Globalization Effects - Coursework Example

GLOBALIZATION Introduction Globalization refers to the increase in global linkages resulting from international trade (Boudreaux, Donald J., 2007). It must be noted the globalization is different from financial integration, but the two are closely related. This is because economic integration refers to the linkages of individual countries to the international capital market. Therefore, an increase in globalization is results in increasing economic integration. Over the years, globalization has increased in both developed and developing countries. However, the developing countries are the ones who have felt the greatest impact (Peter. G. Warr, 1997). Globalization has had both positive and adverse effects. The positive impacts include: 1. Access to finance With globalization, foreign lending has increased due to the increase in interaction between people from different countries. This is imperative especially for developing countries that are usually faced with the problem of lack of capital for investments. It has therefore encouraged entrepreneurial activities in many developing countries. By availing funds to developing countries, globalization has enabled their governments to take loans to develop the infrastructure in the country. This has resulted in the provision of better services to the people and an improved living standard. 2. Access to New Markets Globalization is characterized by the idea of opening up markets. This is also referred to as trade liberalization. Trade liberalization has enabled many developing countries to access a wider market than they would if they stuck to their local markets. This can be attributed to the fact that globalization has broken down many trade barriers. As a result of wider markets, the local industries have grown and expanded therefore generating more revenue to their owners and employment opportunities for the country. 3. Decrease in Unemployment Rates Due to globalization that is often characterized by trade liberalization, many foreign companies have set up branches in developing countries. This has resulted in a creation of greater employment opportunities and a reduction in overall unemployment rates in those countries. This contributes to batter living standard of the people and a general reduction in poverty levels. 4. Improved technology Globalization has enabled many developing countries to access new technology. This has led to increased mechanization in various industries that has resulted in cheaper products that are able to compete with foreign goods in the market. 5. Growth of local businesses Globalization has led to the establishment and growth of local firms in developing countries. Due to increased capital inflows, wider markets, and reduced trade barriers, businesses have gone ahead and attained the status of multination. 6. Wealth creation Globalization has enabled entrepreneurs involved in international trade to amass the wealth that they would have otherwise lacked access to. This has enabled them to live better lives, create employment opportunities for the others and contribute to the development of the country by paying more taxes. 7. Improved Standards of living Due to the ideal of trade liberalization embraced by globalization the standards of living of many people has been improved. This is due to the increased in capital inflows and employment opportunities. Their purchasing power is therefore enhanced enabling them to buy more. However, globalization has not gone without encountering its fair share of critics. This is because it also has negative effects on the countries that participate in the international trade. This includes: 1. Decreased Employment Due to trade liberalization, many foreigners have migrated to developing countries in a bid to get employed. This has resulted in an increase in unemployment rates in the developing countries as the foreign workforce is often more qualified. Due to this increased competition for work, there has been an overall decrease in employment levels. This has also been caused by the introduction of new technology to the economy. Mechanization in many industries has reduced the demand for human labor thus increasing the unemployment rate. 2. Income inequalities the between developed and developing countries. Globalization has in the past operated in the interest of developed countries. This has enabled them to benefit more than their developing counterparts (Fujita, M., & Hu, D., 2001). Therefore, their incomes have also been more compared to those earned by domestic countries (Guscina, A., 2006). This has in the end resulted in income disparities between the two and the widening of the gap between them. 3. Foreign domination Usually, the multinational companies in developing countries avoid re-inventing in developing countries. This is due is their sole aim to make profits for themselves. These companies usually have large economies of scale to their advantage. This may help them put any local company out of business if they decide to do so. They, therefore, end up controlling the markets I developing countries. 4. Adoption of protectionist policy Because developed countries have benefited more from trade liberalization at the expense of their developing counterparts, many governments have chosen to embrace policies that protect their local industries. These policies have had the overall effect of reducing the market for developing countries due to sanctions imposed on them by other countries. They have therefore ended up losing out on their export market. 5. Volatility of capital flows Globalization results in large volumes of capital inflows. However, it is very clear the international trade involves a great deal of currency rate changes. This can result in the increased volatility of these capital inflows and may eventually lead to currency problems in developing countries. It has also been known to cause crises in the banking sectors of many developing countries. 6. Increased competition from foreign industries Due to the availability of better technology in developed countries, their finished goods are usually cheaper than locally manufactured goods. Through globalization, these products usually find themselves into the markets of the developing countries. Many developing countries lack proper technology, skills, and cheap power. This ends up increasing the cost of production in those countries thus making their local goods more expensive than the foreign goods. This ultimately means that the foreign goods will compete the local ones in their market. It may result in the closure of some factories due to losses as the consumers will natural lean towards the cheaper goods. 7. Loss of cultural uniqueness Globalization is a threat to the world's cultural diversity. This is because it encourages the adoption of a universal culture (Appadurai, A., 1996). This may eventually lead to the extension of the rich cultural practices, traditions and languages. 8. Disregard for social welfare and environmental protection Due to the absence of strictly enforced international laws, multinational companies in developing countries have acted in a manner that pollutes the environment and exposes the local labor force to poor working conditions, this is due to their aim to cut costs and maximize profits. The role of government institutions Due to the adverse effects of globalization experienced mostly in developing countries, the governments of these countries have taken some steps to mitigate their loss. They have not at all completely done away with globalization but instead combined it with microeconomic policies of their choice. They have also subjected globalization to constant monitoring and supervision so as to reduce its adverse effects. This has in turn increased foreign investments in their contrived without adversely affecting them. One such microeconomics policy is the adoption of tariffs. A tariff is a tax imposed on goods. The imposition of this tax by the government has the effect of increasing the cost of imported goods compared to those of domestic goods (Ostry, J. D., & Rose, A. K., 1992). There are two types of tariffs. They include: distinct tariffs and ad valorem tariffs. Specific tariffs are those taxes that are charged at a fixed rate on a specified unit of imported goods. On the other hand, ad valorem tariffs are those taxes charged depending on the value of the goods imported. Tariffs benefit different people such as the government and domestic industries. This is because the government gains revenue whenever goods are imported while local industries benefit from the reduced competition due to the increased prices of imports. However, the local consumers stand to lose whenever tariffs are imposed on goods. These consumers include both businesses and individuals. They lose due to increased prices and, therefore, decreased range of products to choose from. Tariffs have therefore been criticized to be pro-government and pro-producers while at the same time being anti-consumers. Despite this, tariffs are imperative. This is because they are very helpful in: 1. The protection of domestic employment The introduction of tariffs helps to reduce unemployment rates. This is because it reduces competition between foreign goods and local goods. The reduced competition prevents local industries from collapsing therefore saving the jobs of many that would have otherwise be entrenched( Ostry, J. D., & Rose, A. K.,1992). 2. The protection of the consumers Tariffs levied by governments usually help to protect the consumers from harmful products that could put the lives of the consumers at risk (Ostry, J. D., & Rose, A. K., 1992). This is because the imposition of taxes makes it more expensive for the producers of those goods to bring the goods to that market. 3. The protection of infant industries Infant industries are those industries in a country that are still young and are therefore not yet in a position to deal with stiff competition. Many developing countries use tariffs to protect their infant industries. In these cases, the governments of these countries usually impose taxes on the goods that they want to produce locally. This is done with the aim of creating a conducive environment for the growth of the industries producing those goods. The levying of these taxes has the effect of making locally produced goods cheaper than their imported counterparts thus reducing foreign competition. This is known as Import Substitution Strategy. CASE STUDY Due to the impact of globalization on both developing and developed countries, most of the countries adopted tariffs as a way of protecting their industries. This led to the need for a kind of agreement between all countries in the world on the acceptable business practices and a uniform tariffs rate. The Uruguay Round the World, therefore, took place. It is an event that took place around seven and a half years ago. It was an international talk that was held to solve problems in trade. About 123 countries participated. It is considered one of the largest trade negotiations in history. The Uruguay Round brought about the biggest reform of the world’s trading system. Its participants agreed to reduce import duties on products mainly exported to developing countries. A) Developed Countries 1. Australia Due to the effect of globalization, the Australian government adopted the use of tariffs especially on non-agricultural goods entering the country. This was done to protect the local industries. After the Uruguay around the world, tariffs still exist. They are imposed on the following items such as clothes, automobiles, electrical items, machinery, and glass. However due to the adverse effect of tariffs, the Australian government adopted a new program aimed at reducing tariffs in 1998(Martin, Will and Winters, L. Alan, 1995). With the implementation of the Uruguay around the world commitments, its average tariffs are expected to be around 2.9 for the next few years. 2. Canada Canada is expected to have a terrifying rate of 4.9 percent after the implementing the commitments of the Uruguay Round. To achieve this, the country has in the past amended its national legislation in order to reduce it tariffs (Martin, Will and Winters, L. Alan, 1995). B) Developing Countries 1. Thailand The level of tariff rates in Thailand is still considered high. However, this is understandable as the country is a developing country. However, it has reduced partly implemented the requirements by the Uruguay Round the world by lowering tariffs levied on transportation equipment (Peter. G. Warr, 1997). 2. Philippines Like Thailand, Philippines is also a developing country. It, therefore, has high tariffs in place to protect its industries. However, since 1980, the country has been reforming its tariff structure. It has made tremendous progress so far up to the pint of recently announcing the enactment of a uniform tariff rate of 5 percent for all items except selected agricultural (Peter. G. Warr, 1997). REFERENCES Appadurai, A. (1996). Modernity al large: cultural dimensions of globalization (Vol. 1). U of Minnesota Press. Boudreaux, Donald J. (2007) Globalization. Fujita, M., & Hu, D. (2001). Regional disparity in China 1985–1994: the effects of globalization and economic liberalization. The Annals of Regional Science, 35(1), 3-37. Guscina, A. (2006). Effects of globalization on labor's share in national income. International Monetary Fund. Martin, Will and Winters, L. Alan (1995) Uruguay Round and developing economies vol 307, Issue 307 Ostry, J. D., & Rose, A. K. (1992). An empirical evaluation of the macroeconomic effects of tarrifs. Journal of International Money and Finance, 11(1), 63-79. Peter. G. Warr (1997), The Uruguay round and the economy of developing countries: Thailand and Philippines by Peter. G. Warr, pg. 142-162. Peter. G. Warr (1997). Globalization and its discontents:[essays on the new mobility of people and money] (p. xxxvi). New York: New Press. Read More