent per year, while the closed economies again grew at 0.7 percent per year. Perhaps being closed to trade is correlated with various other restrictive government policies, and it is those other policies that retard growth.
- Throughout history, when nations open themselves up to the world economy, the typical result is a subsequent increase in economic growth. This occurred in Japan in the 1850s, South Korea in the 1960s, and Vietnam in the 1990s. Trade liberalization is often accompanied by other reforms,
- Factors also to be considered on the impact of free trade on economic growth of a country is to look at the impact of geography. Some countries trade less simply because they are geographically disadvantaged. For example, New Zealand is disadvantaged compared to Belgium because it is farther from other populous countries. Similarly, landlocked countries are disadvantaged compared to countries with their own seaports.
According to some studies, “a rise of one percentage point in the ratio of trade to GDP increases income per person by at least one-half percentage point. Openness to international trade is good for economic growth. It is also considered as economic savior for the world’s poor countries and helped improve quality of life.
In other words, the betterment of societies through free trade for everyone is possible as long as each one has the freedom to produce with a comparative advantage and engage in exchanges with others. Local economies around the world changed the way they produced and distributed raw materials. They specialized in the things they were best at, imported everything they needed to import, and shared ideas and technology.
Better-performing countries also had stronger investment climates, better educated work forces, better infrastructure, less red tape and were more open to international trade. Private flows go to countries that have a favorable business environment, and in those settings, they reinforce the growth process.
Testimonials from representatives of developed and developing countries was clear enough that globalization or free international trade created a climate for growth and further create opportunities for poor people to participate in the economic growth.
The globalization of business is easy to recognize in the spread of many brands and services throughout the world. For example, Japanese electronics and automobiles are common in Asia, Europe, and North America, while U.S. automobiles, entertainment, and financial services are also common in Asia, Europe, and North America. Moreover, companies have become transnational or multinational-that is, they are based in one country but have operations in others. For example, Japan-based automaker Honda operates the largest single factory in the United States, while U.S. based Coca-Cola operates plants in other countries including France and Belgium—with about 80 percent of that company’s profits come from overseas sales.
During the early1990s, it was noted that globalization was working. The economic success of Singapore, the rapid economic growth in the Asian Tigers, the industrializing of countries, such as Brazil and Mexico, and a variety of other positive economic events around the world suggested that the results of globalization were indeed good for development in poorer countries, as well as in richer ones.
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Globalization increases countries visibility in the world market thus giving them the opportunity that could enhance economic growth. People could no longer think only in terms of their local area, they had to consider the outside world as well. Some areas were more receptive to new ideas.
- Mankiw, G. (2006). Measuring the Effects of Globalization. Greg Mankw’s Review. Web.
- Murphy, A. (2007). Effect of Globalization on the World Economy. The Peoples Media Company. Web.
- Global Development Finance 2001. (2001). News & Broadcast, Washington DC. Web.