Globalization and Income Inequalities in Developing Countries - Coursework Example

Globalization and Income Inequalities in Developing Countries Name: Tutor: Course: Date: Introduction The aim of this essay is to explore the possibility of ‘globalization’ increasing or decreasing economic inequality in the developing countries. Global cultural, political and economic integration engenders the process of globalization (Arbache et al., 2004). With globalization, borders have been broken down between countries making the world into a small village. Historically, the second half of the twentieth century brought in a new meaning to the term ‘globalization’ due to the development of transport and communication technology (Kotilainen & Kaitila, 2012). In this period, economic activities were seen as being limited by existence of national borders. As a result, many developing countries opened up their borders for international investment and trade, technological innovation and exchange of information. Indeed, many countries have benefited from technology transfer, outsourcing, foreign direct investments, mergers and acquisitions and free movement of labor (Lee, 2012). On the contrary, globalization has also brought in new challenges such as increase inequity across and within nations, instability in financial and commercial markets and environmental deterioration (Maskin, 2015). This essay looks into the positive and negative impact of globalization on developing countries in terms of trade and trade processes, culture and sustainability, education and health systems. Economic and Trade Processes Global debate is inconclusive regarding the potential of globalization to increase economic growth and solve poverty challenges in developing countries. In the past, trade barriers and low levels of technology were seen as serious impediments for developing countries to tap into the world economy (Ravallion, 2005). With their inability to share similar economic growth with developed countries, many developing countries have been encouraged to embrace market reforms and adopt radical institutional changes. Maskin (2015) observes that many developing freed up their economies by removing tariffs to open their markets. However, access to global markets is inherently dis-equalizing and creating further rifts between developing and developed countries for various reasons (Dollar & Kraay, 2004). First, the deeper and more efficient global markets associated with tremendous economic gains are not equally shared between countries. Second, transnational corporations dominate global commerce and are out to maximize profits without regard to the development needs of host countries, majority developing countries. Third, the volatility and volume of capital flows increases risks in currency and banking, especially in nations with weak financial institutions (p.F25). Finally, producers in many third world countries are prevented from accessing export markets in developed countries due to protectionist policies. On the other hand, Lemieux (2006) intimates that globalization has improved supply chains and production networks. As many developed countries began investing in the developing nations, they helped to create more job opportunities for the poor people (Arbache et al., 2004). For example, poverty levels have decreased by about 8 percent and 10 percent in India and China respectively in the last two decades due to industrialization and opening up of markets (Topalova, 2010). Furthermore, there is improved access to cheaper imports, human capital, technology and capital flows. The growth in international cooperation and collaboration has also given rise to better bilateral and multi-lateral relations (Blalock & Veloso, 2007). Thirlwall (2003:13) argues that developing countries look up to developed countries for technology and resource flows, and in return the developed countries obtain markets for industrial goods, food and oil and raw materials for their industries. Again, free trade between countries has been made easier and faster as the possibility of war decreases. Colombia and Mexico, some of the developing countries in the Americas, protected their industries leading to tariff-induced price declines by employing unskilled labor intensively. As a result, Goldberg and Pavcnik (2007) using the Stolper–Samuelson mechanism, found that their actions were actions were consistent with the observed increase in wage inequality. This was partly due to the relative demand for skilled labor developed economies, the increased relative demand for skilled labor in many existent in developing countries within industries rather than across industries. Employment share of skilled workers and wage-bill share also increased in most non-traded and traded and industries (Kotilainen & Kaitila, 2012). This indicates that their access to skilled workers did not benefit the local population. Meschi and Vivarelli (2007) predicts using Heckscher-Ohlin model and based on the standard trade theory that developing countries will experience egalitarian trends as a result of globalization. Nonetheless, they have comparative advantage in the production factor but the huge presence of unskilled labor ends up decreasing their wage dispersion and increases their within-country income inequality (Ravallion, 2005; Barro, 2000). This implies that these countries will benefit from the abundant factor given their openness to trade specialization that favors skill intensive industries. According to Lee (2012), economic growth has been enhanced by free trade and communication between the companies and individuals. Yet, the benefits globalization is not universal as it has increased the inequality between the poor and the rich. The poor are becoming poorer as the rich keep getting richer. Many developing countries do lag behind despite their gains from globalization (The World Bank, 2012). For example, many countries in Africa still have the highest poverty rates in the world while rural China has high poverty since it has not tapped on global markets. Foreign direct investments (FDIs) from developed countries still attract low wages and cause pollution challenges to the developing nations (Kotilainen & Kaitila, 2012). Also, the gesture by developed countries to set up factories and companies in developing nations increases unemployment and affect badly their economies. Education, health and employment Globalization has allowed movement of labor, information and technology. In the developing countries, health and education systems have improved due to capital flows and unilateral aid. As opined by Topalova (2010), many of these countries in the past decades, had low literacy levels and access to health facilities. Globalization being a catalyst to job creation bolstered education, skills development and professional growth (Maskin, 2015). Improvement of economies of many nations depends on their quality of health and educational institutions. Increased life expectancy and living standards of people means that economic capabilities of nations will improve (Thirlwall, 2003). For example, proper sanitation and supply good health care services in Mozambique intimates a growth in the economic potential its people. Moreover, there will be a decrease in illiteracy rates where developing countries’ governments choose to provide more money for education and health of its citizens (Han et al., 2010). More than 85 percent of the population of the world, with globalization, have an expectation of living for at least sixty years which is twice the average life expectancy a century ago (World Bank, 2012). Through economic gains from globalization, life expectancy and living standards improved in many developing countries. With reducing illiteracy rates, people are able to improve their qualifications and skills in the job market (Topalova, 2010; Kotilainen & Kaitila, 2012). The hard truth is that markets reward people with the right entrepreneurial skills, human capital, financial capital and assets. In a global economy, higher education has become the ‘right' asset for individuals. Since the early 1990s, returns all over the world to higher education have been rising. This is attributed to university graduates enjoying increased salary premiums. Conversely, the World Bank (2012) observes that many people in developing countries opt out of higher education due to limited opportunities for graduates. For example, Latin America has a large majority of near-poor and poor households a small and state-dependent middle class. This resulted from multinational companies exploiting mineral wealth in their countries. Although they boast a huge concentration of income and historic high concentration of land, they suffer a legacy of limited educational opportunities (Goldberg & Pavcnik, 2007). Doctors and scientists, with the benefits of globalization have unraveled cure to many diseases in humans, domestic animals and wildlife which have led to stability of species and sustainable economic development. For example, improvement in the treatment of HIV/ADIS, birds' flu and swine flu has reduced dependency of developing countries on developed countries for medicine and health care. Better healthcare programs and educational opportunities means that people are free to innovate and trade without sanctions across borders (Lee, 2012). On the contrary, Chossudovsky (1997) believes that structural reforms and the reduction in fiscal spending have depressed public education and health care spending which has further harmed the poor. Under neoliberal reforms from deregulated labor markets, many people without proper education and skills became unemployed giving rise to wage inequalities and increased share of irregular workers (Rama, 2003). Though the negative effects vary based on absorptive capacity and several other conditions, globalization has higher likelihood of increasing income inequality in developing countries. Culture, technology and economic sustainability Undoubtedly, globalization has intensified cultural and political interactions, and the flow of finances, people and goods around the globe (Meschi & Vivarelli, 2007) Understanding the linkages and nature of relationship between inequality and globalization is vital in reducing disparities over access to needs such as information, technology, sustainable livelihoods, food and clean water, shelter, and land (Kotilainen & Kaitila, 2012). Economic inequalities pose challenges to environmental sustainability and human security. For example, opening up of markets to foreign goods has led to widespread air and land pollution given that many developing countries have weak regulation on pollution. Similarly, globalization has brought in new cultures that conflict with most local cultures in developing countries (Lemieux, 2006). Emergence of western, mainly American and European cultures has eroded local cultures and their ways of life. With increased competition for capitalistic goods, societies based on socialism and later converting to capitalism have experienced increased income inequalities (Meschi & Vivarelli, 2007). For example, the Amazonians living the jungles of Brazil have had to abandon their sedentary lifestyles and closed cultures to embrace the tools of globalization like internet television, satellite and radio. While they are now able to follow current events in Australia, Japan and America, they feel lost in the world of culture, traditions and customs. As families treasure independence and financial prowess, changes in the family life have seen young people leave their parents in search of employment and better educational opportunities abroad. With their remittances, the extended family families back home are benefiting from new sources of income (Kurdishglobe, 2010). People worldwide can interact and know each other better through globalization (Lemieux, 2006). Today, young people in Fiji play Hip-Hop music, wear Nike T-Shirts, and use Apple iPad due to the effect of globalization. However, many developing countries such as Iraq, Jordan, Lebanon and Syria are getting concerned over the loss of language, customs, cultural identity and traditions as a result of globalization (Barro, 2000). Despite this loss, the youth in many developing countries are now accessible to fashion and trendy clothing and shoes which is almost similar to those in developed countries (Agénor, 2002). Dollar and Kraay (2004) show that internet connectivity is bridging a digital divide as people volunteer geographical information which could influence how they are understood now and in the future. As they collect geo-referenced data about our world economy, many poor nations will not likely benefit from redistribution (Ravallion, 2005). For example, countries and cities with relatively poor internet connectivity, low education standards and under-resourced technologies will be poorly represented in terms of the range of information available and data accuracy. Distinct scenarios of globalization are likely to result in the future where research teams use geo-visualizations to model inequality patterns from these uncertainties (Lemieux, 2006). On the same note, globalization represents isolation and global connectivity which are important in policy decisions (Kotilainen & Kaitila, 2012. At the sub-national level, isolation and connectivity for access to key resources such as energy water and land, and environmental alteration and engagement with the global economy could lead to increased economic inequalities. Conclusion Globalization has improved supply chains and production networks, access to cheaper imports, human capital, technology and capital flows. However, lack of access to global markets among many developing countries inherently dis-equalizes and creates further rifts between developing and developed countries. Openness to trade specialization favors skill intensive industries as foreign direct investments (FDIs) from developed countries still attract low wages and cause pollution challenges to the developing nations. Globalization being a catalyst to job creation bolstered education, skills development and professional growth. On the contrary, many people in developing countries opt out of higher education due to limited opportunities for graduates. Under neoliberal reforms from deregulated labor markets, many people without proper education and skills became unemployed giving rise to wage inequalities and increased share of irregular workers. Opening up of markets to foreign goods has led to widespread air and land pollution given that many developing countries have weak regulation on pollution. Furthermore, countries and cities with relatively poor internet connectivity, low education standards and under-resourced technologies will continue to be poorly represented in terms of the range of information available and data accuracy. This essay concludes that ‘globalization’ has the potential to increase economic inequalities in developing countries. References Agénor, P. R. (2002). Does Globalization Hurt the Poor? World Bank Working Paper No. 2922 (Washington: World Bank). Arbache, J.S., Dickerson, A. & Green, F. (2004). Trade Liberalization and Wages in Developing Countries, The Economic Journal, 114(493): F73-F96. Barro, R. (2000). Inequality and Growth in a panel of countries, Journal of Economic Growth, 5(2): 5-32. Blalock, G. & Veloso, F.M. (2007). Imports, Productivity Growth, and Supply Chain Learning, World Development, 35 (7): 1134-1151. Dollar, D. and Kraay, A. (2004). Trade, Growth, and Poverty, The Economic Journal, 114 (493): F22-F49. Goldberg, P. & Pavcnik, N. (2007). Distributional effects of globalization in developing countries, Journal of Economic Literature, 45(1): 39-82. Han, J., Liu, R. & Zhang, J. (2010). Globalization and wage inequality: Evidence from the 1988-2005 Chinese Urban Household Survey, Mimeo, University of Alberta, Canada. Kotilainen, M. & Kaitila, V. (2012).Economic Globalization in Developing Countries, The Journal of Economic in Developing Countries, 3(1): 70-78. Kurdistan Government (2010). About Kurdistan. [Online] Available: http://www.KRG.com /Article /03010800 (August 28 2011). Lee, K.K. (2012). Globalization, income inequality and poverty: Theory and Empirics. College of Economics, Ritsumeikan University. Lee, E. & Vivarelli, M. (2004). Understanding Globalization, Employment and Poverty Reduction, Palgrave Macmillan, New York. Lemieux, T. (2006). Increasing residual wage inequality: Composition effects, noisy data, or rising demand for skill? American Economic Review, 96(3): 461-498. Maskin, E. (2015). Why Haven't Global Markets Reduced Inequality in Emerging Economies? The World Bank Economic Review, 29(3): 121-132. Meschi, E. & Vivarelli, M. (2007). Globalization and income inequality. Cattolica University. Ravallion, M. (2005). Inequality is Bad for the Poor, World Bank Policy Research Working Paper No. 3677. The World Bank (2012). Development Program. [Online] Available: http://www.worldbank.org/unite nations (August 28, 2013) Thirlwall. A. P. (2003). Growth & Development with special reference to developing economies, (7th ed). Palgrave Macmillan: New York. Topalova, P. (2010). Factor immobility and regional impacts of trade liberalization: Evidence on poverty and inequality from India, American Economic Journal: Applied Economics, 2(4): 1-41. Read More