The American University of Phnom Penh

Research Paper

“Economic-Globalization impacts developing countries”

Thavann THAI

(Fall, 2020)
Abstract

Basically, this paper is to illustrate the impact of economic globalization in developing

countries. We will elaborate more on the fact that the independent variable really impacts the

dependent variable. Many studies and some arguments from different authors show various types

of evidence that economic globalization does impact developing nations, whereas this paper also

works and depicts how it impacts developing nations as well. To be honest, it is really important

to discover the answer to this research question by which economies' globalization causes

increasing inequality and keeps the poverty rate rising in developing countries.

Introduction

For many decades now, globalization has been a historical phenomenon, generating

benefits and improving growth throughout the entire world. Well, economic globalization is one

of three dimensions of globalization (Political globalization, Social globalization, and Economic

globalization) as it refers to the widespread international movement of goods, technologies,

services, information, and capital (Shangquan, 2000, p.1). Economic globalization aims to make

the market efficient, convenient, and more reliable; to increase competition of products with

foreign countries; and to spread wealth more equally, as its purpose is to improve the world

economy’s growth. (Keupper, 2020).

As previously stated, globalization has played an important role in the growth of the

global economy, but it has a tendency to provide unequal benefits to both classes of nations

(developed and developing). Most relevant core countries or developed nations, such as Western
countries (America, and some European countries), are taking full advantage of globalization,

whereas other developing countries or less developed nations are facing risks or receiving the

least benefits from globalization, which may even exacerbate inequalities in their societies

(Kacowicz, 2007). Therefore, it seems like economic globalization causes major problems for

developing nations, which will be harmful to their population, increasing the poverty rate in the

countries and widening the gaps between people, especially through increasing inequality

(Williamson, 1997). For this reason, I believe that it is really important to discover or explore

this research question as it will be covered on what economic globalization is doing to

developing countries and how it affects their people. The primary goal of this paper is to

demonstrate how economic globalization causes problems for developing countries rather than

increasing their economic growth.

First, let us define the main variables of this paper. As the independent variable is

economic globalization and the dependent variable is the developing countries, It seems like both

variables are connected because it shows how economic globalization will impact the economic

growth in developing countries by giving a lack of benefit to them.

At the same time, there are some keywords that we need to define in the paper, such as

economic globalization, developing countries, poverty, and inequality. Again, economic

globalization refers to the increasing interdependence of world economies as its goal is to ensure

the improvement of the economic system. Developing countries refer to those countries that have

low or middle income, are less economically developed countries (LEDC), have a low human

development index (HDI), a low GDP per capita, and for the most part, depend on agriculture as

their main industry. According to un.org, Asia is known as a continent that has the most

developing countries. whereas poverty refers to absolute levels of living, where people are
unable to meet certain daily consumption needs because their income is less than $1 or $2 per

day. Last but not least, inequality is about the disparity in levels of living, which means it widens

the gap between people by class (rich and poor) (Ravallion, M.2003, p.741). Not to mention, the

hypothesis does support the research question that poverty would not be reduced if economic

globalization keeps raising inequality in developing countries.

A Literature Review

In developing countries, mainly in Asia, economic globalization has been associated with

rising inequality as well as poverty, which has several implications, and that is why this issue

seems to be a controversial statement for researchers and critics to argue about. We will focus on

the majority of the impact of economic globalization throughout these works, and we will

discuss some of the arguments that scholars and critics convey about globalization because it

deepens the developing countries. It seems to me that many different ideas and perceptions came

up in each of their arguments, and what I found interesting is how they illustrate the main causes

of effects such as liberalized trade policies and inequality, which heavily impact those

developing countries.

The first argument is that many critics point out liberalized trade policies that impact

developing nations, although some research findings outline that liberalized trade policies give

benefits. The research found out that the effects of trade liberalization make the share of income

unbalanced because it means that the poorer countries seem to gain less while the rich countries,

which it refers to, as developed countries, gain more benefits (Ravillion, M. 2003). For instance,

globalization widens and deepens trade and capital flows. With liberalized trade policies,

developed countries achieve benefits like the growth of economies and great technologies, which
improve social and labor conditions, whereas developing countries are not getting any of those

granted. However, the researcher also argues that FDI (foreign direct investment) tends to

increase inequality. With the demand for skilled workers from both countries (advanced and

developing countries), FDI tends to take place in higher-skilled workers and higher-technology

sectors. As a result, it favors those who have higher skills and education by reducing

employment chances in relatively lower-skilled sectors (Florence Jaumotte, 2008). Not to

mention inequality keeps rising due to an increasing disparity in wages paid to workers with

different skills (skilled workers and unskilled workers). It means that those workers who get paid

higher wages tend to have aged-related skills and also advance their schooling because the

demands of skilled workers are higher than unskilled ones.

Meanwhile, in the late nineteenth century, they claimed that poor countries should export

labor-intensive products as rich countries should import labor-intensive products. These show

how economic globalization increases the gap between the rich and the poor (Williamson, J.

1997). Furthermore, dependency theorists also argue that globalization causes poverty because of

the affluence and exploitation of rich countries. These reasons show that economic globalization

leaves the poor behind, which leads the poor to get poorer. Many critics have admitted that

without capital, the poor cannot benefit from economics (Kacowicz, A. 2007). It appears that

free trade restrictions are the main issue in this argument, as having no capital means a lack of

machinery or technology to evolve in their production or manufacturing, which leads to an

increase in import of production (developing countries try to import more than export).

Overall, the current literature review demonstrates the majority of issues or themes such

as liberalized markets and inequalities that affect developing nations; therefore, it leads to

poverty. The approach of my research will differ from the current literature because in my
research there are plenty of pieces of problem information added from different sources. With

this information, we can be sure that this is the strong evidence that we need to support that

economic globalization impacts developing countries. Inequality is still the main reason for this

impact, as like my hypothesis, it is claimed that if inequality keeps rising, there is no way

poverty will be reduced. For some reason, not just in developing countries like the United States,

which also faced this problem during the 1980s, the United States seems to have fallen as a result

of declining productivity growth and an increasing disparity in wages paid to different levels of

workers.

Methods

As I mentioned earlier, this paper indicated the majority of impacts on developing

countries. This paper outlines the variables, theories, and methods used in this paper. Since our

independent variable is globalization, which plays a role as the impact, while the dependent

variable shows the outcome and effectiveness, on developing countries. Those variables were

chosen based on the information that we have received from the research. They also helped fully

understand the ideas and perceptions of economic globalization that do impact developing

countries rather than increase wealth.

By the way, the theory that will fit with this research is the middle-income trap. In

general, the term "middle-income trap" is to describe the phenomenon when an economy reaches

middle-income levels per capita, and the interesting thing is that it will be unable to transition to

high-income (Egawa, 2013, p.2). It seems like when countries reach the middle-income level of

the economy, they will face high-income inequality and fast aging, which is harmful to growth.
That is why most middle-income countries tend to be stagnant after reaching this income level.

(P. J. Bihong Huang, 2018). For instance, growing inequality increases redistributive tax

pressures, deterring investment incentives; and also, a large income disparity means weaker

domestic demand, as the poor have a much higher marginal propensity to consume. In short, it

traps poor people and prevents them from rising out of poverty (P. J. Bihong Huang, 2018).By

that, it means once countries are stuck in the income trap, they tend to have slow development.

Through this, it is possible to cause poverty like Cambodia does.

For the research question, there is lots of relevant information from the research either

from the author’s argument or the evidence to answer it. Following this, we will be using content

analysis in this paper to get some related data and information to claim that economic

globalization impacts developing countries by working on the argument raised by many critics

around the world and picking up the trusted information to support my paper. In this paper, I also

conduct my research by surveying different people in public about globalization and how

globalization works in developing nations to extend knowledge and get more information. I hope

that the survey’s data will be evidence that is strong enough for me to support my variables.

Result

In this section, we will be focusing on the results from both content analysis and the data

collection from the survey that we conducted. It is surely that economic globalization brings

down developing countries via economic problems and other major problems, as mentioned

above in the literature section, and we will elaborate more on the fact that the independent

variable impacts the dependent variable.

 As shown below, besides scholarly arguments that supported the research question, we

can see how the graph illustrates their data. In the first graph, what we are doing in this survey is

to know how many people are involved in this process, and it also shows what their gender is.

There are 13 respondents, who are more female (61.5%) than male (38.5%). The second figure is

really interesting because most people that did the survey are likely under the age of 20, as it

shows that 46.2% were under the age of 20, followed by 23.1% were 18 and 19 years old,

whereas only 1 person is 21 years old. This third figure illustrates much information based on

how the surveyor thinks that globalization impacts developing countries or not. The data shows

that almost all of them think that globalization heavily impacts developing countries, and the

data shows that almost all of them (84.6%) chose and agreed that globalization damages

developing countries, and the rest (15.4%) chose (maybe), which means that they are still

thinking about how globalization is impacting developing nations.

Whereas the fourth figure demonstrates the data from surveyors that they chose, I was

thinking about the problem that came up with the impact of globalization on developing

countries. As the graph gives out the respondents from each of the surveyors, most of them

(69.2%) chose job outsourcing for unskilled workers as the main problem, followed by both

inequalities in society (53.8%) and immigration (53.8%). This survey also included some

questions to discuss globalization as well. The questions we ask are, "How much do you know

about globalization?" and " Can you talk a little bit about how globalization impacts

Cambodia?". Overall, this result section shows a connection between the two variables, which is

going to demonstrate the causal relationship that we are going to discuss in the discussion

section.
Figure 1.

Figure 2.

Figure

Figure 2.
Figure 3.

Figure 4.
Discussion

There are several discussion points in this paper about the extension problems that economic

globalization poses to developing countries. While this section, the IV, which is economic

globalization, is going to illustrate how it negatively affects developing countries, which is the

DV of the research question.

To some extent, economic globalization keeps creating problems for those developing

nations. With the effects of trade liberalization making the share of income unbalanced between

countries, we can see that the profit goes to the rich countries while the poor countries tend to

fail or get less benefit in the process. It is also related to free trade restrictions, as developing

countries get less benefit because of the scarcity of resources like capital and entrepreneurs,

which makes it a hard time for them to improve their economy. It seems like they can not

improve because of the need for a resource like capital, so they tend to import more than export,

making their domestic market weak. Besides this, inequality seems to be a major problem that

causes society in developing countries to slow down. According to IMF.Org, they stated that FDI

(Foreign Direct Investment) tends to increase inequality. With the demand for skilled workers

from both countries (advanced and developing countries), FDI tends to take place in

higher-skilled workers and higher-technology sectors. At this point, the gap between workers

will be widened, and the number of wages will be paid based on their skills.

Without a doubt, inequality is rising in a way that countries demand only skilled workers

while the rest of the unskilled ones will face job outsourcing, immigrating to developed

countries, and so on. Based on the survey conducted, the included question in the survey, what
we got from them is that most of them know what globalization is and how it works. They can

also give some negative impacts that globalization has on Cambodia, like income inequality, low

wages, import-oriented industries that could not compete with other foreign companies, and the

influx of foreign culture that may harm Khmer culture. There is also too much immigration in

Cambodia, which affects Cambodia's identity. With those respondents from the survey, it seems

to me that it’s slightly the same as those arguments raised by each critic, and it also shows that

the causal relationship between economic globalization and developing countries is being seen

by the evidence from each of the arguments and a piece of evidence from the survey as well.

Conclusion

In conclusion, economic globalization causes major problems for developing nations,

which will be harmful to the countries that will be gaining from the poverty rate in their

countries, widening the gaps between people, especially by increasing inequality in society. With

these following problems, developing countries cannot improve or evolve their economic

development or reduce their poverty rate if economic globalization is still increasing inequality.

What hypothesis supports the research question is that if economic globalization keeps rising

inequality, then there is no way poverty will be reduced.

For further research, we will look into more information related to this controversial topic by

talking more in-depth about each part of it by providing more strong shreds of evidence to

support the research problem. From my point of view, I would like to suggest that both

governments and citizens try to understand more about globalization to raise policies or

awareness to prevent or reduce problems caused by globalization in developing countries.

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