The paper "How Neo-Liberal Policies Drive Globalization" is a perfect example of a macro and microeconomics coursework. Neo-liberal policies comprise of all the economic policies which are based on the principles of neoclassical economics that suggest the removal of trade barriers and regulations which restrict economic factors from carrying out the trade. Neo-liberal policies seek to utilize a laissez-faire approach to economic development by enhancing and open free markets. These policies have facilitated the creation of open market economies, eliminated trade barriers and consequently stimulated globalization. This study analyses the various neoliberal policies and how they have driven globalization at both domestic and international level. Neo-liberal policies and how they have driven globalization Privatization Privatization involves the transfer of economic resources and functions from the public sector to the private sector.
Privatization has formalized and established well-defined property rights, and this has created stronger incentive individuals. As a consequence of this, people make decisions in their own interest, and this has seen the effective handling of transactions (Wang, Lee & Hsu, 2014, p. 139). Well-defined property rights have increased the production of goods and services since people are sure and secure concerning their ownership of property.
Increased production has translated to increased trade activities, and people are transversing countries to market and sell their goods and services. Privatization has helped eliminate unnecessary government bureaucracies which previously hindered the efficiency of markets. Giving the private sector control has promoted clearly defined economic goals, and this has in turn improved market efficiencies. Efficient markets have attracted foreign direct investments as investors are looking for efficient markets. By granting the private sector the right to control resources, resources are no longer wasted unnecessarily.
Effective utilization of resources has stimulated growth, and this has also increased foreign direct investment (Iamsiraroj & Doucouliagos, 2015). Investors from developed countries are therefore seeking opportunities in emerging markets which are experiencing rapid growth rates. Specialization of goods in the economy can be attributed to privatization. Private firms are highly motivated by profits and are therefore focusing on highly productive ventures. Private businesses are also taking advantage of the economies of scale and are engaging in the specialization. Firms have recognized the importance of privatization and are therefore looking for state-owned enterprises which are in the process of privatization.
Privatization has also made the investors record higher profits which can be used to expand their product lines by reinvesting in other countries. The investors are looking for similar business opportunities where they can gain control over the public resources and record even much higher profits. Privatization has also eliminated the concept of the public good, and this has been translated to individual responsibility. In this case, therefore, individuals have to struggle to meet their needs such as education and public health.
Foreign investors are therefore attracted to provide the once “ public goods. ” Privatization of public goods has increased the efficiency of providing these goods and services thereby attracting consumers from various parts of the world. Reduction in government spending When the government reduces its domestic spending, it increases the role of the private sector in the economy. For instance, by reducing the amount of expenditure on infrastructure, the government allows the private sector to take control of the country’ s infrastructure. Cutting government spending also creates investment opportunities which in turn attract foreign investment.
Reduction in government spending is most evident in emerging economies, and foreign governments are taking up these opportunities. Foreign investors who pursue the opportunities which have resulted from reduced government spending bring new technologies and production techniques in these countries thereby stimulating globalization.
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Wang, L. F., Lee, J. Y., & Hsu, C. C. (2014). Privatization, foreign competition, and social efficiency of free entry. International Review of Economics & Finance, 31, 138-147.