Elaborate what you understand by the term globalization Discuss some of its advantages and disadvantages and the likely affects to developing countries.

The word globalization has really begun to be in common usage since the 1990s in connection with advances in electronic communications, and with a strong increase of private capital flows from developed to undeveloped countries. According to definition of Globalization, it is the process of making something such as business operates in many different countries all around the world or the result of this. On the other hand, it mentions to world relationships of culture, people, and economic activity. The term is exploited to refer specifically to economic globalization, for instance the integration of national economies into the international economy through trade, foreign direct investment (FDI), capital flows, migration, and the spread of technology. However, it is recognized by a combination of Economic, Technological, Sociocultural, Political, and Biological factors. Table 1 demonstrates the most globalized countries under economic, social, and political factors.

Table 1- Globalized countries under economic, social, and political factors
Source: Dreher, Axel; Noel Gaston and Pim Martens

Rank

Countries

Economic index

Rank

Countries

Social index

Rank

Countries

Politic index

1

Singapore

96.80

1

Switzerland

92.36

1

France

98.43

2

Luxembourg

93.11

2

Austria

91.74

2

Italy

98.37

3

Ireland

92.93

3

Belgium

90.42

3

Belgium

98.13

UN-ESCWA (The United Nations Economic and Social Commission for Western Asia) has written that globalization in economic context refers to the reduction and removal of barriers between national borders in order to facilitate the flow of goods, capital, services, and labor. Moreover, globalization means the diminution or elimination of state-enforced restrictions on exchanges across borders and the increasingly integrated and complex global system of production and exchange that has emerged as a result. Globalization is the result of systemic trends manifesting the market economy’s grow or die dynamic, following the rapid expansion of transnational corporations.

The KOF Index of Globalization measures the three main dimensions of globalization known as economic, social, and political. According to KOF Index of Globalization, the world’s most globalized country in 2011 is Belgium, followed by Austria, Netherlands, Sweden, and Switzerland. The least globalized countries according to the KOF Index are Somalia, Timor-Leste, and Virgin Islands (Table 2).

Table 2- KOF Index of Globalization (2011)

Rank

Countries

KOF index

Rank

Countries

KOF index

1

Belgium

92.60

203

Puerto Rico

2

Austria

91.67

204

Korea Dem Rep.

3

Netherlands

91.16

205

San Marino

4

Sweden

89.26

206

Somalia

5

Switzerland

88.97

207

Timor-Leste

6

Denmark

88.96

208

Virgin Islands

At the other extreme lies the completely, the significant pillars of globalization are as follows:

v  The need to merge all economic activity of all countries within a homogenized model of development and a single centralized system

v  Extremely corporate rapid growth through the constant search for access to natural resources, new and cheaper labor sources, and new markets

v  Concerning privatization and commodification of as many traditionally non-commodified nooks and crannies of existence as possible

v  Its strong emphasis

Economic globalization is defined as the increasing world integration through trade, financial flow and knowledge. Economic globalization can be measured in different ways such as goods and services, labor, capital, and technology.

The Globalization of factors of production implies on capital and labor. Capital factor mentions at the relocation of transnational corporate’s plants in other countries through FDI (Foreign Direct Investment) to get the better allocation of factors. Moreover, labor factor hints at workers move from one country to another in order to get better wages.

As mentioned above, Globalization influences over all countries around the world. Developing countries must liberalize their domestic industries and economics to attain more profit from foreign trade, have the opportunity to invest in foreign countries, find new channels for cooperation within different firms worldwide, use of resource efficiently, which all of them lead to economic growth and prosperity. In addition, developing countries have to decrease poverty, increase the number of educated population, modernize transportation and telecommunication systems, remove corruption, expand various markets, and so on. Financial globalization has significantly increased over the past three decades, especially for advanced economies, whilst developing countries experienced more moderate increases.

Financial Liberalization means reduction of any sort of regulations on the financial industry of a given country (Illustration 20). The worldwide increase in financial globalization has been driven mainly by high-income countries (Illustration 21).

Source: Kaminsky and Schmukler (2002)

Source: International Monetary Fund (IMF), World Economic Outline (WEO)

The term of globalization has many significant consequences. The merits of globalization in developing countries are as follows:

v  Removing poverty and destitution

v  Preparing more choices for people through benefits of low-price and wide range of goods

v  Increasing work opportunities

v  Improving standard lifestyle

v  Improving economic welfare level through increasing export of domestic goods

v  Increasing competitive environment around the world to serve better products

v  Boosting foreign direct investment (FDI)

v  Increasing developing countries’ market shares (Illustration 22)

v  Paying higher wages by multinational companies in comparison with local firms to labors

v  Taking the advantage of decreasing the currency difference

v  Increasing production on account of increasing demand

v  Generating more middle class people

v  Boosting environmental protection

v  Reducing the probability of war between high-income countries

v  Increasing the flow of communication and sharing information

v  Increasing free enterprise between countries

Allowing to investors of developed countries to invest in developing nations

Source: World Bank stimulation with Linkage model

Although globalization has many advantages especially in developing countries, it has some drawbacks as follows:

v  The job flow from developed countries to developing nations cause corporations to seek for cheapest labor.

v  Materialistic lifestyle may prosper in developing countries via more consumption of foreign goods.

v  Foreign corporations misuse developing countries’ resources because of the weak regulation structure and contaminate the environment of developing countries

v  Corporate polluters take an advantage of weak regulations in developing countries whereby environmental integrity decreases.

v  More competition and challenge may lead to civil war within developing countries and war between them due to competing hard for resources.

v  Sometimes organizations like World Trade Organization (WTO) exploit its power to force other countries to terminate agreements, and national and individual sovereignty are infringed.

v  Multinational firms may cause cultural invasion.

v  It causes spread of contagious diseases.

v  A few corporations confine cultural expressions through controlling world media.

v  Skillful and talented labors may immigrate to developed countries for better life chances or higher wages.

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