Globalization and Its Economic Effects - Case Study Example

International relations: Globalization and its economic effects Name Course Instructor’s name Date International relations- Globalization and its economic effects Different scholars have come up with varied definitions of globalization. One of the most commonly used definitions is the movement of people, capital, goods and ideas from one region or nation to the other, due to the increase in economic integration because of the increased investment and trade (Frank & John 242). It describes the practice by which societies, cultures and regional economies have been integrated through transportation, trade and communication (Round & Whalley np). The most common form of globalization is the economic globalization, which is described as the integration of diverse national economies into the global economy through capital flows, foreign direct investment, migration, adoption of technologies and trade. However, the latest wave of globalization that started in the 1980s and is still evident in the modern society, has been stimulated by the technological improvements in the communication and transport technologies and by the decision by developing nations to enhance their investment situations through investment and foreign trade (Cuadros et al., 63-46). Despite the fact that economic globalization appears to have many dimensions, in essence, it simply refers to the elimination of trade restrictions, such as quota and tariff, allowing free movement of labour, and the liberalization of capital markets. However, globalization can be regarded as a multi-faceted trend, containing diverse outcomes. Its opponents claim that it contains negative impacts on the poor countries, while the proponents argue that it actually reduces poverty (Round & Whalley np). There is also a claim that the current practices of economic globalization aggravate financial instability. This paper seeks to analyze this claim, illustrating why this is true in many countries, and identify cases where this has been disapproved. The paper will also discuss the effects of globalization on the role of the state in international relations. Processes of economic globalization and their effect on financial instability The process of economic globalization is evidenced by the increasing scale of cross-border trade of goods and services, speedy spread of technologies and increased flow of global capital. Economic globalization in the current years has become intense and has been influenced by the rapid growth of science and technologies. The process of economic globalization is mirrored in the amplifying acceptance of private enterprises and free markets as the key mechanisms, which promotes economic transactions (Joshi 6-10). Its growing significance is captured in various processes such as trade, foreign investments, private capital flows, technology transfers, communication and business travel, and operations of transnational ventures. These processes of economic globalization have led to the integration of developed and less developing countries. It would be wrong to argue that; economic globalization in these processes has progressed in a uniform and smooth manner. On the contrary, the process of economic globalization has advanced through fits and starts, yielded negative impacts and can only claim partial achievements. The contemporary processes of economic globalization have exacerbated financial instability around the globe. Financial instability occurs in circumstances whereby there is no monetary stability, there is low employment level that is not close to a nation economy’s natural rate and where there lacks confidence in the operation of markets and major financial institutions in the economy. A theory on the impacts of globalization suggest that, the processes of economic globalization which include trade across borders, foreign direct investments and private capital flows among others have aggravated global financial instability (Joshi, pp. 6-10). This has been caused by the fact that, economic globalization systems means that, one nations economy can directly or indirectly affect another nations economy through their joint trade. As a result, financial crises that begin in one nation can become an international problem for all countries linked to it. Financial crises episodes are clear examples of financial instability. The process of economic globalization is seen to introduce new and extremely powerful sources of modification in the societies, economies, and the cultures of countries (Malcolm 26- 50). This has been caused by an increasing sense of anxiety on individuals and nations affected to an extent that they cannot comprehend nor take part in the management of these novel aspects of change. This anxiety in economic globalization is defined by the fear of rapid modifications from other countries, which can lead to changes in the community. These changes can be caused by the anonymous technological and economic processes. The rapid economic globalization, in conjunction with induced change and shocks has been linked with international finance and particularly the problem of financial crises, short term capital flows, and the cross country spread of such crises. Some countries, particularly the newly industrializing emerging-market economies usually enjoy large inflows of short term foreign capital (Ramkishen 6). As stated earlier, capital inflows are a form of economic globalization. What causes financial instability in such countries is the fact that, in the long run, they experiences speculative attacks on their currencies value and sharp outflow once the investors decides to shift rapidly to other countries as a result of poor sentiment on the business conditions or economic policies of such a country. All of a sudden, other nations with poor business conditions or policies also suffer or experiences speedy runs on their currency. In an attempt to counter this problem and protect their currency, countries tend to increase interest rates which contract the economy further curtailing imports of raw materials from other countries (Ramkishen 32). This was very evident in the Asian countries in the 1990s. These succeeding impacts worsen the financial instability of such countries further, and this has its various negative impacts. Contemporary economic globalization has also resulted to speculative currency sale. In this case, what causes financial instability is the speculative act. Speculation in cross country trade has made various countries to suffer from financial instability. An example of this is Russia, which, in 1998 suffered adversely from speculative currency sales. This resulted in failure of the government to settle its debts both to its foreign and domestic creditors. As a result, there was a reduction in investor confidence which led to capital outflows. This led to currency devaluation resulting to economic and social costs, for instance, unemployment and poverty aggravation. Investors also speculate in terms of making super profits, borrowing heavily in order to finance the buying of assets. In due course, prices collapse and what results is bankruptcy. The financial institutions in this case are affected intensely. This results to losses in financial and banking institutions. Globalization and financial stability One of the most common arguments laid forward by the opponents of economic globalization is that the ever-expanding rate of economic globalization has resulted in financial instability among various countries around the world. This is not always the case since there are examples of countries that have attained financial stability as a result of the current economic globalization (Goodfriend 143). However, attaining financial stability is one of the significant determinants of a successful economy. This is because the financial system is a major coordinating system that allocates a country’s capital to the most productive and available investment opportunities. If for instance, the capital is channeled into poor usage, or does not flow, this will translate into an inefficient economic growth hence making it financially unstable. Adopting financial globalization means that the country’s financial systems are open to inflows from foreign capital, which implies significant economic benefits, and especially to the emerging economies (Goodfriend 145-146). This is because such funds can be channeled into the neediest areas of development, such as poverty eradication in the developing economies, which will in turn enable the country attain financial stability. In essence, this acts to reduce the cost of capital, and promote investment that will enhance the attainment of economic growth for a nation. The second issue is that when financial institutions and foreign capital are given the permit to enter a country, they actually enhance the allocation of capital such that capital is directed to the most productive segments that will enable the country attain economic growth and subsequent financial stability. The third factor is that financial globalization helps in promoting the attainment of better property rights together with institutions that enhance the operations of the domestic financial sectors and direct the capital into correct use (Adebayo 23-42). One of the most common challenges facing developing economies is the issue of poverty. Most of the funds are channeled into eradicating this vice but it is often noted that better strategies are not always applied when it comes to its eradication. For instance, most countries try to eliminate poverty by supplying relief foodstuffs to their suffering citizens. This cannot be considered as the best strategy that could be applied to curb this challenge because the food supply is temporary and therefore withdrawal of government donations would mean going back to the same status they were before the donations. One of the best ways to tackle poverty is through setting up poverty eradication projects such as small entrepreneurial activities that would ensure continued provision even after the withdrawal of support (Round & Whalley np). However, the funds that could be used to fund such projects may be obtain from inflows from foreign capital, which justifies the fact that economic globalization promotes financial stability. The more developed nations are often looking for investment opportunities present in the developing of less developed nations (Cuadros et al. 60). As these nations invest in such countries, many benefits are accrued. For instance, employment opportunities are created, and are able to even gather the benefits of modern technologies. As more funds are channeled to the developing nations, there is a higher probability for such countries to succeed economically and attain a higher standard of living. Attaining a positive economic growth means promoting financial stability. Looking at India for instance, the impacts of economic globalization have been very positive. It is only through the opening of India’s economy to globalization that country has attained its rapid economic growth for the previous years. India’s exports have boomed, its companies are instituting even larger companies abroad, cases of poverty have been significantly reduced, and it has adopted better and improved technologies, factors that have all worked to boost the country’s economic growth. India’s Gross Domestic Product (GDP) growth rates moved from 5.6 per cent in 1990-1991 financial years to 77.8 per cent in 1996-1997 financial years (Wallack 17). This is a significant improvement given the fact that the country’s economic growth rate in the 1970s was estimated at 3 per cent. However, the recent years have seen this rates go down because of the worst droughts that have hit the nation. Not only has the country experienced a rise in its economy, but also its position in the global economy has consequently improved (Wallack 21). Effects of globalization on the role of the state in international relations International relations encompass the study of associations between nations, as well as the role of various bodies such as intergovernmental organization, the state, multinational corporations and nongovernmental organizations. Globalization has affected all aspects of life including economics, technology, politics, communication and society (Waltz 693). This means that, globalization has also affected how the state functions. By affecting internal social and political processes, globalization undermines the monopoly of the state in international relations, and deteriorates the sovereignty of the state as a major principle of the international order (Katherine 22-27). The impacts on the role of the state in international relations are caused by the increasing degree of interdependence between countries (Waltz 698). State’s domination in international relations rest upon its capability to control all essential processes of cross- border interactions, and its power to do so. Its physical size, resources, gross domestic product, military and its location among other factors determine the power of the state. Studies have revealed that, weak states have been faced with the threat of possibilities of being colonized by globalization forces (Waltz 700). The increasing economic interdependence in the contemporary time has paved way for non-state international actors. In the global economy, transnational corporations have increasingly resulted to be the symbols of novel power centers. These corporations operate across country borders, pursuing their own interests instead of the states interest (Mykola 8). The entities interactions are significant in determining global politics result. Transnational actors due to the efficiency in trans-border communication have greatly shaped world politics. Such actors include international organizations most of which are non-governmental in making. Their cooperation does not depend on the governments’ goodwill or on geographical proximity. Functional interactions thrive internationally, strengthening civil servants, lobby groups, and political associations among others (Mykola 8). The result of this is that, national states tend to lose their monopoly in world politics. With the initiation of modern social, environmental and economic challenges, there has been a strong sense among governments of various states regarding the fact that their extent of autonomous public action, which is viewed to have been minimized by globalization ad the subsequent emergence of inter-dependence between, states. States are sovereign entities and therefore, they posses the final or ultimate authority regarding their inhabitants and territories. This means that once a policy is established, it has to binding on all its citizens, for instance, is the state decides to move up a tariff, then all its citizens are expected to be affected by the raised import prices, whether they are in support for it or not (Morgan 57). It is expected that as a state enacts its laws, it has to act authoritatively to ensure the laws are legally binding. However, with the contemporary globalization it becomes difficult to issue legally binding laws. People have the freedom to move from one place to another and since laws differ from one state to the other, it becomes to ensure the laws are legally binding. Furthermore, globalization has generally increased the complexities of inter-state relations and the likelihood of conflicts between states (Kidane 27). Globalization forces actors into smaller places and thus heightens tensions and makes diplomacy more complex (Morgan 301). Besides, globalization has also enhanced cross-border significance of certain aspects in international politics such as climate change, refugee crisis, resistance and terrorism and the spread of diseases. The pressures that are brought u\into play by the growing populations of dynamic ad knowledgeable citizens from diverse states, is also a major factor that has cropped up due to globalization. Conclusion Economic globalization has grown significantly in the contemporary society. This process, as studies reveal has various positive impacts especially to the developing countries. However, the processes of economic globalization, which include trade of goods and services, foreign investments, private capital flows, technology transfers, communication and business travel, have exacerbated financial instability around the globe. This has been caused by the fact that, economic globalization systems means that, one nations economy can directly or indirectly affect another nations economy through their joint trade. As a result, financial crises that begin in one nation can become an international problem for all countries linked to it. Nevertheless, not all countries experience financial instability that is caused by economic globalization. Some countries can cope with these situations effectively preventing such occurrences. The role of states in international relations has been influenced greatly by globalization. States decisions are mainly based on the wellbeing of other states, and most of these decisions especially the world politics are made by appointed entities. Globalization however, is a significant process, and its positive impacts are more compared to negative effects. Works Cited Adebayo, O, Globalization, Equity and Development: Some Reflections on the African Experience. 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