The Effects of Globalization on Developing Countries and Its Advantages and Disadvantages

The process of globalization has been occurring on our planet around the last one hundred years, but like any other historic change, it has its promoters and its detractors. For some experts on the mater, the process of globalization brings advantages and prosperity for the whole world; nonetheless, for other experts, this is a process that brings advantages for one part of the global population while excluding other parts of it. In this essay, I will analyze the effects of globalization on developing countries, and what kind of advantages and disadvantages are associated with the process of globalization. For a better understanding, I will start by defining what a developing country (DC) is and I will give a short description of the process of globalization. Afterward, I will use some examples to try to conclude whether globalization is good or bad for people from DC.

According to the International Monetary Fund (IMF) that releases the World Economic Outlook (WEO); there are several criteria used to classify the different economies in the World into advanced economies and emerging market and developing economies. The three main criteria used for this classification are: "(1) per capita income level, (2) export diversification—so oil exporters that have high per capita GDP would not make the advanced classification because around 70% of its exports are oil, and (3) degree of integration into the global financial system" (2017).

Besides these criteria, the IMF says that there are other factors that are taken into account while classifying the countries for the WEO report. So, according to these criteria, we will be assuming that developing countries are mainly those with a low per capita income level, not diversified exports, and a low degree of integration into the global financial system. The majority of states in middle and South America, Africa and South Asia are defined as developing countries.

Positive and Negative Effects of Globalisation

Although globalization is a relatively new word established 50 years ago, it is a process which started in between the end of the 19th century and the early 20th century. Ever since, it has influenced the world substantial in politics, culture, education, science and particularly the global economy. Kotilainen and Kaitila (2002, as cited in Hamdi, 2015, p.1) wrote: "The history of globalization goes back to the second half of the twentieth century, the development of transport and communication technology led to [a] situation where national borders appeared to be too limiting for economic activity." Globalization is described as the development of global integration in fields of economy, finance, trade, and communication. By opening national borders to a free transfer of capital, goods, and services, a further perspective on connections and dependences is achieved ("Globalization", 2017).

It may not seem obvious but, if we think about it, globalization started around the same time the telephone was invented (late 19th century); and as we advanced through a world more connected thanks to the internet, globalization has become stronger. This stronger globalization creates a heavy interdependency between developed and developing countries. Developed countries require raw material, labor, food, oil, and land; in exchange, developed countries provide new technologies, financial aid, investment and medical knowledge to developing countries.

Grundlach and Nunnenkamp (1996) mentioned that globalization is no occurrence of this century, but new communication technologies enabled global dispersal of low-cost production (p.3). Krugman (1995) additionally implements that there are new aspects in the modern global economy: "These are the rise of intra-trade, trade in similar goods between similar countries; the ability of producers to slice up the value chain, breaking a production process into many geographically separated steps; the resulting emergence of super traders, countries with extremely high ratios of trade to GDP; and, the novelty that provokes the most anxiety, the emergence of large exports of manufactured goods from low-wage to high-wage nations" (p.332).

Using both Gundlach and Nunnenkamp, and Krugman’s statements to analyze the global economy, we can obtain a better picture of the current economic situation. Thanks to new shipping techniques and faster communication systems, the vast majority of firms have chosen to delocalize their production to countries where restrictions are less strict and therefore production, is less expensive. And even counting on shipping costs, delocalization seems to be more profitable than domestic production. This leads to the most commonly used argument against globalization: The wages of the workers and their working conditions suffer significantly.

Almost all researcher agree on the fact, that globalization has an enormous impact on participating countries. The contentious issue is whether or not, it is a positive or negative effect. Globalization adversaries emphasize that the relatively low wages and few labor restrictions compared to developed countries bait many international companies to set up their factories in developing countries. This causes environmental issues in those regions such as pollution caused by long transportation distances, chemical deposits from production waste, deforestation to gain industrial areas, and exhaustion of natural resources.

Some argue that self-interested global businesses deplete resources of DCs and oppress progress. Thus, instead of relying on foreign capital, it is better to protect local industries to presciently provide an increasing economy as suggested by Tamohara and Takii (2010, p.512).

Many authors seem to have a pessimistic approach to the effects of globalization on DCs because of three reasons as described by Gundlach and Nunnenkamp. First, the necessary requirement is the membership in institutionalized regional integration schemes. Second, technological developments in DCs are endangered by the missing interfirm technological cooperation between developed and less developed countries. Third, foreign direct investments go mainly to some of the advanced DCs and other less developed DCs get shortened in progress opportunity (1996, p.2).

Another mostly forgotten disadvantage of integration with world markets is the widening income inequality within nations. This phenomenon is especially seen between favored regions and vulnerable populations within a developing country. Zhang and Zhang (2003) highlight, that the interrelationship of globalization and increasing income disparity is responsible for misgivings of allocation of globalization. Especially its harmful consequence of weak structures and regions. Most profits from integration with world markets are one-sided and lead so to increasing regional inequality (p.64).

Rama (2003) emphasized, that globalization creates export-oriented jobs like garments, chasseurs or textiles. On the other hand, unemployment rates in the public sector are increasing due to the privatization of government-owned fields. Another dark side of globalization is child labor. Child labor is mainly a result of poverty and occurs on farms or businesses which are not directly correlated to the integration in world markets. But practices like rug exports and sexual tourism as well as child labor as cheap workers is a result of globalization (p.32).

From the opposing point of view, globalization supporters argue that globalization, and more precisely, the interaction with the world market provides economic prosperity, technological developments and enhances efficiency. By increasing the economy, a rise in industries is shown, markets will reform and new workplaces will be created. Consequently, unemployment rates reduce, poverty declines and living standards are being improved. Gundlach and Nunnenkamp (1996) emphasize in their paper that "globalization improves the prospects for DC’s to catch up economically with industrialized countries" (p.2). They also wrote:

"Our findings support the notion that globalization offers better chances for DCs to catch up economically with industrialized countries. Globalization is likely to ease the inflow of capital and technology, thus helping to increase the rate of factor accumulation beyond the level to be financed by domestic savings" (p.30).

Also, Rama (2003) affirmed that if countries participate in the global economy, wages will grow at a higher pace. Globalization can, especially at the beginning, affect wages negatively, however, a long-term benefit on salaries is proven. Additionally, foreign direct investments are very beneficial already in the short-term which distinguishes the value of good investment policies. International investors help a country to integrate better into the world economy and have a positive impact on workers (p.31).

In conclusion, by investigating the matter, it can be observed how globalization has both benefits and disadvantages for DC. It is also shown that it is an unstoppable process which will increase in the next couple of years. It can be read, that globalization is sustainably increasing the economy and has a positive long-term effect on wages and workplaces. Nevertheless, massive drawbacks in the environment should not be forgotten. Strict deposal and chemical regulations have to be enforced along with working hour directions and fair wage floors. Globalization is progressive and brings great chances to developing countries but limitations and strict laws need to protect human and environment.

References

1. Prasad, E., Rogoff, K., Wei, S. J., & Kose, M. A. (2005). Effects of financial globalization on developing countries: some empirical evidence (pp. 201-228). Palgrave Macmillan UK. (https://link.springer.com/chapter/10.1057/9780230505759_9)
2. Gundlach, E., & Nunnenkamp, P. (1996). Some consequences of globalization for developing countries. (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1471)
3. Tomohara, A., & Takii, S. (2011). Does globalization benefit developing countries? Effects of FDI on local wages. Journal of Policy Modeling, 33(3), 511-521. (https://www.sciencedirect.com/science/article/abs/pii/S0161893811000044)
4. Hamdi, F. M. (2013). The impact of globalization in the developing countries. Developing Country Studies, 3(11), 142-144. (https://www.academia.edu/61897539/The_Impact_of_Globalization_in_the_Developing_Countries)
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