Sustainable Development in Developing Countries - Assignment Example

Environmental Assessment Introduction Most developing countries, like Adelia, face numerous challenges in overcoming inequality and relentless. Inequality results into persistent disparities of incomes among people. Studies by World Bank and International Monetary Fund argue that this can only be solved through globalization that enhances more trade allows for foreign investments and ensures a sustained economic growth. Therefore, this paper looks at globalization as a means through which the economy in Adelia will be improved. Concepts and theories of globalization with respect to changes and trends have been evaluated. Globalization Globalization refers to the process integration and interaction amongst companies, government and people from different nations, normally driven by investment and international trade. The process has direct effects to the environment and overall economic development (Elmawazini et al. 2013, p. 303). The concept of globalization is relatively controversial. The proponents of globalization believe that it enables developing countries grow economically and raise the living standards. However, the opponents argue that the globalization only benefits the multinational corporations. Therefore, resistance to globalization has taken a new dimension as people try to manage capital, labour and ideas towards globalization (Elmawazini et al. 2013, p. 304). The major problem facing Adelia is that the country has confined the production to the national economy. Therefore, embracing globalization is a major recipe to organization of production and economic activities at a global level. Measures of globalization Many economists consider globalization as a means through which integration is enhanced through factor flow and trade. Some scholars argue that the globalization is reflected by the relative commodity prices between the trading nations. The convergence of the relative prices acts as the central manifestation of globalization. Some researchers measure globalization in term of factor flows and growth of trade. Also, globalization can be perceived as the primary process for achieving economic liberalisation. This enhances the closeness of economic relations (Zgurovsky 2007, p. 1). The preferred outcome indicator for globalization is the economic distance between the economies. Also, globalization is manifested through the rising product flows, services, finance and immediate inputs. The measures that are commonly used relate to trade and capital. The policies required in facilitating freer trade, borrowing and direct investment necessitate measuring globalization. In sum, while many people seem to believe the general definition of globalization, the precise measures of globalization are not available. As a result, measuring the impact of globalization may be difficult. Nevertheless, this does not imply that the analysis is redundant. Contrary, the fact that globalization encompasses many aspects; discussion of its impacts may be hard (Zgurovsky 2007, p. 2). However, despite measurement of globalization appearing complex, the impacts are particularly beneficial in developing countries. Most of these countries are poor, but they should make efforts that will enable them catch up with developed countries. The income in those countries should be distributed in a manner that can be readily adopted by the international investment. This is best describe using the canonical model of trade; Heckscher-Ohlin-Samuelson (HOS). Openness increases inequality in developed countries since skilled labour and capital are abundant. However, in developing economies, the effect is precisely opposite. The concept is simple. The reduced barriers to the international flow of investment and goods relative wages increase in sectors that are the major target for comparative advantage of the country. The countries with higher income, such as developed countries, are comparatively advantaged in terms of skilled labour and capital. On the other hand, low-income countries have a comparative advantage in less skilled labour. Therefore, globalization is critical in increasing inequality in developed countries but reduce it in developing countries (Ismail 2011, p. 45). Most left-wing critics and economists agree that the increased openness to the international economy constrains the government from intervening for their domestic economy. Therefore, a small downsized government, like in Adelia, is a perfect virtue. The left decries that it undermines historical ability of government is altering market allocations of risk and wealth in favour of less fortunate. Normally, a country faces substantial aggregate and idiosyncratic economic risks. This reflects myriad of factors that can enhance the economy in the country (Moran 2002, p. 45). There are many factors that propel inequality in the nation, with the major one being he differences in business productivity across various sectors and changes that take place in the distribution of productivity. In this respect, accompanying volatility and reallocation has the potential of increasing productivity and welfare (Ismail 2011, p. 46). In such dynamics, globalization enhances reallocation by opening up markets and reduces the trade barriers, hence facilitating productivity. This permitted increased level of specialization enhances the comparative advantage of the nation. Normally, a country exports a small proportion of what is produced. Nevertheless, the greatest proportion is accounted for by the big firms trading in various countries. (Harris and Melinda 2000, p. 7) The firm-level trade patterns are consistent with productivity that enhances reallocation in areas with caveats and potential pitfalls. As the economy increases its openness, the transition periods can be characterised by substantial dislocation of workers and businesses with the associated costs. The future long-run and transition of the outcomes can be used in developing economies as barriers towards productivity, and this enhances reallocation. The liberalization of trade in an economy with diverse market distortions can yield adverse outcomes and few benefits (Tanser 2006, p. 106). Therefore, globalization will enhance productivity that in turn facilitates reallocation. Therefore, the country in Adelia must engage in the reallocation process for the inputs and outputs from the businesses that are less productive to those that are more productive. The financial markets should be working well so that to enhance the allocation of credit to the starts-up and expansion of businesses (Polaski 2006, p. 90). Globalization contributes to the development of richer markets where the public trading of equity funds is enabled across the globe. Also, the development of hedge funds, private equity funds and venture capital is enabled. This enhances allocation of financial risks through use of available financial instruments and diversification of economies. From the past years, it is clear that the global financial markets have a high level of fragility and can easily collapse. This can affect and distort the reallocation (Tanser 2006, p. 107). Globalization and Trade Over time, many governments have lowered the restrictions that were imposed on foreign investment and trade. Therefore, by Adelia joining the global market, there is an assurance for various mechanisms that will contribute to the reduction in market barriers and increased the access to foreign markets. Globalization has been the driving force towards the economic and social changes taking place in the world. This is facilitated by availability of liberalization agreements that allow movement of goods across the international borders without many restrictions. The liberalization of trade has been a major factor enhancing the reduction in prices and availability of goods from foreign markets, and this offers more choice to the consumers. Nevertheless, critics contend that the domestic producers are normally affected by liberalization of trade (Lee and Marco 2006, p. 167). Theories and Speculations on Liberalization of Trade Since late 18th century, various economists have written about the benefits associated with liberalization of trade for the parties involved. For instance, in 1800s, David Ricardo, an English Economist, argued that free trade between countries will normally benefit the parties involved. This in return allows each of the countries to specialize in the production of specific goods, and also acquire other goods or/and services by trading with the countries that specialize in those products and/or services. Therefore, liberalization and specialization in trade allows all the countries involved to enjoy high living standards and increased profitability (Lee and Marco 2006, p. 168). The liberalization of trade lowers or even eliminates the import quotas, tariffs and other trade barriers that raise the price for goods manufactured by the foreigners relative to domestically produced goods. Some countries use quotas and tariffs as a means of protecting the domestic industries against the similar goods from foreign companies at reduced prices. For instance, Japan charges heavy tariffs on rice imports as a means of protecting Japanese farmers from foreign competition (Lee and Marco 2006, p. 169). Globalization and Foreign Investments International investment is crucial for various economies, especially in developing countries. This is because most of the developing countries possess the labour needed in the production, as well as demand for goods and services provided, but lack the capital necessary to initiate production. While the developing countries can easily access loans to start a business, most developing countries experience problems while trying to access the funds, either the banks do not have enough capital, or high number of worthy borrowers. Therefore, availability of foreign investments provides the capital necessary to spark the creation of productive enterprises (Huq 2004, p. 155). Capital flow The past several decades the countries that invested foreign capital benefited the economy by strengthening the currencys value and reducing the interest rates through increased capital supply for loans to individual businesses. Reports from the IMF working papers illustrates that foreign investments in developing countries help in reducing the global price for domestic borrowing and risks so as to enhance capital inflow. The domestic credit and private capital inflow affect investment positively. They also mediate most of the impacts of investment on the global price of costs and domestic. This implies that it is possible for developing economies to strengthen their institutions and attract foreign investments by improving their institutions so that they do not translate every time into favourable domestic investment (Huq 2004, p. 156). Employment Any company that establishes in another country creates new jobs. The foreign investments in developed countries translate to significant domestic employment opportunities. Normally, many countries target developing countries to take advantage of low labour costs, as well as increase their profitability. This implies that developing economy has a comparative advantage in low-skilled labour and production of labour-intensive goods. As these companies enter into developing countries, then there is a high probability that employment will be enhanced. The increased competition may mean that consumers in both domestic and host countries will benefits from reduced prices for commodities, acquisition of technical know-how and increased employment opportunities (Huq 2004, p. 157). Production Advantages Some of the production advantages include technology transfer, productivity spill-overs, improved production processes and outward orientation. The foreign-based affiliates are normally outward-oriented, and due to their multinational-orientation nature, there are mostly aware of opportunities in foreign markets, hence having an upper hand in seeking market for the exports. This helps in improving the balance of payments in the nation and encourages domestic firms become aware of the international opportunities (Schall 2012, p. 537). Also, when a company establishes a plant in the new country, there is a high probability that it will bring the techniques and technologies that were used in the production from their home countries. This is crucial in raising the skill level for the domestic workers. According to Raymond Vernon, foreign investments provide a ‘life cycle that enhances innovation in home country and replicates it to foreign affiliates (Polaski 2006, p. 91). Productivity spill-overs raise productivity and spurs growth in both developed and developing nations. For instance, manufacturing may reduce the need for inventory by getting the required input before they are requested, hence reducing the warehousing needs. As a result, Adelia will enjoy considerable improvements in production as a result of increased economies of scale. This can be augmented through increased participation in global operations. Therefore, foreign investment will enhance efficiency of production by buying elements of the final product in countries that possess the comparative advantage in producing the product. Globalization will, therefore, enhance integration of marketing and production of goods across the national borders (Schall 2012, p. 538). The competition from foreign corporations enhances the efficiency and global competitiveness of domestic companies. These improvements are caused by backward linkages, which reflect long-term relationship that originates between the foreign investor and firms in the host country. For instance, if a firm decides to set up a plant that assembles the electrical appliances, then, it is a general requirement for it to provide job opportunities, and the location of the plant has high likelihood of encouraging emergence and development of new local industries for supply of fan and electric motors amongst other appliances (Harris and Melinda 2000, p. 5).  Sustained Economic Growth Globalization enhances economic growth in developing countries using a number of channels that directly influence the economic growth determinants. These include augmentation of the domestic savings, transfer of technology, reduction in cost of capital and development of the domestic financial sectors. The indirect channels influenced by globalization include enhancement of production specialization due to improvement in risk management, and the improvement in institutions and macroeconomic policies that are induced by increased competitive pressures (Chishti 2002, p. 228). Research shows that average per-capita income for developing economies expands at a rate that is more favourable than that in developed countries, and this enhances financial globalization of the country. In theory, the process of financial globalization can be instrumental in developing countries to enable them manage their consumption volatility and outputs in an effective manner. Various theories have been put in place to explain the concept of financial globalization. For instance, some scholars argue that consumption volatility in relation to that of the output is supposed to decrease with an increase in the degree of financial integration. This means that the essence of diversification in financial globalization is the increased ability of the nation to shift some income risks to the world markets. Due to specialization of factor endowment structures and output in developing economies, in theory, they can achieve even enormous gains than developed economies through risk sharing in their international consumption measures, as well as effective sell-off for the stakes in domestic output in return for stakes in global output (Chishti 2002, p. 227). The measure of potential benefits realized through improved management of consumption volatility should be evaluated. This is, especially, critical to understanding of the importance of financial integration in protecting developing economies against the effects of consumption volatility. Specifically, although output volatility has been declining in many economies, consumption growth volatility relative to that of income, on average, has been increasing for the developing economies. This is characterized by rapid growths in financial globalization. In simple terms, procyclical access to the international capital markets normally results into perverse effects on the relative consumption volatility for the financially integrated and developing economies (Alves et al. 2007, p. 87). Interestingly, more elaborate research suggests the possibility of a threshold effect. An increment at the low financial integration levels is attributed to an increase in relative consumption volatility. After the financial integration level crosses the threshold, the association turns out to be negative. This implies that, for developing countries, the relatively volatility of consumption will start to decline, hence the findings can be said to be potentially consistent with perspective of the financial integration being instrumental in promoting development of domestic financial sector, which in turn helps in moderating the domestic macroeconomic volatility. These benefits associated with financial integration have accrued majorly to the industrial countries (Esen 2002, p. 21). In this perspective, proliferation of the currency and financial crises in developing countries is considered as a natural consequence for the consequences of financial globalization. This is because most international investors tend to engage in momentum herding and trading that can destabilize developing countries. The international investors may collaborate with domestic residents to engage in some speculative attacks on the currencies of developing country, hence causing unwarranted instability based on policy and economic fundamentals. The risks presented by contagion threaten economy of developing countries since international investors can decide to withdraw their capital for reasons other than those presented by domestic factors. Despite the government being democratically elected, giving sufficient weight to the future generations may be hindered, especially due to divergence of interest of current and future generations. As a result, the government is compelled to incur debts, which aggravate the problem of over-borrowing (Yoon 2009, p. 89). Therefore, the theoretical benefits resulting from financial globalization, apart from promoting growth is enabling developing countries to manage their macroeconomic volatility effectively, particularly by reduction of the volatility of consumption to output volatility. This evidence implies that the developing countries, in their early financial integration stages, are prone to significant risks of high volatility for both the consumption and output (Michalopoulos 2001, p. 65). Conclusion The level of empowerment of the economy is measured by its ability to command the tangible and intangible assets. Therefore, a developing nation, in this case Adelia, can be able to reduce inequality and promote economic growth through globalization that opens up avenue in trade, foreign investment and sustainability in the economy among other factors. Deregulation is critical as it enhances liberalization of the financial services and capital account for the products. This ensures financial integration and allows increased multinational presence and cross-border activities. Economically, globalization enhances trade through use of the comparative advantage that relates to the strong correlation between openness to trade flows, as well as effects on the economic growth reflected as economic performance. Additionally, availability of foreign investment results to increased capital flows as well as productivity. Normally, accessibility of technology, knowledge and skills for the domestic residents is possible upon entry of foreign investors. Despite the criticism by some opponents of globalization, the evidence remains; globalization is critical in enhancing economic growth, decreased equality levels and increased profitability in developing economies. References List Alves, J., Thomas, B. and Chaiyod, B. (2007). Experts Address the Question: How Has the Globalization of Industrial Supply Chains Impacted Sustainable Development in Developing Countries? Natural Resources Forum 31 (1), pp.87-90. Chishti, S. (2002). Globalization, International Economic Relations and the Developing Countries. International Studies 39(3), 227-43. Elmawazini, K., Adil, S., and Peter, D. (2013). Trade Globalization, Financial Globalization and Inequality Within South-East Europe and CIS Countries. The Journal of Developing Areas 47 (2), pp. 303-17. Esen, O. (2002). Globalization, Income Distribution And Developing Countries." Ekonomik Yaklasim 13 (45), pp. 21. Harris, R. and Melinda, J. (2000). 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