GLOBALIZATION AND DEVELOPING COUNTRIES

Shalu Tomar(50)
Shiwani Sherma(51)
Sonali Kochar(52)
Sunita Yadav(54)
Suphal Hembrom(55)
 What is Globalization?
• Globalization is a process of interaction and
integration among the people, companies, and
governments of different nations, a process
driven by international trade and investment and
aided by information technology.
• This process has effects on the environment, on
culture, on political systems, on economic
development and prosperity, and on human
physical well-being in societies around the world.
 Comparative Advantage
• "A country … enabled to manufacture commodities with much less labour that
her neighbours may, in return for such commodities, import a fraction of the corn
required for its consumption, even if … corn could be grown with much less labour
than in the country from which it was imported."
– David Ricardo
 Output per worker
(Productivity)

Manuf Food
(pieces)

NORTH 10 10
SOUTH 3*2=6 9*2=18

A country has Comparative Advantage in a given good if its relative productivity in

that good is higher than in other goods

Specialization according to Comparative Advantage creates value, by increasing

output.
 The relative price
P=pManuf/pFood

Northern worker Southern worker

North South

Food The Northerners

Food The Southerners
trade among them trade among them
at the price PN = 1 at the price PS= 3

Manuf Manuf

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 In the Long-Run, there is re-
allocation
North South
Each country specializes
PN >10/10 PS < 9/3
completely in, and exports, the
Food good in which it has Food
comparative advantage

Manuf Manuf
There is one world price,
which is between the
initial prices
10/10 < PW <9/3

3 . Factors (workers) respond to new prices and profitability -- specialization

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 Drivers of Modern Globalization
• Lower transport and communication costs
• Development of international institutions
– The WTO
– Regional Trade Agreements

• Political decisions toward de-regulation and liberalization of trade and FDI

regulations
 World Trade Organization
• The World Trade Organization (WTO) is among the most powerful, and
one of the most secretive international bodies on earth. It is rapidly
assuming the role of global government, as 134 nation-states, including
the U.S., have ceded to its vast authority and powers. The WTO
represents the rules-based regime of the policy of economic globalization.

• The central operating principal of the WTO is that commercial interests

should supersede all others. Any obstacles in the path of operations and
expansion of global business enterprise must be subordinated. In practice
these "obstacles" are usually policies or democratic processes that act on
behalf of working people, labor rights, environmental protection, human
rights, consumer rights, social justice, local culture, and national
sovereignty.
• Raise awareness (gov., private sector)
 Dissemination of standard-related information, early
warning system
 Strengthen national and regional institutions to
conduct risk analysis and testing; monitor
enforcement of standards and carry out
certification.
 R&D, innovation and enterprise development
 Promote business partnerships
 SMEs
Bilateral cooperation
Participation and adequate time to adjust
Information dissemination
Promoting harmonization and mutual
recognition of product standards and
regulations based on equivalence in the WTO
Standards developed without involvement of
producing and consuming countries should
have a default assumption of being
discriminatory to trade.
• Research on new trends in environmental
requirements and likely implications for products
of export interest to developing countries
• Information management and dissemination
• Pro-active adjustment strategies in exporting
developing countries
• Strategies for SMEs
• Reliable statistical information to facilitate support
policy-oriented research
 FDI
• Foreign direct investment (FDI)or foreign investment refers to long term
participation by country A into country B.
• It usually involves participation in management, join-venture, transfer of
technology and expertise .
• There are two types of FDI: inward foreign direct investment and outward
foreign direct investment, resulting in a net FDI inflow (positive or
negative).

Methods
• The foreign direct investor may acquire voting power of an enterprise in
an economy through any of the following methods:
• by incorporating a wholly owned subsidiary or company
• by acquiring shares in an associated enterprise
• through a merger or an acquisition of an unrelated enterprise
• participating in an equity joint venture with another investor or
enterprise
 Benefits for host countries
• Capital
• Technology
• Increase in domestic investment
• Generating employment
• Export promotion
• Social effects

• Cost for host country

1.There is an import of substantial inputs from the
investor’s country.
2.The investing country has controlling technologies, for
which it charges a huge technology fee.
 Benefits for home country
1.Inward flow of earnings on a long term basis.
2.Higher salaries for employees
3.Exposure to foreign market

Cost for home country

1.Profits are repatriated abroad. They may not stay in
the country for reinvestment.
2.Imports may increase if FDI is intended to serve the
home country.
What can be done to increase Globalization
• Economy
Genetically-modified strains
Use of fertilzers
Catching up with the industrialized world 
• Population
Decrease population
• Political organization
Global coordination and governance structures
• Conflict, peace and security
Resource productivity collapses in war
National security is dependent on environmental security. 
US$740 000 million –world wide military expenditure
• Regionalization
Reduce global inequalities 
Thank you!