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Abstract
The primary aims of this report was to identify what globalization is and its arguments, issues and the
driving forces and many other perspectives. The first section if this report defines what globalization is using
various literature, and then it comes to the critical part where it argues on the neo liberal globalization upon
poverty, inequality and growth but the arguments didnt end up with a clear conclusion. The second section
of this report dives deep into the roles played my major international organizations, IMF (International
Monetary Fund), WB (World Bank), and WTO (World Trade Organization). It was found that all these
institutions have performed really well in helping the developing countries when needed. But still it
concludes with a question mark. The final section of this report has provided with various aspects to support
and find out whether a heavy reliance of FDI is good or bad for a country.
Keywords: Globalization, FDI, Economic, Poverty, Inequality, Growth, Liberalization, development, Global,
Trade
Contents
Introduction........................................................................................................................................................6
Area I..................................................................................................................................................................7
1.0 What is globalization?..............................................................................................................................7
1.1 Waves of Globalization............................................................................................................................7
1st Wave (1860-1914).................................................................................................................................7
2nd Wave (1944-1971).................................................................................................................................8
3rd Wave (1989- present)............................................................................................................................8
1.2 Neo-liberal globalization argument along with growth, poverty and inequality. (Positive and Negative
arguments)......................................................................................................................................................9
Conclusion & Recommendations.............................................................................................................12
Area II..............................................................................................................................................................13
2.0 Role played by international organizations in dealing with negative aspects of globalization..............13
2.1 International Monetary Fund (IMF).......................................................................................................13
2.2 World Bank (WB)..................................................................................................................................14
2.3 World Trade Organization (WTO).........................................................................................................16
Conclusions & Recommendations...........................................................................................................17
Area III.............................................................................................................................................................18
3.0 Foreign Direct Investments (FDI) on the perspective of a developing country (Negative and Positive
aspects) (Unctad.org, 2016).........................................................................................................................18
3.1 Financial Crisis in Africa (2007-2009)..................................................................................................22
Conclusions and Recommendations........................................................................................................23
Conclusion........................................................................................................................................................24
References........................................................................................................................................................25
Introduction
This report will be focusing on three major areas of globalization in terms of development, poverty and
inequality as given below;
Area I Critical assessment of the arguments for and against globalization in terms of increasing
The author has conducted secondary research to cover the areas above, based on text books, journal articles,
websites, newspapers etc.
Area I
1.0 What is globalization?
Globalization is an evolving phenomenon. There are so many definitions given by various trade
organizations, economists, authors etc.
Thomas Larson, a Swedish journalist has defined globalization as the process of shrinking of the world, the
shortening of distances, and the closeness of things. It allows the increased interaction of any person on one
part of the world to someone found on the other side of the world, in order to benefit (Larson, 2001)
Roland Robertson was the first person to define globalization as; the understanding of the world and the
increased perception of the world as a whole. (Robertson, 1992).
Held et al. (1999) stated that globalization is often described as spatiotemporal processes of changes which
establishes transformations of human concerns in an organization by linking together and widening of
human activities across various regions and continents.
1.2 Neo-liberal globalization argument along with growth, poverty and inequality. (Positive and
Negative arguments)
International Forum of Globalization book carrying the title Does Globalization help the poor? provides a
confident answer saying no, whilst the back cover of Surjits (2002) book which carries the title Imagine
Theres No Country: Poverty, Inequality and Growth in the Era of Globalization, questions ; Who has
gained from Globalization? and provides an answer with equal confidence saying the poor. None of the
readers of these books will come away any wiser about the answers provided to the questions. (Ravaillon,
2003)
When it comes to Globalization and poverty, it is a highly debated topic in the literature. Some of the studies
have proven that globalization reduces poverty whilst some other studies have proven that globalization
increases poverty. The ones who are in favor of globalization tends to say that there were significant steps in
the fights against global poverty, and also a reduction in inequality during the last 25 years, and the reason
behind this achievement was the liberalization of economic policies. And on the other hand there are critics
who claims that liberalization of economic policies or globalization has led to increases in inequality as well
as poverty. The rich people getting richer and the poor getting poorer. Both parties have proven their points
with facts, but without a clear debate, studies and conclusions. (Neutel and Heshmati, 2006)
The standard approach for the country level relationship between economic growth, globalization and
poverty as provided in most literatures is illustrated in the figure 2A given below. For an example, the study
by Dollar and Kraay (2004) which is often cited, argues that trade is favorable for growth and concludes
stating that if trade increases growth rates, it will contribute to proportionate increases in the income of the
poor.
Globalization can at least affect absolute poverty in the short run, despite of its effects on growth. Growth
will appear when the average real income increases, but poverty actually depends on the real incomes of the
poor.
Another doubt with the standard approach is that recent findings by Bergh and Nilsson (2014), Milanovic
and Squire (2006) have found that globalization also causes higher income dispersions resulting in global
inequalities in addition to economic growth. Therefore the effect on poverty is uncertain.
Figure 2B, which was preferred by Bergh and Nilsson (2014) contrasting to the standard approach, has
provided with an assumption stating that globalization will affect the prices, information flows and incomes,
which on the other hand may or may not contribute to economic growth or poverty reduction.
Figure 2: Two views on the relationship between growth, poverty and globalization.
Source: Authors work based on Bergh and Nilsson, 2014
The World Bank, who is one of the main contributors to this argument has stated that globalization reduces
absolute poverty when more unified economies shows a higher growth, and this growth is generally widely
distributed. (Neutel and Heshmati, 2006)
Dollars work showed some extensive critiques. When it comes to global inequality he has argued that
global level of inequality has showed a slight declining stage since the 1980s. Contrasting the argument
Milanovic (1999) has stated that it is only true when it comes to the calculations of per capita income which
is weighted over a countrys population. Even his results showed that China and Indias inequality levels are
rising but it is even below the average global level of inequality. Even Watkins (2002) came up with a
similar conclusion that increased trade does not always tend to result in increased inequality.
The author has proved this argument by Watkins using the figures given below.
It is clearly seen that Thailand and Vietnam are showing higher growth rates in comparison to Haiti and
Mexico who are major players in liberalized imports.
Area II
2.0 Role played by international organizations in dealing with negative aspects of globalization.
According to Hanreider (1966) and international organization is an institutional agreement between
members of an international system in order to achieve objectives according to systematic conditions,
reflecting attributes, aspirations and concerns of its members
The international communities has increasingly become so independent and interconnected over the last two
decades. This was due to the rapid enhancement in technology and economic integration. Certain
weaknesses and shortages in global economy appeared from the recent economic crisis. The economic risks
seem to grow every day. The international organizations therefore holds a critical role of managing the
economy and to prevent the occurrence of yet another economic crisis. A few of those well-known
organizations are International Monetary fund (IMF), World Trade Organization (WTO), World Bank (WB)
Table 3: IMF
Source: Authors work based on IMF (2016)
According to IMF (2016) during the financial crisis of Asia in the 1997, the countries which were affected
including Korea, Indonesia and Thailand had to request immediate financial support from the IMF due
openness of their currencies and obtaining a lot of short term loans from foreign countries. But in the end
Was established in the year 1944 and was known as the IBRD
goals.
Was initially established for the purpose of stabilizing the world
economy after the war.
The chart given below shows the lending data of the two wings of WB. It is clearly seen that they have
provided more financial support to low income and middle income economies.
Figure 4: IDA & IBRD (Lending wings of WB) During the period of Financial Crisis
Source: (Winters, 2011)
Since the2000, The WB has been devoted contributing in achieving the Millennium development goals.
(MDGs). Their goals were;
Eradicating absolute poverty and hunger
Universal education for primary level
Empowering women and promoting gender equality
Reduction of child mortality
Improving health
Fight diseases such as malaria, HIV
Environment sustainability
Global Partnership for development
(WB and IMF, 2013)
environment.
Its core mission was to promote the trade liberalization along with
lowers trade barriers, and to promote fair competition.
Table 5: WTO
Source: Authors work based on WTO (2016)
Over the past 50 years the WTO system has been sponsoring numerous rounds of trade negotiations. The
Uruguay round was one negotiation and the main aim of Uruguay negotiation was to reduce the trade
barriers and expanding their trade agreements to international level including foreign investment. This
system actually balances the countries gains and losses. Their next trade negotiation round was on Doha,
which they intended to address problems of developing countries. (Milner, 2005)
Reliability was created for the suppliers from developing countries and WTO guided them to compete
against their giant competitors who grab their countrys competitive advantage on the other hand a favorable
trading environment was created and the price fluctuations and new entrants to the market were balanced
and taken care of. This eventually increases an economies growth and contributes in the reduction if their
inequality and poverty. (Baylis et al. 2014). WTO never forgot the LDCs (Least Developed Countries).
They took steps to increase their income equity and showed them the right path to engage in proper
trade. They introduced a technical assistance and support program called the EIF (Enhanced Integrated
Framework). Moreover this framework has helped the LDSs to actively engage in the international
market and to overcome their constraints. Due to trade liberalization some countries had to suffer from
consequences related to BOPs. TIM (Trade Integration Mechanism) was then introduced by WTO to fund
the victims. (WTO, 2016)
Area III
3.0 Foreign Direct Investments (FDI) on the perspective of a developing country (Negative and
Positive aspects) (Unctad.org, 2016)
UNCTAD (2016) has defined foreign direct investment as an investment which is made to acquire a steady
interest and a control in an enterprise operating outside the economy of the investor. The role or the purpose
of the investor is to gain an effective voice in the management of that particular enterprise. The group of
associated entities or the foreign entity who does the investment is identified or called the direct investor
Foreign Direct Investments (FDI) have become more and more important in the past two decades in the
developing world, along with an increasing number of developing countries achieving substantial and
increasing amounts of inward FDI through attraction. Theoretical literature has found that, an economy may
be benefited from a number of channels in which FDI inflows whilst this empirical theories has fallen off
behind and has experienced a lot difficulties when identifying these advantages in practical scenarios. (Alfar
et al., 2004) (Bengoa and Sanchez, 2003)
Many literature and policy makers confront that foreign direct investment (FDI) is subjected to have more
important favorable positive effects on a host countrys development effort. (Markusen, 1995). FDI can also
act beyond its major role of direct capital financing by acting as a source of important technology and
expertise while developing relationships with the local firms, which will contribute for an enhanced
economic growth proving a jumpstart. These arguments have provided reasons and incentives for
developing countries to encourage foreign direct investments
Apart from the theoretical literature, when it comes to reality or the practical scenarios, the recent research
done has found that generating positive spillovers for the host countries is uncertain at both macro and micro
levels.
Traditionally, foreign direct investment was majorly concerned and attracted more towards the developed
countries than that of the developing economies. Still the developed countries hold the most number of
shares in terms of FDI. But during the recent years the developing countries have been performing really
well in attracting FDI. The rate of attracting FDI is drastically increasing in developing economies.
Conclusion
Based on all the factors and findings which were mentioned and found, it was seen that there were certain
disadvantageous situations for globalization and the negative arguments or aspects were heavy. But
globalization is actually important for every economy as it contributes towards an economies development
along with better human lifestyles. Theoretical literature proved most of the time, that globalization is
References
Robertson, Roland (1992). Globalization: social theory and global culture (Reprint. ed.).
Larsson, Thomas. (2001). The Race to the Top: The Real Story of Globalization Washington, D.C.: Cato
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PovcalNet.
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unctad.org
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