There is substantial evidence, from countries of different sizes and different regions, that as countries "globalize" their citizens benefit, in the form of access to a wider variety of goods and services, lower prices, more and better-paying jobs, improved health, and higher overall living standards. As much as has been achieved in connection with globalization, there is much more to be done.
Regional disparities persist: while poverty fell in East and South Asia, it actually rose in sub-Saharan Africa.
Proponents of globalization argue that this is not because of too much globalization, but rather too little. And the biggest threat to continuing to raise living standards throughout the world is not that globalization will succeed but that it will fail. It is the people of developing economies who have the greatest need for globalization, as it provides them with the opportunities that come with being part of the world economy.
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These opportunities are not without risks—such as those arising from volatile capital movements. The International Monetary Fund works to help economies manage or reduce these risks, through economic analysis and policy advice and through technical assistance in areas such as macroeconomic policy, financial sector sustainability, and the exchange-rate system. The risks are not a reason to reverse direction, but for all concerned—in developing and advanced countries, among both investors and recipients—to embrace policy changes to build strong economies and a stronger world financial system that will produce more rapid growth and ensure that poverty is reduced.
The following is a brief overview to help guide anyone interested in gaining a better understanding of the many issues associated with globalization. Economic "globalization" is a historical process, the result of human innovation and technological progress.
It refers to the increasing integration of economies around the world, particularly through the movement of goods, services, and capital across borders. The term sometimes also refers to the movement of people labor and knowledge technology across international borders. There are also broader cultural, political, and environmental dimensions of globalization.
The term "globalization" began to be used more commonly in the s, reflecting technological advances that made it easier and quicker to complete international transactions—both trade and financial flows. It refers to an extension beyond national borders of the same market forces that have operated for centuries at all levels of human economic activity—village markets, urban industries, or financial centers. There are countless indicators that illustrate how goods, capital, and people, have become more globalized. The growth in global markets has helped to promote efficiency through competition and the division of labor—the specialization that allows people and economies to focus on what they do best.
Global markets also offer greater opportunity for people to tap into more diversified and larger markets around the world. It means that they can have access to more capital, technology, cheaper imports, and larger export markets. But markets do not necessarily ensure that the benefits of increased efficiency are shared by all. Countries must be prepared to embrace the policies needed, and, in the case of the poorest countries, may need the support of the international community as they do so. The broad reach of globalization easily extends to daily choices of personal, economic, and political life.
For example, greater access to modern technologies, in the world of health care, could make the difference between life and death. In the world of communications, it would facilitate commerce and education, and allow access to independent media.
Globalization can also create a framework for cooperation among nations on a range of non-economic issues that have cross-border implications, such as immigration, the environment, and legal issues. At the same time, the influx of foreign goods, services, and capital into a country can create incentives and demands for strengthening the education system, as a country's citizens recognize the competitive challenge before them. Perhaps more importantly, globalization implies that information and knowledge get dispersed and shared.
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Innovators—be they in business or government—can draw on ideas that have been successfully implemented in one jurisdiction and tailor them to suit their own jurisdiction. Just as important, they can avoid the ideas that have a clear track record of failure. Joseph Stiglitz, a Nobel laureate and frequent critic of globalization, has nonetheless observed that globalization "has reduced the sense of isolation felt in much of the developing world and has given many people in the developing world access to knowledge well beyond the reach of even the wealthiest in any country a century ago.
A core element of globalization is the expansion of world trade through the elimination or reduction of trade barriers, such as import tariffs. Greater imports offer consumers a wider variety of goods at lower prices, while providing strong incentives for domestic industries to remain competitive.
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Exports, often a source of economic growth for developing nations, stimulate job creation as industries sell beyond their borders. More generally, trade enhances national competitiveness by driving workers to focus on those vocations where they, and their country, have a competitive advantage. Trade promotes economic resilience and flexibility, as higher imports help to offset adverse domestic supply shocks.
Greater openness can also stimulate foreign investment, which would be a source of employment for the local workforce and could bring along new technologies—thus promoting higher productivity. Restricting international trade—that is, engaging in protectionism—generates adverse consequences for a country that undertakes such a policy. For example, tariffs raise the prices of imported goods, harming consumers, many of which may be poor.
Protectionism also tends to reward concentrated, well-organized and politically-connected groups, at the expense of those whose interests may be more diffuse such as consumers. It also reduces the variety of goods available and generates inefficiency by reducing competition and encouraging resources to flow into protected sectors. Developing countries can benefit from an expansion in international trade. Ernesto Zedillo, the former president of Mexico, has observed that, "In every case where a poor nation has significantly overcome its poverty, this has been achieved while engaging in production for export markets and opening itself to the influx of foreign goods, investment, and technology.
In the late s, many developing countries began to dismantle their barriers to international trade, as a result of poor economic performance under protectionist polices and various economic crises.
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In the s, many former Eastern bloc countries integrated into the global trading system and developing Asia—one of the most closed regions to trade in —progressively dismantled barriers to trade. Overall, while the average tariff rate applied by developing countries is higher than that applied by advanced countries, it has declined significantly over the last several decades. The world's financial markets have experienced a dramatic increase in globalization in recent years.
Global capital flows fluctuated between 2 and 6 percent of world GDP during the period , but since then they have risen to The most rapid increase has been experienced by advanced economies, but emerging markets and developing countries have also become more financially integrated. As countries have strengthened their capital markets they have attracted more investment capital, which can enable a broader entrepreneurial class to develop, facilitate a more efficient allocation of capital, encourage international risk sharing, and foster economic growth. Yet there is an energetic debate underway, among leading academics and policy experts, on the precise impact of financial globalization.
Some see it as a catalyst for economic growth and stability. Others see it as injecting dangerous—and often costly—volatility into the economies of growing middle-income countries. A recent paper by the IMF's Research Department takes stock of what is known about the effects of financial globalization. First, the findings support the view that countries must carefully weigh the risks and benefits of unfettered capital flows.
The evidence points to largely unambiguous gains from financial integration for advanced economies.
In emerging and developing countries, certain factors are likely to influence the effect of financial globalization on economic volatility and growth: countries with well-developed financial sectors, strong institutions, sounds macroeconomic policies, and substantial trade openness are more likely to gain from financial liberalization and less likely to risk increased macroeconomic volatility and to experience financial crises. For example, well-developed financial markets help moderate boom-bust cycles that can be triggered by surges and sudden stops in international capital flows, while strong domestic institutions and sound macroeconomic policies help attract "good" capital, such as portfolio equity flows and FDI.
The second lesson to be drawn from the study is that there are also costs associated with being overly cautious about opening to capital flows. Opening up to foreign investment may encourage changes in the domestic economy that eliminate these distortions and help foster growth. Looking forward, the main policy lesson that can be drawn from these results is that capital account liberalization should be pursued as part of a broader reform package encompassing a country's macroeconomic policy framework, domestic financial system, and prudential regulation.
Moreover, long-term, non-debt-creating flows, such as FDI, should be liberalized before short-term, debt-creating inflows. Countries should still weigh the possible risks involved in opening up to capital flows against the efficiency costs associated with controls, but under certain conditions such as good institutions, sound domestic and foreign policies, and developed financial markets the benefits from financial globalization are likely to outweigh the risks.
As some countries have embraced globalization, and experienced significant income increases, other countries that have rejected globalization, or embraced it only tepidly, have fallen behind. A similar phenomenon is at work within countries—some people have, inevitably, been bigger beneficiaries of globalization than others. Over the past two decades, income inequality has risen in most regions and countries. At the same time, per capita incomes have risen across virtually all regions for even the poorest segments of population, indicating that the poor are better off in an absolute sense during this phase of globalization, although incomes for the relatively well off have increased at a faster pace.
Consumption data from groups of developing countries reveal the striking inequality that exists between the richest and the poorest in populations across different regions. As discussed in the October issue of the World Economic Outlook , one must keep in mind that there are many sources of inequality. In the U. K, it happened under the watch of the incumbent conservative government. While presenting to Parliament the result of the recent referendum to the European Union, Prime Minister David Cameron spoke proudly of leaving behind a sound economy resting on the pillar of a sharp fiscal retrenchment—low taxes and even lower public expenditure.
Badly needed public investment in health and education to prepare workers and an overdue upgrade of infrastructure to attract investment have been thwarted by a Congress wedded to fiscal austerity. This has prolonged the pain of transition to new jobs. The long and painful transition to productive jobs has resulted in the clamor for reneging on globalization commitments.
This is misplaced because protecting jobs that are best done elsewhere is not possible without putting curbs on investment. That would be moving towards a world that globalizes misery. There is thus no alternative to a proactive government that eases the transition to new jobs in rich countries. Of course, Asia had the advantage of preparing its work force for known job streams.
Rich countries, on the other hand, have to discover new productive jobs. However, we do know that discovery is more likely if education standards improve, physical infrastructure is cutting edge, and science and research are well-funded. Bush Germany has shown the way to creating high-end manufacturing jobs in a rich-country setting. It has a highly skilled work force that produces technology-intensive products which generate a large trade surplus.
There is little support in Germany for reneging on global commitments.
Globalization: What the West can learn from Asia
Dying cities, dead-end jobs, and a seemingly uncaring government feed into the perception that living standards will continue to fall. Demagogues exploiting ethnicity point the finger at immigrants and have succeeded in directing rich-country worker ire at them. This is a far cry from the democratic vision rich democracies should aspire to and is not in any away a solution to these problems. The protest should be aimed, instead, at elected governments to play their role in facilitating the transition to the next generation of jobs.
The EU is an attempt to tame those impulses by seeking to cooperatively address common challenges instead of competing for narrower nationalistic objectives. Future Development. This blog was first launched in September by the World Bank in an effort to hold governments more accountable to poor people and offer solutions to the most prominent development challenges.
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