The recommendation by the IMF for Guidia to embrace deeper globalization aims at increasing the economic opportunities of the country. The IMF believes that Guidia will have an increased volume of trade, more foreign direct investment, and greater transfer of knowledge if it pursues deeper globalization.
The basis of this recommendation is the view held by development economists from the IMF based on the belief that globalization can improve the economic fortunes of any country. Research into this subject does not support a universal positive outcome for countries that embrace globalization.
This paper reviews the specific economic circumstances of Guidia in order to determine whether it will benefit or lose from deeper globalization.
What is Globalization?
The term globalization normally refers to the sum total of several forces that are shaping the relationships of nations across the world. It includes political issues, social and economic relationships, and cultural interaction among the peoples of the world. There is no consensus on when globalization started.
Some scholars pin the origin of globalization to the departure of Columbus to the Americas, while others prefer to associate it with the colonial era during the industrial revolution. Others prefer to look at it as the technology driven changes of the latter half of the twentieth century.
For purposes of this report, globalization refers to the current forces shaping global relationships. The recommendation of the IMF to Guidia to pursue deeper globalization assumes this meaning.
In this sense, this report will investigate the actual circumstances of Guidia in relation to its political, social, cultural, and economic realities through a PESTLE analysis. While the IMF offered its recommendation to Guidia to improve the performance of the economy of the country, deeper globalization will precipitate several other changes.
In the political scene, globalization creates a greater desire for political space by the citizens of any country. Depending on the political system in use in the country, globalization can lead to either political instability or political maturity. If the government does not want to become more accountable to its citizens, then globalization can precipitate political instability.
Economically, deeper globalization can create opportunities for profit by meeting the demands of the international market. The IMF foresees this situation for Guidia.
Becoming a player in the international market will ensure that Guidia harnesses its competitive advantages as a country on order to enjoy the benefits of international trade. However, deeper globalization can also lead to deeper exposure of the country to shocks. Events in far off countries that trade with Guidia will have an effect on local economic conditions.
On the social front, globalization tends to increase the expectations of citizens from their governments when they see how people in other countries live. Globalization exposes citizens to new ideas and different viewpoints that at times contradict local customs.
For instance, many African and Asian countries are reluctant to accept same sex unions as an alternative to heterosexual unions. In the West, same sex unions find wider acceptance. Globalization means that the ideals of a country will experience challenges associated with the ideals of other countries.
Technologically, deeper globalization calls for the introduction of new technologies that support globalization. The most significant technological investment needed for deeper globalization is the internet.
It also means that the country will need the human resource to handle the technologies it adopts to support deeper globalization. Increasingly, a free press is becoming an important aspect of globalization. In a globalised economy, it is impossible to control news because people have a multiplicity of new sources.
Environmental issues are also an important part of the global economy. The main issue underlying global discussions on the environment is global warming and the fight to reduce the emission of greenhouse gases.
Industrializing countries such as India and China are opposed to emission reduction because they feel that it is unfair to ask them to control their emissions at this point in their development. They feel that no one asked the West to do the same thing when they were industrializing.
Finally, on the legal landscape, international law is becoming more important. The free movement of labor means that every country needs to subscribe to an internationally acceptable code to guide international trade and international relations.
The issue of jurisdiction in cyber crime is a very sensitive topic in online commerce. For instance, what happens when someone located in a foreign country hacks into local systems? Is there a way to prosecute them for cross boarder crimes?
The issues above underlie this analysis. They will form the bedrock for the analysis of the benefits and risks Guidia will experience by taking IMFs advice to pursue deeper globalization.
A Review of Guidia’s Socio-Economic Profile: A SWOT Analysis
A SWOT analysis is the best tool for carrying out a socioeconomic analysis of the condition in Guidia. Guidia has a relatively high-income per capita standing at four thousand dollars. This means that with a population of sixty million, the country has a strong local market. The fact that sixty-five percent of the population is in urban areas means that it will be easy for the country to embrace deeper globalization.
Urban communities tend to have better exposure to international issues. A high urban population is a critical sign of the ability of a country to pursue deep globalization. The country also has raw materials, which it currently exports.
The presence of raw materials is an indication that the country can establish local industries through foreign direct investment (FDI) in order carry out value addition for products before export. Finally, the country’s trade in natural gas and the recent establishment of export processing zones are sources of learning for the country that can enable it to pursue deeper globalization.
The main weaknesses of the country include the potential problems associated with middle and low-income countries that have high population densities. The information provided does not substantiate the population growth rate or the demographic ratios. Therefore, the classification as a weakness comes from the perception that the country has a high population.
High population can hinder the growth of a country because of competition for resources. Secondly, the country will suffer because of little industrial development. The fact that the country exports natural resources shows that the industries in the country are underdeveloped.
The opportunity cost of being a net exporter of raw materials high. It is always better to sell value-added products. Thirdly, the country has limited experience in international trade. So far, the only exports the country makes are natural gas and products made in the newly created export-processing zone.
The two opportunities the country has in the context of deeper globalization the availability of affordable labor and the availability of raw materials. The population of the country is an asset. The citizens can provide labor for business process outsourcing. As a middle-income country, it can compete favorably for outsourcing contracts with companies from high-income economies.
Apart from this, its population is already high enough to provide a market for products from both local and international companies. Secondly, the presence of raw materials makes the country an ideal investment destination for international investors. The country can attract foreign direct investment from investors who can utilize the raw materials in the country to produce products for sale in the international markets.
The threats facing Guidia include the potential for exploitation by international investors, and lack of capacity to deal with the consequences of deeper globalization. Experienced international investors can bind the country in unreasonable contracts. Due to its lack of experience in international trade, Guidia can fall for one-sided contracts.
Elements of one-sided agreements include unreasonably long tax holidays, long land leases, and unfair profit repatriations. Secondly, the country is vulnerable to the disruptive effects of deeper globalization.
People in the country will demand changes in the political and social environment to match the experience of other countries. Such changes can cause political and social instability. If Guidia’s political leadership is not accountable, then deeper globalization may lead to political unrest in the country.
Benefits of Deeper Globalization
Based on the SWOT analysis of the socioeconomic environment of Guidia, and the examination of its environment, the country can enjoy some benefits by pursuing deeper globalization.
First, the country can gain from deeper globalization by making use of its competitive advantages. The SWOT analysis revealed that the country has natural resources, and a high population.
In addition, its classification as a middle-income country suggests that labor costs are more competitive in Guidia than in high-income countries. These are potential sources of competitive advantage for the country as it determines the best policies to pursue in its globalization efforts.
According to Faulkner and Segan-Horn (2004) when a country concentrates on using its competitive advantages in international trade, it receives better returns. In turn, the country can access products from other countries, which are more expensive to produce locally.
In this sense, Guidia can enjoy better quality of goods and services by increasing its returns from international trade. It can then use those returns to access high quality goods and services bought at lower cost from competitive producers.
If Guidia chooses to pursue a globalization policy based on the Washington consensus promoted by the IMF, then it means that the country will need to focus on institutional changes as the primary means of economic development. Institution-driven changes usually mean that the country’s development programs will move from personality driven to issue driven policies.
As such, decision-making will move from a centralized model to a more institutional approach. Foreign investors usually feel more confident in institution-driven systems rather than personality driven systems. The benefit that Guidia will experience from such a shift is that it will have a more predictable environment. Therefore, no radical changes take place when new people ascend to the helm of the institutions.
The second model that Guidia can follow is pursing growth spurred by foreign aid. This model will involve finding countries and international lending organizations that can forward development aid to Guidia. The basis for this approach is an economy grows through various thresholds. Each of these levels corresponds to certain operating characteristics of the economy.
In order to grow from one level to another, the country needs a certain amount of capital injection in order to arrive at the next threshold. International aid is an example of the capital injection needed to spur the growth of an economy. An example of a region that benefited from international aid at some point in its history is Europe after the Second World War.
However, the structure of the aid is very important. Some countries in the developing world have found themselves in a perpetual poverty cycle caused by aid. When international debt equals or exceeds GDP, the debt becomes unsustainable. Apart from the debt cycle, international aid may come with conditions. These conditions may not reflect the priorities of Guidia.
For instance, the IMF and the World Bank promote democratic ideals and free market policies in their aid programs. If Guidia does not believe in these ideals, then it must take care as it accepts the conditions imposed on it. Change is very disruptive. Guidia must take such aid with caution if it decides to use this model to pursue globalization.
Risks of Deeper Globalization
The global financial crisis of 2009 illustrates the interdependence between global economies. The crisis arose from events in the financial markets and the real estate sector in America. Property prices plunged as many people saw their investment in real estate disappear. Financial institutions suffered most because most of their assets were in the real estate sector.
When more and more people defaulted on their mortgage payments, financial institutions could not remain afloat. These events affected the entire global economy. The countries that had the most globalised systems suffered most from the global crises. This illustrates the exposure Guidia will have if it pursues deeper globalization. Globalized economies are at a high risk of exposure to events taking place in other countries.
Another risk that Guidia will need to address if it takes on deeper globalization is that it will have to deal with the disruptive impacts of globalization. As a country, Guidia has a set of national values, culture, and a generally unified worldview. These elements of the Guidia society will come under scrutiny from outsiders, and its citizens will ask questions.
The Arab Spring is a good illustration of the disruptive nature of globalization. The citizens of the countries that faced the wave of popular dissent found their voice based on information gleaned online. The actual coordination of the protest meetings took place via social media platforms. The demonstrations received support from people across the entire world.
In response to these disruptions, some countries developed controls over the internet to reduce the risk of popular revolt coordinated through the internet. China, for instance does not allow unhindered access to the open web by its citizens. Some commentators refer to the Chinese control over the internet as the great firewall. This is means of controlling the disruptive effects of globalization.
There is debate whether such efforts will remain in place over the long term. The point here is that deeper globalization will have an impact on Guidia. These impacts will be more severe if the country does not embrace democracy, freedom of speech, and freedom of the press. As soon as the citizens of the country learn about the extent of freedom citizens in other parts of the world enjoy, they will revolt.
The success of deeper globalization in Guidia also depends on the financial system of the country. Deeper globalization will force Guidia to conform to international norms of trade. Part of these norms includes market driven currency exchange rates. This means that the strength of the national currency of Guidia will depend on the demand and supply of the currency.
In addition, Guidia will have to develop a tariff system that is in conformity with rules of the World Trade Organization (WTO). Failure to conform to these rules will lead to the isolation of Guidia from international markets. In addition to these issues, Guidia will stand a better chance of benefiting from international trade if its financial policies conform to the national culture and business practices.
While the World Bank and the IMF previously argued in favor of free market economies, the experiences of many countries show that it is better to develop a national policy in line with the governance systems rather than adopt foreign systems. The Asian financial crisis affected countries with liberal financial policies proposed by the Washington Consensus.
However, China, which still controls many aspects of its economy, did not suffer a lot from the crisis. The lesson here is that opening the markets to the forces of globalization without appropriate checks and balances can result in economic problems for the country.
Conclusion
Guidia can benefit from deeper globalization based on the following conditions. First, Guidia must develop policies that affirm its aspirations and its economic objectives, and not the will of external parties. Secondly, the country will benefit from deeper globalization if it can align its political system to conform to the international norms of governance.
This means that the country will benefit more from globalization of it upholds open and accountable governance. Thirdly, there will be a greater reward for the country from globalization if the country uses a capitalist model in its economic planning. The model must take into account the country’s culture and traditions, and the expectations from players in the global markets.
Finally, Guidia will benefit from deeper globalization if it can identify and use its competitive advantages as a country as it positions itself as a global player. The competitive advantages should encompass aspects such as national branding, strategic planning, and any peculiar elements of the population such as availability of skills.
On the other hand, Guidia will face a number of risks associated with deeper globalization. These risks include the disruptive effects of forces of globalization, risk of increased national debt, and the risk of internal economic instability caused by institutional changes demanded by international financiers.
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