Friday, August 28, 2009

Globalization. its Advantages and Disadvantages

The efforts began to reform world economic system after the World War II. In order to liberalize world trade GATT was set up for reconstruction and world development World Bank was founded and for the improvement of international payment and receipt system IMF was formulated. From 1950 to 1980 the policy experts remained busy in stressing that exchange rate between currencies could be settled by the free forces of market and the restrictions on world trade could come to an end. For this purpose, WTO was set up in place of GATT. As a result during 1990’s we find a big movement towards free trade, dependence on market forces, abolition of regulations and promotion of Globalization. After this back ground of globalization let us discuss advantages and disadvantages of Globalization.

Advantages of Globalization:

Following are the advantages of Globalization.

1. Market Extension: Globalization will lead to promote world trade and extension of markets. In case of restricted trade a country can sell his products either in his own country or in some related countries. As a result the, the market of a country remains limited giving rise to low industrial development, employment and income. Because of globalization a country can sell its surplus goods in many countries. Thus when market is extended the internal and external economies will be accrued by the firms.

2. Increase in Consumer Welfare: Because of the globalization the competition will emerge at world level. As a result, each country would produce its products at the lowest price and sell them in the world market at lowest price. In this way not only the residents of a country would be able to have those goods which are not produced in the country, but these goods would also be available to them at reduced prices. This is would lead to increase their welfare.

3. Better Use of World Resources: The globalization will promote division of labour and specialization. As a result the world trade would take place in the light of theory of comparative cost as each country would produce the product which it can produce the cheapest. All this will lead to better allocation of resources. Here, there will be neither price distributions nor market imperfections.

4. Access of Technology and Other Information: The globalization will lead to abolish restrictions on the movement of goods and services. The poor countries of the world are backward because they lack modern technology, skilled labour force and knowledge. Therefore when globalization takes place their will be mobility of modern technology, skill and other information across the borders. The multinational companies of developed countries will make investment in poor countries. They will bring new technologies. As a result the process of development will set into motion.

5. Cultural Change: Because of globalization in addition to movement of goods, technology and services, there will occur cultural changes in those countries which are socially backward. The backwardness and illiteracy will come to an end. The poor nations will adopt the life style of developed countries. The print and electronic media will acquaint the people with importance of work. People will accept change and initiative.

Disadvantages of Globalization:

Following are some disadvantages of globalization

1. International Economic scenario: The proponents of globalization think that it will promote mobility of trade, capital and technology. But the facts reveal that technology transfer could not take place to the desired extent as the multi national companies were having monopoly over superior technology. They transfer technology for the sake of their interests. The poor countries could not be provided with capital and financial resources. Their debt burden went on increasing. The financial and economic crises in ASEAN countries during 1997-98 were due to such so called globalization. The unemployment and miseries increased. The globalization created instability and non-competition. This is well evident from the Protests which were made at the time of international conferences and meetings of world economic forums.

2. Domination of Multi National Companies: The globalization is justified on the basis of free market economy and free play of competitive forces. But in fact international economic system has been hijacked Multi National Companies. They hardly believe in competition. They earn abnormal profits following the Mercantile’s philosophy. They determine price and output under cartels and price leadership models. They make business under economic values of self-interest, rather ethical values. They have a least interest for the people and labour of developing countries. They go on flying their capital from one country to the other country in search of lucrative profits. The owner of MNCs of oil, electronics and medicines etc govern over the developing countries just by sitting in their head quarters in London New York and Paris etc. They have won the race but they are inviting the poor countries to join this race who are handicapped.

3. Increase in International Inequalities: The financial and business enterprises have monopoly over world’s capital information technology and strategic raw material. They charge the price whatsoever they like, as demand for most of their goods is inelastic. As a result the world’s resources go on shifting form under developed countries to developed countries. The incomes and standard of living of the rich countries go on increasing while that of poor countries goes on worsening.

4. Increase in Balance of Payments Deficit: It is the globalization which has promoted economic and social distortions at international level. Because of lack of protection the industries of developing countries are closing. Again the prices of agricultural goods produced by developing countries go on decreasing. As a result the exports from developing countries are decreasing or they are getting lower prices for their exports. Where as the demand for durable goods in developing countries are increasing. Particularly due to WTO rules the tarrif rate is being decreased. This will bring a flood of vehicles, electronics, luxurious goods, garments cosmetics, computers and drinks in the markets of under-developed countries. The under-developed countries will fail to boost their exports as they have low prices and income elasticity of demand for their goods. In such state of affairs the deficit in balance of payments of under-developed countries will go on increasing. To remove it, they will have to ask for assistance from IMF result, the IMF will impose host of condition abilities. As a result, the inflation and instability will become the destiny of the developing countries.

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