Thursday, July 12, 2012


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Positive and negative effects of Globalization

The process of globalization has both positive and negative effects to different category of economies of the world. Competition among firms to get a good a share of the large world market leads to; specialization and efficiency; better quality products at reduced prices; economies of scale in production; technological and managerial improvements. World output of goods and services will increase both in quality and quantity which is expected to translate into higher living standards of the world population. Rauch and Trindade established that free information flow across countries leads to increased international substitutability of factors of production with emphasis on labour. However, Verdier and Theonig argued that firms and countries tend to adopt the strategy of defensive-skill-biased innovation to curtail the leapfrogging of their technology by others as a result of the process of globalization.

The main actors of Globalization

Developed economies are the main actors of globalization since it is about the expansion of markets for goods and services. Underdeveloped countries, which are not well equipped to produce goods and services that can withstand competition with others, are not likely to be interested in market expansion. While availability of goods and services produced by firms motivates the need for wider markets, availability of markets in turn, provides impetus for further production of goods and services. Inspiration from economic growth and development analysis implies that effective use of resources, which is the critical stimulant for the process of economic growth and development, is hinged on industrial production.

Indicators of Globalisation.

There are a number of indicators of globalization covering particular aspects of international business, which include

- The increasing trade / GDP ratio

- The trade / GDP ratio is often regarded as an indicator of the degree of globalisation

And the openness of economy. The survey found, that there as been a similar trend occurring in both groups of low and middle-income countries and high income economies in exports of goods and services (as percentage in GDP) during 170 and 1. However, over the recent decades, some developing countries such as Africa and Central Amercia have not managed to increase some of their exports in line with GDP. Consequently, the share of their exports in GDP has declined. This situation is believed to occur because of the unfavourable long term trends for the international prices of the commodities, which majorly control the exports of these countries, compared to generally firm prices of manufactured goods they are importing.

- The increasing contribution of Foreign Direct Investment (FDI) flows to economic activites

The occurance of FDC are based on two circumstances. The first circumstance is when the company invest directly in facility to produce product in foreign countries. The second circumstance is when the company buys an existing enterprise in a foreign country. The survey suggests that there has been a great moving growth of FDI in world economic activity. It suggests that individual companies are increasingly building global production systems dispersing activities to those locations in the world where they can produce most efficiently.

- The growth of Intra - Industry Trade

Intra industry trade is the exchange of the differentiated products of the same industry or broad based product group.

- The declicing concentration of International Business flows

The growing number of International trade and investment flows over the last - decades has been considered to be the important source of efficiency gains and growth. On the other hand, it was sometimes argued that the impressive growth of the International trade and investments has not benefited for the overall growth, but only benefited a small number of countries. For example,

- FDI remains highly concentrated, with dominant flows within limited group of nations. United States, European Union and Japan are considered to have the prominent FDI percentage compared to overall countries.

- There are eight industrial countries and two developing countries such as Hongkong and China received 78.5% of all FDI inflows in 2000.

- Aggregate International Business as percentage of GDP

There have been insufficient attempts implemented by relatively rich body statistic to measure the total value of international business. Therefore aggregate international business is the best way to quantifying the pace of globalization.

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