The Impact of Globalization in the Developing Countries

Introduction:

Globalization is a process of global economic, political and cultural

integration. Globalization is playing an increasingly important role in the
developing countries. It can be seen that, globalization has certain advantages such
as economic processes, technological developments, political influences, health
systems, social and natural environment factors. It has a lot of benefit on our daily
life. Globalization has created a new opportunity for developing countries. Such as,
technology transfer holds out promise, greater opportunities to access developed
countries markets, growth and improved productivity and living standards.
However, it is not true that all effects of this phenomenon are positive. Because,
globalization has also brought up new challenges such as, environmental
deteriorations, instability in commercial and financial markets, increase inequity
across and within nations.

Components of Globalization:

The components of globalization include GDP, industrialization and the Human

Development Index (HDI). The GDP is the market value of all finished goods and
services produced within a country's borders in a year and serves as a measure of a
country's overall economic output. Industrialization is a process which, driven by
technological innovation, effectuates social change and economic development by
transforming a country into a modernized industrial, or developed nation. The
Human Development Index comprises three components: a country's population's
life expectancy, knowledge and education measured by the adult literacy, and
income.
The Economic Impact on Developed Nations :

Globalization compels businesses to adapt to different strategies based on new

ideological trends that try to balance the rights and interests of both the individual
and the community as a whole. This change enables businesses to compete
worldwide and also signifies a dramatic change for business leaders, labor and
management by legitimately accepting the participation of workers and
government in developing and implementing company policies and strategies. Risk
reduction via diversification can be accomplished through company involvement
with international financial institutions and partnering with both local and
multinational businesses.

Globalization brings reorganization at the international, national and sub-national

levels. Specifically, it brings the reorganization of production, international trade
and the integration of financial markets. This affects capitalist economic and social
relations, via multilateralism and microeconomic phenomena, such as business
competitiveness, at the global level. The transformation of production systems
affects the class structure, the labor process, the application of technology and the
structure and organization of capital. Globalization is now seen as marginalizing
the less educated and low-skilled workers. Business expansion will no longer
automatically imply increased employment. Additionally, it can cause a high
remuneration of capital, due to its higher mobility compared to labor.

The phenomenon seems to be driven by three major forces: the globalization of all
product and financial markets, technology, and deregulation. Globalization of
product and financial markets refers to an increased economic integration in
specialization and economies of scale, which will result in greater trade in financial
services through both capital flows and cross-border entry activity. The technology
factor, specifically telecommunication and information availability, has facilitated
remote delivery and provided new access and distribution channels, while
revamping industrial structures for financial services by allowing entry of non-
bank entities, such as telecoms and utilities.

CONCEPT OF GLOBALIZATION:
Globalization can be seen as one of the most important force that has impact on the
economy. It is accepted that the world economy has become more integrated due to
the process of globalization. Redding (1999) defines globalization as the increasing
integration between the markets for goods, services and capital. Globalization in
the broadest sense implies integration of economies and societies across the globe
through flows of technology, trade and capital. Integration of production,
accelerated cross-border investments and more trade are the logical outcomes of
this process. While most people seem to agree what globalization is in general,
there are no precise or optimal measures of globalization. Given the inherent
fuzziness of the concept, moreover, it is unlikely that a perfect measure will
emerge. This makes it very difficult to measure the impact of globalization on
anything. However, this does not make the analysis redundant. Where measures
are required, it seems best to treat particular (quantifiable) aspects separately,
acknowledging that this does not amount to a complete analysis of globalization.
Globalization is different from internationalization, a term that carries a specific
emphasis on the dismantling of national barriers to the flows of information,
goods, services, capital, technology, values and culture.

Patterns of Integration into the global economy:

the term globalization refers to the integration of economies of the world through
uninhibited trade and financial flows, also as through mutual exchange of
technology and knowledge. It also contains free inter country movement of labor.

understanding the pattern of integration is to compare trade and GDP ratios. If we

look at just the post-war period, however, and define trade openness slightly
differently than so far, then a steady increase in openness across most of the
developed and the developing worlds becomes apparent, as shown in Table – 1:
Countries 1960-69 1970-79 1980-89 1990-99 2000-09
Africa 48.2 55.1 54.4 67.87 64.97
East 47.0 69.5 87.2 128.20 148.30
Middle East 41.5 60.4 46.9 57.70 64.40
Other 17.2 19.6 24.0 30.47 33.87
Table – 1: Trade openness

Openness defined as nominal merchandise exports plus import as a percentage of

nominal output. Excluding China. Aggregates are calculated on the basis of
purchasing power parity (PPP) weights Impact of globalization on the growth of
economies in the developing world

Globalization is multidimensional, affecting all aspects of life—economic, cultural,

environmental, and social—as well as relations between governments and nations.
The term, which is used to describe the shape of the world economy today, has
become fashionable but its meaning and implications, particularly for developing
countries, are far from clear. However, globalization has had the strongest impact
on the behavior and performance of developing countries. Therefore, concentration
will be given at the impact of globalization, particularly on economic growth, in
the developing countries, that have come about in the post Second World War
period. The analysis focuses on five major regions in the developing world – East
and South-East Asia, South Asia, Latin America and Africa.

East and South-East Asia:

In recent decades the East and South-East Asia (ESEA)5 has been the most
dynamic region of the world economy (Khan, 1998). The seven ESEA countries
that 5 Here defined as Indonesia, Korea, Malaysia, Taiwan, Thailand, China and
Philippines. The Chittagong University Journal of Business Administration, Vol.
23, 2008, pp. 313-330 10 successfully integrated into the global economy attained
high growth in GDP during the period of economic globalization (see table-3).
Only the exception the Philippines, which failed to take advantage of the increased
globalization, stagnated during the 1980s and its performance only began to
improve in 1994. Further, with the exception of China and Taiwan, all the
countries were hit by severe external imbalances around the beginning of the
1980s. This often meant a short period of reduced growth, but apart from the
Philippines they all succeeded in achieving a high average annual growth rate in
the subsequent decade and a half (Khan, 1998).

Countries 1990-94 1995 2005 2010 2015

Korea 6.6 9.0 4.0 6.2 2.7
Taiwan 6.5 5.9 4.1 10.3 4.1
Indonesia 7.6 8.1 5.6 6.1 5.2
Malaysia 8.4 9.6 5.3 7.2 4.7
Thailand 8.2 8.6 4.5 7.8 4.7
China 12.9 10.2 9.9 10.4 9.5
Table – 3: GDP growth rates for East and South-East Asian countries (per cent per
year)

Korea succeeded in achieving the fastest growth of per capita income in Asia and
the world over the past half century. From 1970-80 it grew at 10.1 percent a year,
and from 1980-90, it slightly declined at 9.4 percent. South-Asia Most of the South
Asian countries achieved higher growth during the 1980s and the later than during
the 1970s (see table – 4). However, several of them failed to maintain this higher
growth in the early 1990s. The GDP per head of Bangladesh grew at 2.3 percent a
year between 1975 and 2001, generating a 60 per cent rise in real income per head
over more than a quarter of a century. Between 1990 and 2001, GDP per head
grew considerably faster, at 3.1 per cent a year, as the economy opened. In
Bangladesh, the economy was optimistic, as GDP expanded by 5.4 percent in
2005, helped by steady expansion in industry and services (ADB, 2005). In 2010,
GDP was 6.1 percent, shows economic growth increases steadily. In Pakistan, the
economic growth rate fell to 4.9 per cent per year between 1970 and 1977.
Between 1977 and 1988, the growth rate accelerated to 6.7 per cent per year. From
1988, after the restoration of democracy and the acceleration of reforms aimed at
greater integration into the world economy, the rate of growth fell below 5 per cent
per year, on average (Rahman, 2005). Consequently, GDP expanded by 8.4% in
2005, its highest rate in 3 decades and the third consecutive year of strong growth
(ADB, 2005). However, the GDP fell down below 5 percent, indicates that
political turmoil has a greater impact on the economy.

1970-80 1980-90 1990-94 1995 2005 2010

Banglades 2.4* 4.3 4.2 4.4 5.4 6.1
h
India 3.4 5.8 3.8 6.2 8.5 8.8
Nepal 2.0 4.6 4.9 5.8 2.3 4.6
Pakistan 4.9 6.3 4.6 5.3 7.8 4.1
Sri Lanka 4.1 4.2 5.4 5.5 5.3 8.0
Table – 4: GDP growth rates for South Asian countries (per cent per year)

India achieved a remarkable acceleration in economic growth after liberalization.

India’s rate of growth from 1975 to 2007 has been over 5.5 percent, compared to
the The Chittagong University Journal of Business Administration, Vol. 23, 2008,
pp. 313-330 12 derisively termed “Hindu” rate of growth of 3.4 percent over the
period 1956 to 1975, and especially to the pathetic 2.6 percent over the decade
prior to the nascent liberalization in 1975. In the dozen years from 1995 to 2007,
the growth rate has been over 6.5 percent; during the last four years, India has
sustained an unprecedented average growth rate of nearly 9 percent. In Nepal, the
higher growth rate in the 1980s predated the beginning of reforms by at least half a
decade. However, Nepal’s economy has fared less well amid political instability
and conflict. Consequently, growth slowed to 2.3% in FY 2005, compared with
3.5% in FY 2004, affected also by lower agricultural production due to poor
weather and by weaker industry and services sectors (ADB, 2005). However,
Nepal has achieved a higher growth of 4.6 percent in 2010 as they are trying to be
integrated with the world economy. Sri Lanka’s reform began in the late 1970s,
which was about the same in the 1980s as in the 1970s. Growth accelerated in the
early 1990s and credit for this has been attributed to the country’s increased
commitment to reforms since 1989 (Khan, 1998). Talks between the Government
and the Liberation Tigers of Tamil Eelam in February 2006 have improved the
overall climate on the status of the ceasefire. Accordingly, GDP growth is forecast
at 5.3 percent in 2006 and 5.2 percent in 2007 (ADB, 2007). Sri Lanka has
achieved an unprecedented average growth rate at approximately 8 percent in
2010.
CONCLUSION:
Globalization has opened new opportunities, through increased trade
liberalization and advancement in technology, for the growth of the world
economy and development. According to the World Bank study (2010), 24
developing countries that increased their integration into the world economy over
two decades ending in the late The Chittagong University Journal of Business
Administration, Achieved higher growth in incomes, longer life expectancy and
better schooling. These countries, home to some 3 billion people, enjoyed an
average 5 percent growth rate in income per capita in the 1990s compared to 2
percent in rich countries. This was a rosy view of globalization that was advanced
in the early to mid-1990s. Nevertheless, the record has been mixed yet. Some
countries have successfully adapted to the changes and benefited from
globalization. On the other hand, many developing countries, especially the LDCs,
have not achieved significant or continuous increase in their GDP per capita over
the last three decades. While domestic factors have played a role, it seems clear
that the international environment has not always been conducive to their
development efforts. The income gap is wide between the developed and the
developing countries and often within countries.. Although globalization raises
serious problems, with a risk of instability and marginalization, experience so far
has shown that it offers new perspectives for integrating developing countries in
the world economy. Hence, globalization can contribute to sustained economic
growth and sustainable development, intensified international cooperation as well
as countries' own national and regional efforts will be essential to address the
domestic and external factors of underdevelopment effectively. Taking account of
their specific circumstances, liberalization can improve the international
competitiveness of developing countries and promote growth.