According to Mohr, the influx of foreign companies and the capital from outside of developing countries can increase the gap in wages between educated and those who are not skilled workers. In a long term, this education level will rise as developing countries are rising financially, but in the short term, it means that poor people will become poorer.
Economic recession occurs in developed countries can trigger adverse reaction across the globe as follows:
Decline in foreign direct investment, especially reduction in access of loans and the credits from banks. According to the UN, the foreign direct investment in developing countries had decreased by 20% in 2008.
Significant falls in export revenue due to lower demand and the price falling for commodities as well as a sharp reduction in demand for manufactured goods produced from many emerging market countries.
Trade Imbalance
Globalization considered to be the cause of the trade deficit to either importing or exporting economy of most developing countries as it drug down their Gross Domestic Product (GDP). Stalling (2001) states how this foreign capital can be more harmful as it can lead to volatile growth rates and even to crisis in extreme cases which is very costly for growth. Prominent cases of such problems took place in the 1992-1994, involved Mexico, when it had been running a massive current account deficit that partly caused by the pegged exchange rate as an instrument of lower inflation which drastically sent a shock to the government due to the fact that much of the deficit was caused by an imbalance of trade through importing more capital goods and than exports.
International Migration and Emigration are seen in different ways by developed and developing countries. Due to fast population growth and growing unemployment, people from developing countries encourage more liberal migration policy. Because of industrialization, the number of skilled people requested by developed countries has grown up significantly, so people from developing ones prefer to move overseas for the hope of a better life. For example, at the 90s, over 300.000 Latin American and Caribbean professionals and technicians were living outside of their birth origin countries, mostly in the United States, where 12% of (Villa and Martinez, 2000) of those who hold a degree in science or engineering are foreigners, with a majority from developing countries (Pellegrino, 2000). However, in a long term run, immigration and emigration globalization can be seen as positive impact on developing countries because there is a potential opportunity that those skilled workers who left their countries will return home, therefore they will transfer their skills and knowledge back to the developing country.
According to Vitez, one of the biggest positive effects of globalization on developing countries is free trade, where they are able to export and import without any governmental intervention. As a result of free trade, developing countries can increase their amount of economic resources. Furthermore, free trade can improve the quality of life in these nations by importing products which are not available in the countries. In addition to that, free trade can improve foreign relations between developing and developed nations. Developing nations are often the subject of international threats, however the relation with more powerful countries can help them to have additional protection against this threat. Developing nations can also use these free trade agreements to improve their military powers, as well as the internal infrastructure of their countries. Additionally, free trade can improve a developing country politically, by learning how to govern their economy, and what government policies they should implement to benefit their citizens on the best possible way.
Liberalization of domestic economy:
Globalization has increased the integration of developing countries with the global economy to set up their GDP growth rates. Stallings (2000) explains how vital it was to recover the momentum after the debacle of World Trade Organization (WTO) negotiations in Seattle. She noted down this as an important change for developing country in advocating international trade since they need world markets if they are to continue to pursue export – led growth and extend the benefits to other parts of their economics.
For example: India’s imports in 2004-05 stood at US$ 107 billion recording an increase of 35.62 percent compared with US$ 79 billion in the previous fiscal. Export also increased by 24 percent as compared to previous years . It stood at US $ 79 billion in 2004-05 compared with US $ 63 billion in the previous year. Oil imports zoomed by 19 percent with the import bill being US $ 29.08 billion against USD 20.59 billion in the corresponding period last year. Non-oil imports during 2004-05 are estimated at USD 77.036 billion, which is 33.62 percent higher than previous year's imports of US $ 57.651 billion in 2003-04 (Goyal, 2006).
Globalization has proved the increasing availability of capital to developing countries, which reinforce to reduce their exclusively dependence on their own resources that significantly increases their ability to grow faster. Schmuckler (2004) describes that both borrowers and investors have incentives to move funds across countries since funds can abundantly flow freely in a financially integrated world, mostly from countries with excess fund to countries with less or limited access to funds if they expect their countries to grow faster than developed countries.
Financial Sector Development:
Globalization proves to have a positive effect on the development of financial sector such as stock markets. Schmukler (2004) find aggregate evidence on stock market liberalization, which shows how it might affect asset prices and investment through reduction in the cost of capital due to the fact that international investors are more diversified in term of markets, and they are ready to pay higher equity prices. Importantly, by diversifying across more stocks you reduce the specific of holding individual stock and become more exposed to the market and economic. However, other writers also found evidence that shows how globalization is relevant to financial sector development. For example, Woochan and Wei (2000) identify that Brazil and the Philippines are countries who experienced higher returns because of stock market liberalization.
Globalization facilitates international market
The argument in the process of globalization go extra miles indicating that the effect of globalization on developing countries since it facilitate free trade and international markets. Brittan (1998) indicated the extent globalization led to the marginal increase of the world developed nations and the same time powered reduction in the developing countries, by citing Asian countries. For example, China has joined the globalised system much more enthusiastically, even though they joined it later than Japan, its trade in 2004 was equal to 70% of its GDP, and received $60.6 billions of foreign direct investment in that year, while Japan received only $20.1 billions. (Overholt, 2005).
In conclusion, the essay had an overlook at the positive and negative effects of globalization on developing countries. In my opinion, the advantages of globalization, such as free trade, economic boost far outweighs the disadvantages. On the large scale, globalization has done more to improve wealth creation in developing countries than hinder it.
List of References:
Brecher, J en Costello, T (1994). Global Village or Global pillage: Economic Reconstruction from the Bottom Up. Boston: South End Press. In Scholte, JA. (1997) Global Capitalism and the state. International Affairs v73 no 3 pp 427-452.
Brittan, L (1998) Globalization vs Sovereignty? The European Response. The 1997 Rede Lecture and Related Speeches. Cambridge: Cambridge University Press
Connolly and Jaime de Melo (eds.): Essays on the Effects of Protectionism on a Small
Country: the Case of Uruguay, p. 108-123, Washington, DC: The World Bank.
Goyal, K (2006) Impact of Globalization on Developing Countries (With Special Reference To India) [online] Available from: [Accessed on: 14/03/2012]
Guttal, S (2007). Globalisation Development in Practice 17. (4-5) [online] Available from: [Accessed on: 13/03/2012]
[Accessed on: 13/03/2012]
Mohr, A The Effects of Economic Globalization on Developing Countries [online] Available from:
Nader R. quoted in Scholte, JA. (1997) Global Capitalism and the State. International
Overholt, W (2005). China and Globalization [online] Available from: [Accessed on: 14/03/2012]
Pellegrino, (2000) quoted in International migration and globalization [online] Available from: [Accessed: 14/03/2012]
Rama, M (1994): “The Labor Market and Trade Reform in Manufacturing”, in Michael
Rama, M (2001) Globalization and Workers in Developing Countries [online] Available from: [Accessed on: 114/03/2012]
Rosenau, J (1997). The complexities and contradictions of globalization
Current History 96(613):360-64. [online] Available from:
[Accessed on: 13/03/2012]
Schmuckler, S. (2004) Financial Globalization: Gain and Pain for Developing Countries [online] Available from: [Accessed on: 14/03/2012]
Scholte, JA. (1997). Global Capitalism and the State. International Affairs (73) 3 pp. 427-452
Stalling, B (2001) Globalization and Liberalization: The Impact on Developing Countries [online] Available from: [Accessed on: 14/03/2012]
UN Financing for Development Document (2009) [online] Available from: [Accessed on: 14/03/2012]
Villa – Martinez, (2000) quoted in International migration and globalization [online] Available from: [Accessed on: 14/03/2012]
Vitez, O The Benefits of Free Trade for Developing Countries [online] Available from: [Accessed on: 14/03/2012]
W. Kim, S.-J. Wei (2002) Journal of International Economics 56 77 –96 [online] Available from: [Accessed on: 15/03/2012]
by
szandi1990 (student)
