top-rated free essay

Impact of Globalization on the Financial Market of Developed and Developing Nations

By Ekaranashi Aug 31, 2013 914 Words
Eshita Karan
Bsc Economics TY

Subject: Geopolitics
Impact of Globalization on the financial market of developed and developing nations


Globalization is a result of human innovation and technological process. It refers to the increasing integration of economies around the world, particularly through the movement of goods, services, and capital across borders. The movement can also be in terms of the movement of people (labour) and knowledge (technology) across international boundaries. Various other broad dimensions of globalization includes political, environmental and cultural. In 1980s the term “globalization” became famous reflecting the technological advancements that made the international transactions of both trade and financial flows easier, quicker and feasible for all.

A perpetual challenge faced by all the economies of the world, regardless of their level of economic development, is achieving economic growth, higher living standards and financial stability. The paths taken for achieving these objectives for every country will be different depending upon the political systems and the nature of the economies. The ingredients contributing to China's high growth rate over the past two decades have, for example, been very different from those that have contributed to high growth in countries as varied as Malaysia and Malta.

Developed and developing economies

Economic theory suggests that globalization has positively impacted the financial market of most of the nations. International asset trade plays a very prominent role in fostering the economic growth and economic efficiency especially when the assets are used to finance valuable projects or when the technology transfer takes place (example-FDI). Also, it has made the flow of funds easier.

In addition, such trade may lead to enhanced international risk sharing—indeed, the sizable gross external stock positions of advanced countries seem indicative of large potential risk-sharing gains, while an enhanced ability of emerging market and developing countries to borrow abroad in cases of natural disaster or temporary recessions would seem likely to contribute to greater consumption-smoothing. Looking ahead, large potential risk-sharing gains are apparent for emerging market and developing countries in light of their relatively large economic fluctuations while, from the standpoint of advanced-country residents, the ability to invest in emerging market and developing countries would be especially welcome, given the low correlation of these countries’ economic fluctuations with the global economic cycle.

How globalization positively impact the financial market of a developed nation

1. Higher returns from investing in developing nations: INVESTMENTS can be popular or cheap, but rarely both. Developing economies today are one of the exceptions, in the view of many portfolio managers. The relatively large sums flowing into developing markets have helped them produce better returns than in larger ones. (Investing; In Developing Countries, Prices May Be Right By CONRAD DE AENLLE Published: July 13, 2003) 2. Dependency on developing nations: Even the developed nations are dependent on the developing nations for various aspects of the economy. For example, Indian-owned firms in U.S. are increasing rapidly hence contributing to U.S. jobs, exports and growth. India imports 4.9% (2012) of the total imports from the U.S. and exports 12.7% (2012) of the total exports from the U.S. Indian companies have aided the turnaround of struggling U.S. firms, saving jobs and improving company performance. They have also made important new investments, stimulating innovation and production in the American economy. (U.S.-India Economic and Trade Relationship: Indian Investment in the U.S.) 3. Diversification of risks: By investing in developing countries, the developed economies can diversify their risks and funds. 4. Safer avenues for investment: It is better for the developed economies to invest in the developing economies as they are safer avenues for investment.

How globalization positively impact the financial market of a developing nation 1. Fuels growth: When a developed country invests in a developing country then it is wrong to think that it is only the developed country which benefits. On the contrary, both the nations benefits.

In the mid 2000s, Kawasaki, Siemens and other European and Japanese companies invested in China and started producing high-speed trains. But the domestic companies adopted the technology & techniques of their foreign counterparts and now they (such as China South Locomotive & Rolling Stock Corp) are giving competition to the foreign companies by manufacturing trains with speeds of up to 236 miles per hour.

2. To maintain smooth functioning: For smooth functioning and harmony of the global economy it is important that all the countries cooperate and maintain good relations even if the returns are less. A developing nation needs to invest in a developed nation even if they are not willing to or not getting higher returns as spoiling their relations could harm them in future

3. Factor productivity and income growth: Most empirical studies conclude that FDI contributes to both factor productivity and income growth in host countries, beyond what domestic investment normally would trigger.

4. Human capital enhancement: The major impact of FDI on human capital in developing countries appears to be indirect, occurring not principally through the efforts of MNEs, but rather from government policies seeking to attract FDI via enhanced human capital. Once individuals are employed by MNE subsidiaries, their human capital may be enhanced further through training and on-the-job learning.

[ 1 ]. (08/02 - May 2008 Globalization: A Brief Overview By IMF Staff) [ 2 ]. (INTERNATIONAL MONETARY FUND, Reaping the Benefits of Financial Globalization, Prepared by the Research Department* Approved by Simon Johnson , June 2007) [ 3 ]. Central Intelligence Agency

Cite This Document

Related Documents

  • Is financial globalization good for developing nations?

    ... GLOBALIZATION, GOVERNANCE AND THE STATE ESSAY Topic: Is financial globalization good for developing nations? Submitted to: Dr. Ian Kirkwood Essay: The financial globalization is a complex topic to elaborate. Here, I have made an attempt to discuss the topic ’Is financial globalization good for developing nations...

    Read More
  • Impact of Globalization on Developing Countries

    ...INTRODUCTION * Globalization describes the process by which regional economies, societies and cultures have become integrated through a global network of ideas. * This integration has been fueled by technological advances in communication, transportation and trade that break down national divisions and barriers. * Globalization is re...

    Read More
  • The Impact of Free Trade on Developing Nations

    ...important for countries for hundreds of years as it opens up billions of dollars for nations, as well as new resources and technology. (Economy Watch 2010, P.1) Countries trade when on their own; they do not have the resources or ability to satisfy their wants and needs. They produce a surplus of a certain resource and trade it for something th...

    Read More
  • globalization

    ...economic policies. Marxism conceived of globalization to a great extent as simply the worldwide expansion of the capitalist mode of production (Amin and Luckin 1996:225). The global expansion of production methods and networks has resulted in a proverbial shrinking of the globe, leading analysts to argue that globalisation is constricti...

    Read More
  • Assess the Impact of Globalisation on a Developed Economy and a Developing Economy.

    ...Assess the impact of globalisation on a developed economy and a developing economy. Word count: 2064 words Introduction During the past 20 years, the world economy has become increasingly connected and integrated, We could find that our times has already entered globalisation era, as the degree of the globalisation is strengthened, th...

    Read More
  • Globalization in Developing Countries

    ... North America, The Caribbean, Sub-Saharan Africa and Latin America There are few regions in the world, if any, that have not been profoundly affected by globalization. Globalization has changed the landscape of human activity and life, in ways that have been both beneficial and devastating. The regions covered in this module, Nort...

    Read More
  • Impact of Ongoing Financial Crisis on UK

    ...Impact of Ongoing Financial Crisis on UK Introduction: The ongoing global financial crisis that have shaken the economic conditions of various countries made its own way to affect the economies from middle of 2007 and has been carried on into the year 2008. In these days the world has witness the fall of many stock markets and the collapse...

    Read More

    ... EFFECTS OF GLOBALIZATION December 2, 2013 Globalization and modernization play a major role in a nation’s development. Nations such as China and Vietnam have ventured into the global economic stage in order to preserve their future . Their government’s reform laws on global manufacturing and exporting has improved their ...

    Read More

Discover the Best Free Essays on StudyMode

Conquer writer's block once and for all.

High Quality Essays

Our library contains thousands of carefully selected free research papers and essays.

Popular Topics

No matter the topic you're researching, chances are we have it covered.