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Institute Of Management

Project Report

Submitted by

Subrat Nanda


On the successful completion of the report on Globalisation and Developing

Economies, we would like to express our sincere thanks to Prof. S.P Das for
providing valuable insights throughout the trimester which helped us in
successfully completing our report.

Place: XIMB, Bhubaneswar

Date: 30


March ,2015




In 1960s the Canadian writer Marshall McLuhan called the "global society"
as the "global village". He found that people living in different parts of the

world were beginning to share certain values, ideas and beliefs. Some
argue that the global village can more accurately be described as "global
pillage". Globalization is seen more as colonization than liberating force.
At the same time, there are signs of solidarity across societies in support
of progressive ideals such as social justice, environmental sustainability
and health as basic human right.
Globalisation is the new buzzword that has come to dominate the world
since the nineties of the last century with the end of the cold war and the
break-up of the former Soviet Union and the global trend towards the
rolling ball. The frontiers of the state with increased reliance on the
market economy and renewed faith in the private capital and resources, a
process of structural adjustment spurred by the studies and influences of
the World Bank and other International organisations have started in
many of the developing countries.
Since the 80s, the world economy has become increasingly connected
integrated; on the one hand the decreasing transportation costs and the
diffusion of
Information and Communication Technologies have implied a fast
downgrading of the
concept of distance, while on the other hand gross trade, Foreign
Investment (FDI), capital flows and technology transfers have risen
significantly. In
most countries, the current wave of globalization has been accompanied
by increasing
concern about its impact in terms of employment and income distribution.
the current debate is characterized by an acrimonious dispute between
advocates and critics of globalization. While this is true even as regards
the employment and income distribution effects within the developed

world, positions diverge even more sharply over the impact on Developing
Countries (DCs).

Supporters of economic globalization say, that anyone who cares about

the poor should favour the economic globalization. They would argue that:

liberalization increases flows of trade and finance;

trade increases growth, especially in poorer countries;

growth increases incomes, especially for the poor, so eventually

there is a convergence of wealth;

Higher incomes for the poor means better living conditions.

The opponents of economic globalization argue that contemporary

globalization is:

increasing poverty;

widening socio-economic inequalities within and between countries;

creating greater job insecurity;

weakening workers` rights;

undermining social welfare and environmental protection;

weakening democracy by enabling a global ruling class to act

without sufficient transparency and accountability.

Key Policy Dimensions

Globalization impinges on development from several directions. Of
greatest significance for national policy are:

Growth of trade
Capital Flows and Financial Capability
IT and the Web
diffusion of technology

All parts of the world are affected by globalization through these channels,
but it is important to remember that the full force of change is felt by a
relatively small number of
upper and middle income countries. Most economies are only partially
integrated into
the global system. While this insulates them to a degree from the risk of
associated with volatile short term capital flows it also prevents these
countries from
tapping the resources, energy and ideas inherent in globalization. Not
surprisingly the
high income members of the OECD are the most closely interlinked
through trade,
capital movement and the communications network. Close behind are a
group of East
European and East Asian, middle income economies which are steadily
towards the per capita income levels of the industrialized nations. The
remaining middle income and developing countries lag far behind and the
income gap between these and the richest nations has continued
widening. Forty years ago the per capita incomes of the twenty richest
countries were fifteen times the level of the twenty poorest countries. This
ratio has now doubled to thirty.
Many reasons have been put forward to explain the convergence of a few

and the widening income disparity between the high income nations and
the majority of
the developing ones. Among them, the cluster of factors grouped under
the rubric of
globalization arguably rank uppermost. Furthermore, I will argue that
greater integration
with the world economy conducted simultaneously through the several
channels noted
above, when combined with policy measures and institutional change, is
likely to be the most effective means of augmenting key factor inputs and
total factor
productivity (TFP) that are responsible for income growth.

Using Trade to Promote Development

Trade is central to globalization and the starting point of a discussion on
for developing countries and on policies, but it is only one aspect of
openness and must
be complemented by others in order to yield its full effects. The principal
impulse in total factor productivity and growth is attributed to rise in
exports. Trade enlarged the markets for domestic producers, allowed them
to reap scale economies, forced them to be competitive and offered
incentives and opportunities to assimilate as well as develop new
technologies. Export earnings also loosened foreign exchange constraints
on the economy thereby facilitating the expansion of other sectors. This
neomercantilist approach leaned towards the grooming of selected
industries with export potential and favoured the protection of import
competing industries. It is responsible for the continuing popularity of
exported growth, the emphasis on manufacturing activities, and the

prevalence of high trade barriers in many developing countries. So,

Greater openness will also help firms in developing countries to become a
part of the international production networks and supply chains that are
the main conduits of trade.

Varieties of Capital Flows and their Effects

Another major facet of globalization is the vast increase in capital flows
and their
diverse composition. As with trade, the bulk of FDI, portfolio flows and
short term
capital circulates within the OECD and a handful of the emerging
economies in East Asia
and Latin America. These flows have become a major source of
investment, a conduit
for technology transfer and a spur to financial deepening. The jury is still
out on whether greater openness to financial flows can be a source of
instability and on the effects of capital controls on term structure of
inflows, but research is clarifying the implications of financial globalization
and showing, for example, how FDI is induced by a trade orientation and
itself promotes trade.First FDI, whether in manufacturing, services, or
resource extraction, generally produces positive outcomes for the country
even when spill overs are modest through competition and linkage effects.
On balance, it generates more productive and better paid employment
and is environmentally friendlier then similar investment by indigenous
producers (World Bank 1999). Second, FDI can augment the stock of skills,
raise the level of technology, improve access to international markets and
integrate countries into international production networks which are
increasingly the locus of trade flows. Third, the salience of capital
movements and their current fairly narrow ambit has drawn attention to
the role of financial development. Openness can stimulate financial

deepening, the creation and strengthening of institutions and the building

of a viable regulatory infrastructure. But it is also the case, that countries
which have made a strong start in building institutions and a regulatory
framework are more likely to attract capital and minimize volatility.

Economic and Trade Processes Field

Globalization helps developing countries to deal with rest of the world

increase their economic growth, solving the poverty problems in their
country. In the past, developing countries were not able to tap on the
world economy due to trade barriers. They cannot share the same
economic growth that developed countries had.
However, with globalization the World Bank and International
Management encourage developing countries to go through market
reforms and radical changes through large loans. Many developing nations
began to take steps to open their markets by removing tariffs and free up
their economies. The developed countries were able to invest in the
developing nations, creating job opportunities for the poor people. For
example, rapid growth in
India and China has caused world poverty to decrease
( It is clear to see that globalization has made the
relationships between developed countries and developing nations
stronger, it made each country depend on another country. According to
Thirlwall (2003:13) " Developing countries depend on developed countries
for resource flows and technology, but developed countries depend
heavily on developing countries for raw materials, food and oil, and as
markets for industrial goods". One the most important advantages of
globalization are goods and people are transported easier and faster as a
result free trade between countries has increased, and it decreased the
possibility of war between countries. Furthermore, the growth in the
communication between the individuals and companies in the world
helped to raise free trade between countries and this led to growth

economy. However, globalization has many economy and trade

advantages in the developing countries, we must also note the many
disadvantages that globalization has created for the poor countries. One
reason globalization increases the inequality between the rich and poor,
the benefits globalization is not universal; the richer are getting rich and
the poor are becoming poorer. Many developing countries do benefit from
globalization but then again, many of such nations do lag behind." In the
past two decades, China and India have grown faster than the already rich
nations. However, countries like Africa still have the highest poverty rates,
in fact, the rural areas of China which do not tap on global markets also
suffer greatly from such high poverty On the other hand, developed
countries set up their companies and industries to the developing nations
to take advantages of low wages and this causing pollution in countries
with poor regulation of pollution. Furthermore, setting up companies and
factories in the developing nations by developed countries affect badly to
the economy of the developed countries and increase unemployment.
Education and Health Systems

Globalization contributed to develop the health and education systems in

the developing countries. We can clearly see that education has increased
in recent years, because globalization has a catalyst to the jobs that
require higher skills set. This demand allowed people to gain higher
education. Health and education are basic objectives to improve any
nations, and there are strong relationships between economic growth and
health and education systems. Through growth in economic, living
standards and life expectancy for the developing nations certainly get
better. With more fortunes poor nations are able to supply good health
care services and sanitation to their people. In addition, the government
of developing countries can provide more money for health and education
to the poor, which led to decrease the rates of illiteracy. This is seen in
many developing countries whose illiteracy rate fell down recently. It is
truth that, living standards and life expectancy of developing countries

increase through economic gains from globalization. According to the

World Bank (2004) " With globalization, more than 85 percent of the
world's population can expect to live for at least sixty years and this is
actually twice as long as the average life expectancy 100 years ago". In
addition, globalization helped doctors and scientists to contribute to
discover many diseases, which spread by human, animals and birds, and
it helped them to created appropriate medicines to fight these deadly
diseases. For example, HIV/ADIS, swine flu and birds' flu whole world know
about these diseases and they know how to avoid it. By globalization,
there are many international organizations, such as, Non-governmental
Organization (NGO), World Health Organization (WHO) and UNESCO, trying
to eliminate illiteracy and deadly diseases in the world and save the life. In
spite of these positive effects of globalization to the education and health
fields in the developing countries. However, globalization could have
negative impacts also in these fields; globalization facilitates the spread of
new diseases in developing nations by travellers between countries. Due
to increased trade and travel, many diseases like HIV/ADIS, Swine Flu, Bird
Flu and many plant diseases, are facilitated across borders, from
developed nations to the developing ones. This influences badly to the
living standards and life expectancy these countries. According to the
World Bank (2004) "The AIDS crisis has reduced life expectancy in some
parts of Africa to less than 33 years and delay in addressing the problems
caused by economic". Another drawback of globalization is, globalized
competition has forced many minds skilled workers where highly educated
and qualified professionals, such as scientists, doctors, engineers and IT
specialists, migrate to developed countries to benefit from the higher
wages and greater lifestyle prospects for themselves and their children.
This leads to decrease skills labour in the developing countries.

Technology Transfer in a Networked Environment

Technological progress and technology transfer were ongoing long before
globalization became a household word. But the communications

revolution, rising literacy, the accumulation of skills and the growth of

trade has the potential for drawing developing countries more extensively
into the ambit of research in many fields most notably in agriculture which
is crucial for welfare, food security, employment, resource mobilization,
growth and foreign exchange earnings. Technological change has
proceeded slowly in developing countries for a variety of well-rehearsed
reasons. This is a major reason for slow growth and the widening
dispersion in incomes between rich and poor countries. The blame is
placed on the weaknesses of skills, incentives, the educational system,
research facilities, the business culture and traditions influencing the
quest for new knowledge. With the best will in the world, transforming
innovation systems is a slow process. To hasten the process, policy must
provide a much stronger dose of incentives including the pressures
introduced by greater openness. In the agricultural sector there is cause
for optimism. And if agriculture can emerge or a leading sector, then this
would strengthen growth prospects, increase food security and diminish
poverty in some of the worlds least developed countries. The advances in
genetic and transgenic technology has made it possible to engineer crops
to cope with a wide range of environments. Plants are being bred to
achieve better yields and to withstand, water stress, salinity, and high
temperatures and to resist some of the common diseases and pests. For
example Monsanto has been selling bollworm resistant cotton to China
since 1998. Adopting new technologies and pushing outward the
technology frontier requires a capable research and extension
infrastructure and the active involvement of the business sector. Few of
the low income countries have made much headway in utilizing or
extending agricultural technology by creating high quality, competitive
and commercially oriented research entities. However, communications
technology offers a better chance of sharing knowledge, of drawing
researchers in developing countries into the mainstream, providing
incentives for talented individuals to pursue agricultural innovation and
deriving more commercial benefits from innovation. The knowledge gap in
agricultural technology can be closed. Ease of access to the Internet is but

one of the steps and arguably the smallest in moving towards the
technology frontier. Strengthening the scientific culture and
competitiveness of local universities, building biosafety regulatory
capacity and enforcing rules to protect breeders rights are other important

Globalization is not a panacea. It is an approach which can go both ways.
Under some circumstances it can increase the susceptibility of countries
to shocks. It subjects states to disciplines and checks that circumscribe
sovereignty. Although local cultural identities remain robust, certain
tastes, consumption preferences and elements of lifestyle have acquired a
universal currency. But there is little evidence that such homogenizing
tendencies are on the rise given the strong reassertion of local identities
The experience of the preceding century, which is still fresh in our minds,
teaches us that erecting barriers to the flow of goods, factors, information
and ideas, was injurious to welfare and entailed a loss of freedom.
Reversing globalization, even if it could be done, would be an enormous
setback. Slowing international integration, while it might temporarily
protect some groups from competition will often be purchased at high long
term costs for the majority. Frequently the delay in opening the economy
does not lead to reforms which strengthen vulnerable sectors or to the
creation of safety nets to protect low income groups. Generally reforms
are compelled and implemented by having to face a challenge head on.
The above discussion suggests that embracing globalization piecemeal
and keeping in place a plethora of regulations would be highly inefficient.
There is no research which convincingly makes the case either for
delaying openness or for sequencing the various elements of openness. In
fact, there appears to be a good case for embracing all the key elements
of globalization together, while sequencing, where needed, the pace of
integration in areas such as finance and trade.


Globalization and the Challenge for Developing Countries: Shahid Yusuf , World
Bank DECRG ,June 2001

The Impact of Globalization in the Developing Countries :Fairooz

Mustafa Hamdi
Administration Technical Institute, Duhok Polytechnic University, Iraq
Kurdistan Region

Distributional Effects of Globalization in Developing Countries:

Pinelopi Koujianou Goldberg Nina Pavcnik

The Social Impact of Globalization in the Developing Countries: Eddy

Lee ILO, Geneva , Marco Vivarelli ,Catholic University of Piacenza