Is Free Economic Interchange Beneficial? Gm 520

Topics: Developed country, World Bank, Developing country Pages: 7 (2207 words) Published: June 27, 2006
Is Free Economic Interchange Beneficial?

When using the term globalization it is refers to the ongoing global trend toward the freer flow of trade and investment across borders and the resulting integration of the international economy. Because it expands economic freedom and spurs competition, globalization raises the productivity and living standards of people in countries that open themselves to the global marketplace. The term sometimes also refers to the movement of people (labor) and knowledge (technology) across international borders. A broader aspect of the definition includes cultural, political and environmental dimensions of globalization.

We must consider these four aspects of globalization. Trade, the developing of countries as a whole has increased their share of world trade–from 19 percent in 1971 to 29 percent in 1999. For instance, the newly industrialized economies (NIEs) of Asia have done well, while Africa as a whole has fared poorly. The composition of what countries export is also important. The strongest rise by far has been in the export of manufactured goods. The share of primary commodities in world exports—such as food and raw materials—that are often produced by the poorest countries, has declined.

Capital Movements, increased private capital flows to developing countries during much of the 1990s. It also shows that (a) the increase followed a particularly "dry" period in the 1980s; (b) net official flows of "aid" or development assistance have fallen significantly since the early 1980s; and (c) the composition of private flows has changed dramatically. Direct foreign investment has become the most important category. Both portfolio investment and bank credit rose but they have been more volatile, falling sharply in the wake of the financial crises of the late 1990sMovement of people, workers move from one country to another partly to find better employment opportunities. The numbers involved are still quite small, but in the period 1965-90, the proportion of labor forces round the world that was foreign born increased by about one-half. Most migration occurs between developing countries. But the flow of migrants to advanced economies is likely to provide a means through which global wages converge. There is also the potential for skills to be transferred back to the developing countries and for wages in those countries to rise.

Spread of knowledge (and technology); information exchange is an integral, often overlooked, aspect of globalization. For instance, direct foreign investment brings not only an expansion of the physical capital stock, but also technical innovation. More generally, knowledge about production methods, management techniques, export markets and economic policies is available at very low cost, and it represents a highly valuable resource for the developing countries.

There are many benefits with globalization, among them are the advances in medicine, improved public health policies, and greater food supplies have lowered infant mortality and lengthened life expectancy. In developing countries in the 1950s, 178 children per every 1000 live births died before reaching their first birthday. By the late 1990s, the infant mortality rate in these countries had declined to 64 per 1000. Life expectancy increased from 44 years in 1960 to 59 years in 1999.

Though inequality remained more or less constant, or possibly increased, during the 1970s, it declined substantially in the 1980s and 1990s. As a result, the shape of the income distribution curve has changed, from a bimodal distribution with a peak of poor people and a peak of rich in 1970, to a smoother distribution in 1998, suggesting the emergence of a "world middle class."

The integration of rich and poor nations is not a zero-sum game where the gains of one come at the expense of the other. Driven by the rapid democratization of information, technology, and finance, globalization is turning out to be a...
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