To What Extent Does Globalisation Economically Benefit Developing Countries

Topics: Economics, Economic inequality, Gini coefficient Pages: 6 (1577 words) Published: December 2, 2012
Module Code: PM504 2T (SS1)
Class/Group: Group A, Class F
Module Title: Skills for Study 1
Assessment: Essay
Assignment Title: To what extent does globalisation economically benefit developing countries? Tutor Name: Graham Henderson 
Student ID Number: 2059661
Date of Submission: October 25, 2012

Globalization is a source of both hope and apprehension, especially for developing countries. During the past several decades the greater accesses to developing country markets have improved the productivity and living standard and brought significant benefits to economic growth of the world. On the other hand, these positive influences coincide with shaper polarization, heighted the level of inequality within developed and developing countries (Stallings, 2007). Therefore, this essay will contend that the growth provided by globalization in developing countries is short-term; in the long-term, the huge capital flows, the exploitation of labor and the depletion of resources will create an imbalance in global order which will benefit neither developing, nor developed countries. Therefore, the aspects of foreign investment liberalization will be introduced firstly, and then will be international division of labor and management of natural resources will be analyzed thirdly. At last, the conclusion of this essay will be drawn.

Recently, the majority of developing countries trend to rely on private capital as a source of funding. Since the early 1990s, the external capital flows have made a great contribution to the funding that has made up over 75% (Tanzi, 2004:532). The major reason to this capital flow, from less than 30% in the early 1990s to nearly 70% in total by 1998 of sharing on funding, is foreign direct investment (FDI) consistently (UNCTAD, 2003). Since the late of 20th century, due to the great benefits from foreign investment, many countries, developing countries in particular, have changed or created the policies and environment to be more amenable to FDI (Abeles, 2001:12).

FDI is an essential element to the economic growth of developing countries, according to a neo-classical economic perspective (Craves, 1996). It means that developing countries obtain the benefits directly from FDI through an inflow of capital, tax revenues, and employment, and indirectly through the technology and knowledge from the foreign investor’s to local enterprises and workers (Svenssion, 2002:576). In addition, the structure of the industry is running to a new level though the entry of competitive foreign enterprises. As a result, to survive in this increasingly competitive environment, local firms are becoming more efficient to raise the productivity to be more competitive; hence, the economic growth rate of developing countries is improved directly. In contrast, FDI may be detrimental to economic development of developing countries since large amount of foreign investment is negative for local enterprises in long-term. Domestic enterprises are crowded by foreign companies such as some leading multinational corporation (e.g. Apple, Mobil, etc) from developed countries, since they are often significantly superior to local firms. This effect reduces the competition in market and then the industry is dominated by foreign entities. The panel study of Agosin and Mayer (2000:150) found that the effect of FDI in Asia, Latin America and Africa, the domestic investment is crowded out.  Thus, Agosin and Mayer (2000:164) conclude that the effects of FDI are not always positive and that FDI policy plays a role in determining the outcome.

With the process of globalization, production becomes more globalized, labor market comes to play a greater role in determining the efficiency and productivity of industry. Theoretically, to achieve optimal flexibility of labour market, international division of labour becomes more and more significant (Benner, 2009:69). It is the spatial division of labour which occurs when the process...
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