LWL | How has Globalization effected the economic growth rate in less economically developed countries in the last 20 years

By Rudra Kothiyal

Abstract

Globalization has become extremely highly valued as it has increased the interdependence and interconnectivity of countries with other nations. Being covered widely for developed economies, this paper will touch on how globalization affect those countries with low-level economies. Multifaceted approached are used in analysing globalization in these countries by taking into account the advantages and disadvantages from a political, social and economic view. To support the arguments made in this paper graphs, data and real-life examples will be provided

Thesis 

This essay is about how has Globalization effected the economic growth rate in less economically developed countries in the last 20 years

Introduction

Advancements in technology and Growth in international trade has resulted in the world becoming more and more interconnected and economies becoming more and more dependent on one another to grow (Pettinger, T. (2021, April 6). What caused globalization). Over the last 20 years, globalization has thought to have resulted in strong economic growth rate and reduced poverty in countries all over the world (Arslan, Contreras, Patel and Shu (2018)). Along with this, Globalization may have also been responsible for a decrease in gender pay gap (Black and Brainerd (2004)), and a reduction in military conflict (Lee and Pyun (2008)). Most of these benefits, however have been experienced by more economically developed countries (MEDC’s) 

However, in the last two decades, the effect of globalization in less economically developed countries (LEDC)is not as apparent as in MEDC’s. The main reason for this is most exports of LEDC’s are from the primary sector of production resulting in the exports becoming more susceptible to shocks and crises ((2022, April 4). UN Trade and Development (UNCTAD)). Along with this many LEDC’s including Bangladesh and Cambodia employ the “race to the bottom” strategy by having low wages for labour and lax labour laws to attract foreign investment and MNC’s (Multi-National Corporations). While this promotes globalization due to these countries becoming more interconnected with larger countries and MNC’s, it also leads to living conditions in the country, especially for labour, to deteriorate at a fast pace. 

Although globalization had not given LEDC’s all the benefits of globalization, they still reap some of the benefits. Even in these countries, globalization has resulted in economic growth by promoting trade and investment. Ethiopia’s trade relationship with China and its rapid development has resulted in many affordable imported goods to come into Ethiopia. This results in consumers in Ethiopia and countries alike to have access to a global market resulting in low-income consumers having access to cheap goods and services ((2023, October 11). Does globalisation lead to rising income and wealth inequality?) Along with this, globalization has resulted in wide scale employment in LEDC’s. This has happened mainly due to 

1. Growth of Export Oriented Industries 

2. Increase in Foreign Direct Investment (FDI)

3. Growth of tourism 

4. Infrastructure development 

This increase in employment has resulted in large scale economic growth in Low-income countries due to poverty reduction and workers getting access to new skills. This paper will aim to explore the reasons for globalization and how Globalization has effected LEDC’s in a negative and in a positive way by analysing its economic growth rate. 

Globalization's Effects on Less Developed Economies

Many countries across the globe, especially those with lesser developed economies, have been afected by globalization's change in their social, economic, and political views. Although globalization has provided economic growth in the form of expanded trade or transfer of technologies, it has also introduced a few challenges such as dependency, inequality, and environmental issues. This paper will analyze the different challenges and opportunities presented by globalization, including trade and market access and foreign direct investments, the transfer of technology as well as the social and political implications within the context of less developed economies. 

Market Trade and Access

The development of globalization has enabled integration of global purchase apart from opening up international markets for less developed economies. However, they do tend to lack in uniform distribution, making it a challenge for some markets. 

• Positive Effects: Evidently, globalization has opened doors for increased market entry and export opportunities for lesser developed economies. In particular, Bangladesh and Cambodia have emerged as formidable competitors in the garment and textile sector. As of 2022, exports comprised 88% of the GDP in Bangladesh according to the World Bank. Moreover, global competition has provided consumers in lesser developed economies access to affordable imported goods and widerange of services.

• Negative Effects: These benefits are overshadowed by the concern that many smaller economies still remain disproportionately reliant on a small set of export goods. Like, the economy of Côte d'Ivoire is heavily dependent on cocoa exports and hence, vulnerable to fluctuations of global prices. Moreover, trade disequilibrium is a common feature of poor countries where limited capacity to industrialize leads to greater imports than exports and hence, deficits.

Trade Balance Trends (2000-2023): Shows the gradual improvement in trade balances of minor economies over time.

Foreign Direct Investment (FDI)

Another critical avenue through which globalization impact minor economies is through FDI. These countries attract FDI from multinational corporations (MNCs) because of cheaper labor expenses and lots of natural raw materials.

• Positive Effects: Countries such as Vietnam have gained millions of jobs due to theFDI from MNC’s set up manufacturing companies. Such investments tend to improve infrastructure such as the construction of ports, roads, telecommunications, and other means which helps strengthen the economy.

• Negative Effects: However, it is critical to note that a significant amount of profits earned by MNCs are sent back to their home countries. Also, his type of unrestricted FDI tends to have negative impacts such as environmental destruction, depletion of natural resources, and worsening problems of sustainability.

FDI Inflows (2000-2023): Demonstrates the steady increase in foreign direct investment into minor economies.

Technology Transfer

As countries become more integrated into the global marketplace, less developed countries are able to gain access to more sophisticated technologies. This enables them to advance production and communication.

• Positive Effects: The shift in technologies has increased industrial productivity in Ethiopia through modern agricultural techniques. Furthermore, the digital inclusion in the region has improved with an increase of 45% in smartphone usage in Sub-Saharan Africa from 2015 to 2022, leading to improved access to information and services.

• Negative effects: On the other hand, it may stem from a reliance on imported technologies that may stifle local creativity and further the dependency on technology. Furthermore, the gap between urban and rural populations working without advanced technologies deepens the existing inequality.

Mobile Technology Penetration (2000-2023): Highlights the significant rise in smartphone usage and digital inclusion.

Social Effects of Globalization

The last few decades have resulted in both positive and negative changes as a result of globalization for developing countries, especially in terms of cultural exchange and the migration for labor purposes.

Positive effects 

• Cultural Exchange: Countries are now able to share their traditions and values in order to strengthen ties between various countries resulting in a stronger relationship for economic growth to take place. For instance, the international acclaim for Nollywood movies has increased Nigeria’s cultural standing and cultural globalization has increased tourists in nations like Bhutan and Fiji. However, the intrusion of Western media and commercial values tend to compete with traditional practices and beliefs resulting in the deterioration of native cultures.

• Tourism growth: in many smaller countries, globalization has lead to a boost in tourism. 

Negative effects

• Cultural Homogenization: Local and national traditions are numerous and are under threat from global consumer culture in their cultures leading to erosion of diversity in traditional cultures where personnel, values, and language are overwhelmed by global means. 

• Undermining of Local Values: The adoption of foreign lifestyles and capitalist habits, endanger already weakened values and practices, creating a divide between one generation and another pervasive in many societies.

• Digital Divide: As peoples become interconnected, technology availability gaps wide apart unrestrictedly, particularly in rural and underdeveloped areas: Those who are to be benefitted from digital resources and those who are to be left without such benefits.

• Brain Drain: When skilled workers migrate abroad to seek better opportunities, less wealthy economies are denuded of human resources for critical areas such as health and education. 

• Labor Exploitation: In the often-insatiable world market for cheap goods, greedy practices compromise forced labor in the developing countries with pitiable remuneration, hazardous working conditions and the absence of worker rights.

• Cultural Identity Crisis: Global influences can cause individuals or communities to experience an identity crisis for they have to blend traditional values with more accepted global attitudes.

• Over-Tourism: While tourism can indeed be a positive source of income toward community and the state, over-tourism implicates degradation of ecosystems with overcrowding, commercialization of cultural heritage, etc.

Tourism Revenue (2000-2023): Depicts the growth in tourism revenue as a result of cultural globalization.

CONCLUSION 

Globalization has, in several ways, penetrated and led to opportunities in challenges for LEDCs. Initially, the led development of access to international markets has not only created jobs but facilitated technological know-how and improvements in infrastructure. The majority of less economically developed countries have experienced the effective growth and development through foreign direct investment (FDI), remittances, and also the exchange in culture between the regions.

On the other hand, globalization has increased economic dependence, widened income disparities, and encouraged labor exploitation and environmental degradation. Most LEDCs are still prone to external shocks, including global recessions and price fluctuations in commodity markets. Other issues that are still considered major problems include brain drain, weak labor rights, and cultural erosion.

In order for LEDC’s to reap the benefits of globalization without the downsides, they must undergo diversification in economic activities and sustainability in their developments, fair and just worker conditions, strengthened education, invested industries, and traded fairly could well help stabilize an economy, provide social equilibrium within an integrated globe.

References

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