Globalization is the buzzword of today. The phenomenon of globalization rapidly swept across the world forcefully and powerfully. Economies of the world are being increasingly integrated as new technology and communication has brought people together. We often hear the phrase that the ‘world has become a global village’ – which itself signifies how much has changed in the world in the past few decades. Financial and industrial globalization is increasing substantially and is creating new opportunities for both industrialized and developing countries.
The largest impact has been on developing countries, who now are able to attract foreign investors and foreign capital. This has led to both positive and negative effects for those countries. Economically new parts of the world have opened to capitalist activities. The spread of capitalist activities has been part of globalization process which ties up well with the liberals believe in the possibility of progress (Baylis, J. , et al. (2008, p. 110). Free trade is the reduction or removal of commercial barriers between countries.
This allows a freer flow of labor and goods between member countries in a trade pact. As free trade agreements become more common around the globe, the positive impact on developing countries has been touted as one of their greatest successes. There are several advantages to developing countries that participate in free trade. Free trade is an economic practice whereby countries can import and export goods without fear of government intervention. Government intervention includes tariffs and import or export bans or limitations.
Free trade offers several benefits to countries, especially those in the developing stage. According to a widely used definition, a developing country is a nation with low levels of economic resources and/or low standard of living. Developing countries can often advance their economy through strategic free trade agreements. Increased Resources Developing countries can benefit from free trade by increasing their amount of or access to economic resources. Nations usually have limited economic resources. Economic resources include land, labor and capital.
Land represents the natural resources found within a nations borders. Small developing nations often have the lowest amounts of natural resources in the economic marketplace. Free trade agreements ensure small nations can obtain the economic resources needed to produce consumer goods or services. By using a country’s comparative advantage, or what they can produce at a lower opportunity cost than other countries, they can get all the benefits of trade. If every country has a comparative advantage that means that everyone can gain from trade.
There is remarkable evidence that globalization is helping countries expand and achieve higher incomes or a higher GDP Improved Quality of Life Free trade usually improves the quality of life for a developing nations citizens. They can import goods that are not readily available within their borders. Importing goods may be cheaper for a developing country than attempting to produce consumer goods or services within their borders. Many developing nations do not have the production processes available for converting raw materials into valuable consumer goods.
Developing countries with friendly neighbors may also be able to import goods more often. Importing from neighboring countries ensures a constant flow of goods that are readily available for consumption. In countries with a higher degree of globalization, policies tend to support more accountability in the private and public sectors. These nations are more likely to maintain courts that recognize property rights and enforce the rule of law. Their governments are more effective and less corrupt.
Policies in these more globalized countries tend to be more stable, essential for long-term planning by business. (Fisher, 2006) Better Foreign Relations Better foreign relations is usually an unintended result of free trade. Developing nations are often subject to international threats. Developing strategic free trade relations with more powerful countries can help ensure a developing nation has additional protection from international threats. Developing countries can also use free trade agreements to improve their military strength and their internal infrastructure, as well as to improve politically.
This unintended benefit allows developing countries to learn how they should govern their economy and what types of government policies can best benefit their people. Production Efficiency Developing countries can use free trade to improve their production efficiency. Most nations are capable of producing some type of goods or service. However, a lack of knowledge or proper resources can make production inefficient or ineffective. Free trade allows developing countries to fill in the gaps regarding their production processes.
Individual citizens may also visit foreign countries to increase education or experience in specific production or business methods. These individuals can then bring back crucial information about improving the nations production processes (Yutzis, 2001) Increased Standard of Living Economic globalization gives governments of developing nations access to foreign lending. When these funds are used on infrastructure including roads, health care, education, and social services, the standard of living in the country increases.
If the money is used only selectively, however, not all citizens will participate in the benefits. Access to New Markets Globalization leads to freer trade between countries. This is one of its largest benefits to developing nations. Homegrown industries see trade barriers fall and have access to a much wider international market. The growth this generates allows companies to develop new technologies and produce new products and services. Higher Employment Rates As developed countries are able to move their operations into developing countries, new job opportunities open up for local workers.
Increased levels of employment lead to a higher standard of living and more consumer purchasing. This ultimately sparks the country’s economy and may help to develop locally owned business. Research was conducted on national incomes around the world during the 1990s and results showed that the income of rich globalized countries increased by 2% each year. The results also show that poor, more globalized countries have a higher increase in income per year than poor, less globalized countries. Actually according to this research the poor, more globalized countries have had an increase in income of 5% ach year while the poor, less globalized countries had a decrease of 1% per year. Less Child Labor Child labor occurs in developing countries for many reasons but one of the main reasons is lack of technology. Children are used as a cheap substitute for manufacturing equipment. In developing countries, sending their children to work is the only way a family can survive. Usually there is not an abundance of schools and medical care like in the wealthier countries, and even if education and proper health care is available it is only available to the wealthier families who can afford it.
Through globalization, households will make higher incomes which may eventually enable a family to send their children to school and provide some type of health care. In another article by Jagdih Bhagwati he states, “child labor will certainly diminish over time as growth occurs, partly due to globalization. ” (Bhagwati). Free trade allows companies to invest in equipment and pay higher wages to adult workers through foreign investment. With higher family incomes, children are able to attend school rather than work. Access to New Markets
Not only does free trade allow foreign-owned companies to establish themselves in developing countries, it also allows native companies to sell to foreign markets. This expands their customer base and leads to new products and services and the viability of investing in innovation. This is particularly true for small businesses in developing countries. These companies no longer have to worry about absorbing the costs of tariffs and other barriers to market entry and can sell their products freely. Higher Levels of Investment Capital Most free trade agreements also reduce restrictions on foreign investment.
With new capital entering a developing country, it begins an upward productivity cycle that stimulates the entire economy. An inflow of foreign capital can also stimulate the banking system, leading to more investment and consumer lending. Increased Life Expectancy An increase in employment levels, incomes, and the general standard of living alleviates hunger and lack of medical care in developing countries. Preventative medical care including checkups and vaccinations are available to more of the population. It also increases the number of children who are educated and attend school regularly.
The ultimate result is an increase in the average life p and a reduction in infant deaths. Widening Disparity in Incomes While an influx of foreign companies and foreign capital creates a reduction in overall unemployment and poverty, it can also increase the wage gap between those who are educated and those who are not. Over the longer term, education levels will rise as the financial health of developing countries rise, but in the short term, some of the poor will become poorer. Not everyone will participate in an elevation of living standards. Decreased Employment
The influx of foreign companies into developing countries increases employment in many sectors, especially for skilled workers. However, improvements in technology come with the new businesses and that technology spreads to domestic companies. Automation in the manufacturing and agricultural sectors lessens the need for unskilled labor and unemployment rises in those sectors. If there is no infrastructure to help the unemployed train for the globalized economy, social services in the country may become strained trying to care for the new underclass.