Globalisation and Impact on Relationship between Developed and Developing Countries - Essay Example

Globalisation and Impact on Relationship Between Developed and Developing Countries Globalisation is the increasing integration of economies around the world (IMF 2008, p. 2). According to the International Monetary Fund or IMF, the most important features of globalisation are reflected in the increasing percentage of international trade in the world’s economies, increasing foreign direct investments, increasing international claims in terms of international bank loans, and increasing percentage of foreign workers in the world’s economies (2008, p. 2). For the IMF, globalisation implies that information and knowledge are dispersed and shared globally at an increasingly faster rate (2008, p. 2). We tackle in this work, the impact of globalisation on the relationship between developed and developing countries. In particular, we tackle the effect of globalisation on equality between developed and developing countries, direction or flow of relationship, relationship expressed in the trend towards multi-cultural and multi-geographical operations, and in the trend between the two to cease from being separate markets and become integrated markets instead. According to the International Monetary Fund, globalisation has two main effects on the relationship between developed and developing countries. One of the two main effects is that globalisation promotes equality in the relationship between developed and developing nations. On this point, there are several reasons. Firstly, globalisation promotes skills upgrade among workers in developing economies (Gersbach and Schmutzler 2006, p. 1). Secondly, globalisation promotes increases in incomes across countries and regions in a manner that average real incomes of the poorest populations also increase (IMF 2007, p. 136). The IMF found that trade liberalization and exports promoted by globalisation are linked with increasing incomes and income equality among nations. Finally and thirdly, technological progress that is associated with globalisation promotes equality of access among nations to greater incomes. In the case of India, the country intensified reforms in opening its economy through the reduction of tariff (IMF 2007, p. 148). According to the IMF (2007, p. 148), the reduction of tariffs in India associated with globalisation were also associated with increases in wages. Citing a couple of studies, the IMF said that trade liberalization associated with globalisation led to the reduction of inequality between skilled and unskilled workers (2007, p. 148). One can also argue that the increasing wage rates associated with trade liberalisation/globalization contributed to the improvement of equality between India and the developed nations. However, another effect is also at work. Financial openness associated with globalisation is linked with income inequality (IMF 2007, p. 136). In particular, financial openness promotes inequality among nations and among the populations of developing nations following the Kuznets hypothesis (IMF 2007, p. 136). In the Kuznets hypothesis, income inequality worsens at first before they eventually improve following a U curve in a graph in which the vertical or y-axis pertains to the equality scale and the horizontal or x-axis pertains to time. In this graph, the Kuznets curve is a U curve because equality worsens or decreases before it eventually rise up or improves. Alternatively, the situation is sometimes described as the “things will worsen a bit before they get better”. Using financial assets as a percentage of global gross domestic product or GDP as an indicator of financial openness, the IMF said that financial assets as a percentage of GDP increase from 58% in 1990 to 131% in 2004 (IMF 2007, p. 137). Another indicator of financial openness or financial globalisation is the percentage of foreign direct investment or FDI in total liabilities. According to the IMF, the figure on this increased from 17% in 1990 to 38% in 2004 (IMF 2007, p. 138). Associated with the changes in percentage of financial assets as a percentage of GDP and percentage of FDI in total liabilities, inequalities within the population of a number of countries have worsen (IMF 2007, p. 140). According to the IMF (2007, p. 136), “available evidence does suggest that income inequality has risen across most countries and regions over the past two decades, although data are subject to substantial limitations”. In the case of India, for example, the IMF reported that although inequality between skilled and unskilled workers, globalisation also led to an increase in inequality in some areas, especially in urban districts where those with higher education receive much higher wages compared to households with lower education (IMF 2007, p. 148). Between the two effects---one effect of globalisation leading to greater equality among nations and another effect leading to more inequalities within a nation---the former is stronger (IMF 2007, p. 135). The net effect is a limited positive effect of globalisation in promoting income equality among nations (IMF 2007, p. 135). However, education and credit have a very good potential of spreading the positive benefits on globalisation more widely or equally (IMF 2007, p. 135). Meanwhile, Goyal (2006, p. 166) argued that globalisation made India more vulnerable to crises as globalisation “dragged” the Indian economy “close to defaulting on loans”. Further, according to Goyal (2006, p. 166), globalisation implies relationships between developed and developing nations within the framework of internationalisation of capital markets, uninhibited trade and commercial flows, and mutual exchange of technology and technology and knowledge. This implies that relationship between developed and developing nations has ceased to be a one-way street in which the latter is dependent on the former. For instance, internationalisation of capital means that while US investors can invest in India, wealthy Indians can also invest in the US. Although the United States is an importance source of technology, Indian scientists and inventors can also sell technologies to the United States. The United States may be an important source of techno products but Indian entrepreneurs can also sell technological products to the US. Thus, globalisation implies a new set of relationships between developed and developing nations. It implies a two-way street of interaction between developed and undeveloped nation. Earlier, relationships were one way: for example, one country invests and the other country is a mere receiver of investments. Globalisation also implies population flows as mobility improves and as countries relax restrictions on migration and foreign travel. It implies a multi-cultural environment for both developed and developing nations. It means that henceforth, both in the developed and developing nations, corporations and organizations would have to attach stronger importance on management and operations in a multi-cultural and multi-geographical framework. It also means that corporations operating in one part of the world would have to be familiar of the sociological and market environment in other parts of the world. Gone are the days when only the developed nations have to be more conscious in multi-cultural and multi-geographical operations. With increasing globalisation, even the developing nations would have to be familiar in working in multi-cultural and multi-geographical operations. Markets are increasingly becoming strongly international rather than only national. This applies even to restaurants when a few years earlier restaurants were catering only to a specific locality of population. A few years earlier, small stores were catering to a specific locality and markets but now even small stores can be part of a chain of stores that are operating globally. This also implies that developed and underdeveloped nations have been ceasing to be separate markets and are moving towards becoming fully integrated markets. A structural change in employment is also ongoing (Roy 2008, p. 46). For instance, sub-contracting is being done across borders such that a labour force in one country is also a labour force of another country. In summary, globalisation has an impact on the relationship between developed and developing nations. Today, they are increasing becoming nations of equals, Relationship between them are increasingly becoming two-way rather than one-way. They are both increasingly operating multi-culturally and multi-geographically. More importantly, they are becoming integrated rather than separate markets. Reference List Gersbach, H. and Schmutzler, A., 2006. The effects of globalization on worker training. IZA Discussion Paper 2403. Bonn: Institute for the Study of Labour (IZA). Goyal, K., 2006. Impact of globalisation on developing countries (With special reference to India). International Research Journal of Finance and Economics, 5, 166-171. IMF, 2007. World economic outlook October 2007: Globalization and inequality. Washington: International Monetary Fund. IMF, 2008. Globalization: A brief overview. International Monetary Fund Issues Brief 02/08. Washington: International Monetary Fund. Roy, S., 2008. Structural change in employment in India since 1980s: How Lewisian is it? Social Scientist, 36 (11/12), 46-68. Read More