Politics of Globalization option for developing countries

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Politics of Globalization option for developing countries

Meaning of Globalization in the Developing Countries:

The notion of globalization is still being debated. Indeed, economists, political scientists, sociologists and historians, among others, all look at the dramatic changes in the world by using the term “globalization”, though in many instances, globalization means economic phenomenon.

One of the debates around globalization is what its impact upon the developing countries could be. Regarding the fact that in the age of globalization all the countries of the world are interdependent, some Chinese scholars say that, if globalization is seen as an ocean, then, the majority of countries, if not all, are undoubtedly supposed to be on a certain type of vessels, although the rich countries are on the large steel ships, whereas the poor are on the small wooden boats or, for some, even on the tiny canoes. Others argue that globalization itself should be considered as a boat, and, while most countries of the world are on it, some Third World countries, particularly those in Africa, are still on <href=”#_ftn1″ name=”_ftnref1″ title=””>[1]the beach trying to get on the ship to avoid what is called “marginalization”. Needless to say, even in the same boat, some countries are put into the very comfortable first class cabins, others can only find their place in the fourth or fifth class1.

Source: The evolution of political systems: the effects of globalization.

Globalization has affected every nation in the world. The impacts of globalization upon the developing countries are reflected in the following aspects:

Firstly, it deepens interdependence and economic integration between the developed and developing nations, an outcome that also tends to raise the position of the latter in the world economic arena. In the post-World War II period, for instance, the developing countries have been taking an increased share in global production, world trade and international capital flows, and this share would be expanded by globalization

Secondly, globalization tends to widen the gap within the developing world itself. In the past half a century divergence and disparity among the developing countries is becoming all the more visible. Many reasons can account for this fact, and one of them is globalization. The developing countries at a higher level of development and with an open economic system can attract more foreign capital.

Thirdly, it increases financial risks for the developing nations that are seeking integration with the world economy by opening up their capital account. Along with the rapid movement of global finance, many developing countries have been attempting to open their capital account.

Politics of Globalization:

The globalizes predicted rapid development of Africa, Asia and Latin America, even arguing that divisions between ‘developed’ and ‘developing’ nations, ‘First’ and ‘Third’ worlds, would become less significant and eventually meaningless. In the face of renewed economic crisis, however, and of stark evidence of deepening inequalities and the immoderation of vast numbers of people, ‘globe talk’ has become less strident. For one economic journalist writing in the wake of the South East Asian crisis of 1997, the model of globalization ‘has been recalled by the makers’.<href=”#_ftn2″ name=”_ftnref2″ title=””>[2]

Globalization theory maintains that all must benefit from recent changes. The Economist, house magazine of the global free marketers, maintains that the world system now delivers ‘more for all’ and that vigorous growth in the Third World means ‘it is the world’s poor who will benefit most’.

In fact, the globalization thesis as a whole is suspect. Investigation of the world economy today reveals a situation plainly at odds with the globalizes’ main principles. Although some areas of the world economy show evidence of more fluid capital movement, some do not. Although, in one sense, there has been integration–nowhere is immune from the market economy–some regions formerly central to world capitalism have been driven to its margins. Some states are weak–but only in relation to very strong states which continue to dominate world affairs. The picture is one of unevenness and of contradiction. The notion that human beings are passive in the face of relentless economic and technological change is also false–as the upheavals in South East Asia have demonstrated. But most of its partisans remain firmly attached to the notion of globalization2. Their views are so much at odds with world realities that they should not be viewed merely as misunderstandings but as ideological constructions: ideas mobilized to justify and to perpetuate relations of exploitation and to assist in containing collective responses from below.

Relationship between politics and globalization:

Politics has a kith and kin relationship with globalization. Globalization has been termed for the financial, political and socio-economic development of world. But the black shadow of politics hunted demerits and disadvantage by the misuse of globalization. Full flagged Welfare of human being lies in the objective of globalization. Developed counties politicized its fair aims and objectives over developing countries by the misuse of power politics. Some of the note given bellow will be able to show a transparent example of relationship between the two:

· Refusal of padma bridge loan is the result of the politics of globalization. Because the World Bank could not be able to articulate the claim of corruption.

· An internal issue regarding Grameen Bank and Dr. Yunos is also the climax of global politics which deteriorated the image of Bangladesh.

· World Bank and IMF willing to provide infrastructural loan rather than loan in productive sector.

· The idea of Free trade and free tariff is totally a harmful concept by the WTO which gradually destroying small industries of developing countries is clear to all.

· Cultural Globalization ruining our traditional culture, norms and values.

Politics of Global Trading:

‘Utopians view‘: Recent attempts to modify globalization theory attempt to rescue the perspective from its radical and Marxist critics, alleging that they focus on the wrong issues. Gray, for example, argues that skeptics have attacked only ‘hyper-globalization’, what he calls ‘the McKinsey worldview–the view of things propagated by American business schools’.3 He continues:

No one except a few Utopians in the business community expects the world to become a true single market, in which nation states have withered away and been supplanted by homeless multinational corporations. Such an expectation is a chimera of the corporate imagination. Its role is to support the illusion of an inevitable worldwide free market.4

Global image in the world:

‘Wastelands view‘: These approaches are not the ideas of cranks from which more perceptive theorists of globalization can now distance themselves. They are views widespread among theorists of globalization which should be made to stand against the realities of the international political economy and the condition of humanity worldwide.

In 1997 the richest fifth of the world’s people obtained 86 percent of world income; the poorest fifth received just 1.3 percent. Some 1.3 billion people subsisted on less than $1 per day–a life threatening decline in living standards since the 1960s. The trend was also accelerating: by 1996 no less than 30 countries showed an annual decline in the Human Development Index (HDI), which measures literacy, life expectancy, and access to health services, safe water and adequate food. Among 147 countries defined as within the ‘developing’ world, 100 had experienced ‘serious economic decline’ over the past 30 years. Some regions of the Third World, says the UNDP, have become ‘economic wastelands’.1 Most countries of sub-Saharan Africa are far behind the base growth level of 3 percent over a generation which is identified as necessary to reverse current trends to greater mass poverty. By 2030, the UNDP estimates, world GDP will more than double but Africa will experience a further sharp decline in its share of the world total: from 1.2 percent in 1997 to 0.4 percent. The majority of Africans–some 500 million people–will be further marginalized within an increasingly productive world system2.


Human Development Index GDP per capita (US$)
1970 1995 1970 1995
US 0.881 0.943 14,001 20,716
UK 0.873 0.932 8,463 13,445
S Korea 0.523 0.864 967 5,663
Malaysia 0.471 0.834 1,001 3,108
Brazil 0.507 0.809 2,049 2,051
Egypt 0.269 0.551 338 726
India 0.254 0.451 245 425
Zambia 0.315 0.378 440 257
Senegal 0.176 0.342 723 661
Haiti 0.218 0.340 333 231
Gambia 0.107 0.219 240 274
Niger 0.134 0.207 554 275
Sierra Leone 0.155 0.185 222 171

*HDI is calculated using figures for life expectancy, educational attainment (adult literacy and combined primary, secondary and tertiary enrolment), and standard of living (measured through adjusted income).

[Source: UNDP, Human Development Report 1998 ]<href=”#_ftn3″ name=”_ftnref3″ title=””>[3]

In the worst affected regions such as the Horn of Africa and parts of West Africa, attempts to stimulate even basic development have largely been abandoned. Cox comments:

Class of discrimination:

Inequalities are now so stark that even the UNDP recently reported the findings of Forbes Magazine, the US business journal, which in 1997 identified 225 people worldwide as having combined wealth of $1 trillion. Of these ultra-rich, over 60 percent were based in the most advanced industrial countries, including Japan. Of the rest, about half were based in Asia, a quarter in Latin America and the Caribbean, and the rest in Arab states, Russia and Eastern Europe. Two of the 225 were from Africa–significantly from South Africa. Although these figures show the usual weighting towards developed countries, they also show accumulation of wealth in the developing countries on a scale which was unthinkable during the colonial era.

All available evidence suggests that inequality is becoming much more pronounced. During the 1960s the poorest 50 percent of people in Brazil received some 18 percent of national income; by the mid-1990s the figure had fallen to 11.6 percent. In Egypt, where the regime has been a Third World pioneer of neo-liberal economic strategies, 23 percent of the population was estimated to be below the poverty line in the late 1970s; by the early 1990s the figure had risen to over 40 percent1.

Partial development:

Throughout the 20th century, change in Africa, Asia and Latin Africa has been marked by a similar pattern of combined and uneven development. No region is untouched by market relations but these have not propelled societies steadily towards growth. Rather there are patterns of extreme unevenness. These are expressed, for example, in the ‘megacities’ of the Third World, in which modern industries have drawn in millions of former peasants to establish a new proletariat. At the same time, they are home to vast numbers of urban poor and to migrant laborers and semi-proletarians who may have a stake in the rural economy as well as in the city2. Such cities also express the yawning gap which has emerged between the new bourgeoisies of such countries and the mass of the exploited, captured in the presence of five star hotels offering haute cuisine alongside slums in which vast numbers of people struggle for survival. Jakarta, Calcutta, Rio, Cairo,<href=”#_ftn4″ name=”_ftnref4″ title=””>[4] Bombay, Istanbul, Shanghai, Lima, Caracas and many others bear witness to the real outcome of changes in the world economy.

In most regions, change was at first associated with intrusion of Western capital. Later local bourgeoisies developed greater coherence and ambition but even in the post-colonial period they have remained junior partners in the imperialist system. Today some are little more than parasitical groups which share revenue from processing of local raw materials: the Gulf ruling classes, for example, are rewarded by the oil majors for guaranteeing access to the oilfields. Other ruling classes have made complex, sustained interventions in the local economy, largely through structures of the state. This is in general the case in the Newly Industrializing Countries (NICs)–a handful of states in which there has been relatively rapid industrial growth1.

Global capitalism and destruction of agriculture:

Forms of capital:

Marx’s approach to the circulation of capital is vital to this task, especially because of the globalizes’ insistence that capital flows are the key element in making a more equitable world. In classical economics and its contemporary variant, neo-liberalism, capital is essentially unitary, expressing itself as money, investment or profit and growing by virtue of entrepreneurs’ energy in exploiting opportunities offered by the marketplace. In the globalist perspective, capital flows worldwide as the result of direct investment by companies and individual entrepreneurs, of activity on stock markets and commodity exchanges, and of initiatives taken by banks and finance houses. It is the change in volume and speed of capital transfers that makes for the more even distribution of capital and hence for globalization.

Financial capitalism:

Even orthodox economists have recently become alarmed by the disproportion between what they call the ‘paper’ economy–debt–and ‘fundamentals’ such as growth in output. Drucker warns, ‘Ninety percent or more of the transnational economy’s financial transactions do not serve what economists would call an economic function’. And Cerny comments that ‘the financial economy calls the tune for the real economy’. The suggestion that capital is not unitary has implications for the whole notion that increased flows of finance have been fundamental to the making of a globalised world.2

Movements of capital in the form of money and of commodities have increased greatly in volume and speed over the past 30 years. Axford sums up the approach of many theorists by depicting this development as ‘the most unequivocal indicator of the globalization of economic affairs’.66 In 1976 borrowing on international capital markets amounted to $96.6 billion; by 1993 the figure had reached $818.6 billion.67 In addition, during the 1980s, markets in ‘derivatives’, speculation on interest rates and exchange rates, increased from a few hundred billion dollars annually to some $8,500 billion.68 By 1995 the daily volume of business on the world’s currency markets had reached $1,500 billion–a figure which exceeded the annual gross domestic product of all but three of the world’s economies.

Politics of ‘Free trade’:

The level of world integration through trade is much less pronounced than in the area of finance. It is true that during the long boom world trade grew very rapidly but growth rates have since slowed. More important, trade is increasingly organized on a pattern at odds with the globalist notion of world integration.

In globalization theory, deregulation is identified as the main means of achieving a free trade network in which commodities flow across old protective regimes. But developments among the world’s dominant economies are not towards an open market model but towards regional links and trade agreements. Judis comments of the North American Free Trade Agreement (Nafta) of 1992:

Third World countries now occupy a more marginal position in world trade. In 1962 the share of ‘industrial’ countries was 63.6 percent and of ‘non-industrial’ countries 24.1 percent. By 1990 the figures were 71.9 percent and 20 percent respectively. These figures place the four Asian Tigers in the ‘non-industrial’ group. If the four, which together have a quarter of the ‘non-industrial’ world’s trade, are reallocated to the ‘industrial’ group, the figures reveal an even starker difference: 76.5 percent of world trade among ‘industrial’ countries and 16.5 percent of trade among the ‘non-industrial’ countries of the Third World. The picture is one of greatly increased asymmetry; notions of simple world integration once more seem implausible.2

Productive capital and foreign direct investment: In the early 1970s, after 25 years of sustained growth through the ‘long boom’, international production seemed to be playing a new role in integrating the world economy. Exchange of manufactured goods became the most dynamic sector of world trade; at the same time, the internationalization of manufacturing itself seemed to be breaking down barriers between national states. Harris noted,’ The great boom thus tended to wash away what hitherto had been seen as the clear national identification of production’.3 Multinational companies (MNCs) were seen as the main agents of this process. Even by the early 1960s their combined sales were estimated at almost 20 percent of world output of goods and services and economists were beginning to depict a novel global development. In fact MNCs had existed since at least the 19th century and their mode of operation was not new. What was unexpected was the speed of their growth and the contrast this presented with the preceding period during which national states and state capital had dominated the world economy.


1981 1986 1989 1992
China – 1,875 3,393 11,156
Singapore 1,660 1,710 2,773 5,635
Mexico 2,835 1,523 3,037 5,366
Malaysia 1,265 489 1,668 4,469
Brazil 2,520 – 1,267 1,454
Hong Kong 1,088 996 1,076 1,918
Argentina 837 574 – 4,179
Thailand – – 1,775 2,116
Egypt 753 1,217 1,250 –
Taiwan – 326 1,604 –

[Source: UNCTAD ]

Globalization and politics in the name of development:

Globalization theory is not a description of a much changed world. Rather it is the imposition of neo-liberal economic principles upon the reality of an unequal and disordered system: the world as contemporary bourgeois theory wishes it to be observed.

It is certainly true that the internationalization of capital has accelerated over the past 30 years. But within this process two developments have taken the system in a direction different from that envisaged by the globalizes. First, a key response to the fall in the rate of profit has been increased speculative activity and a huge growth in financial markets1 This has not complemented the growth of productive capital at a global level but has diverted investible funds from it, making less likely the emergence of new centers of capital accumulation. A second development involves decisions taken by MNCs to develop manufacturing on a regional, rather than a ‘global’ basis. Emergence of the ‘triad’ of investment zones has concentrated more and more of productive capital among networks of advanced economies. These networks are connected to Third World economies but are not active agents of the letters’ development; on the contrary, their consolidation is a vote of ‘no confidence’ in the Third World. Declining rates of productive investment have left most such economies weak and vulnerable to the currents, eddies and tidal waves created by global speculators. The two tendencies have a combined effect of greatly increasing the development ‘gap’ between the ‘triad’ and the NICs, and ‘the rest’. They intensify the unevenness of the world system, relegating to the also-rans even those states in which there were once hopes of modest advance.2

Such ‘liberalization’ was pioneered in the mid-1970s by the Sadat regime in Egypt through its infitah (‘opening’) policy. The regime immediately enriched itself and its supporters through commission agencies, import-export scams, and speculation in property and finance.3 within a few years a ‘Sadat class’ of nouveaux riches had been accommodated by the ruling senior bureaucrats and army officers of the earlier nationalist period.

With commodity prices falling, and the trade liberalization of the Uruguay Round of negotiations on tariffs further penalizing Third World economies, such countries might have expected relaxation of payment conditions. But in 1998 the US stalled on its Highly Indebted Poor Countries initiative (HIPC). Countries such as Tanzania, which was told to wait until 2002 to qualify for promised ‘debt relief’ under HIPC, face crushing burdens. According to one aid agency, the country’s debt is rising so rapidly that development projects are hardly feasible. A Christian Aid official illustrates a problem which is causing anxiety to even the most conservative aid bodies: rigorous enforcement of repayments by the World Bank for borrowing on projects which the institution designed and which could never have achieved its own target results. According to Andrew Simms, ‘Tanzania is paying for the World Bank’s own mistakes.

Real politics of globalization: Global inequality:

End of the ‘Third World’ The notion of a ‘Third World’ has never been closely defined. As deployed by radical nationalists in the 1950s it was meant to indicate a state directed development path independent of Western capitalism and of Eastern state capitalism. This homogenized a vast range of countries; it also concealed class relations within them and the common interests between their rulers and those of the ‘First’ and ‘Second’ worlds. As such it obscured the workings of capitalism. Since the 1970s the main use of the term has been as shorthand to indicate the gulf between a minority of rich countries and the majority of poor countries of Africa, Asia and Latin America. As an expression of contemporary world inequalities it may then be more significant than hitherto–for such inequalities have become far more pronounced. In addition, it is a useful corrective to globalist babble with its imagined universe of happy consumers.

In globalization theory the notion of a Third World is rendered meaningless, for the inequalities it implies are said to be disappearing beneath worldwide capital flows. This is Nigel Harris’s position in The End of the Third World, published in 1986, in which he argued that a strong tendency to distribution of manufacturing across the globe was transforming relations between rich and poor countries. But neither the notion of a globalised world, nor that of a system divided between First and Third worlds (or North and South) are appropriate ways of depicting world capitalism. The system is best seen as a series of unevenly developed economic and political structures, including nation states and regions, within which capital is mobilized in the constant search for profit.

The increased internationalization of capital has made for closer relationships between the subordinate ruling classes of Africa, Asia and Latin America, and the centers of world

World trade organization and its politics:

In the industrial countries, reductions in protection from the high levels reached in the1930s were already under way at the time of the establishment of the GATT in 1947 and continued under successive rounds of GATT negotiations. The process of reform was not simply one of reducing tariffs. During the 1950s, agriculture effectively escaped from the multilateral system as a consequence of exceptions made for domestic support price schemes. During the 1960s and 1970s, exports of textiles and clothing from developing countries were put under a system of quotas that discriminated by country, and violated all of the fundamental principles of the GATT2. As tariffs fell, forms of protection such as voluntary export restraints and antidumping measures came to play a more important role.. And for most of these goods, the coverage of nontariff barriers fell as well. The protective effects of tariffs, quotas and licenses in developing countries were frequently reinforced by distortions in foreign exchange markets. In their simplest and most transparent form, foreign exchange restrictions on current account involve an overvalued official exchange rate, coupled with some form of secondary market exchange rate in which a domestic price for foreign exchange is determined, and scarce foreign exchange is allocated among uses3. Where the secondary markets are legal, as in China after the early 1980s (Martin 1993a) or Nigeria in recent years, the extent of the trade distortion created by this policy can be observed their policy.

Developing countries were willing to “bind” their tariffs on 100 percent of their agricultural imports, and on over 60 percent of their imports of industrial products (Abreu 1996). In addition, they agreed to a “grand bargain” in which intellectual property protection of primary interest to the industrial countries was introduced in return for the abolition of quotas on textiles and clothing, and the introduction of disciplines on agricultural protection. But the most profound and far reaching manifestation of developing countries’ interest in greater participation in trade is evident from the wave of unilateral trade reforms that has swept the developing countries. These reforms have affected all regions, and all of the major types of policy distortions.

IMF and its politics on Financial Globalization:

Globalization can be associated with crises and contagion. As discussed in Obstfeld (1998), this link is inescapable in a world of asymmetric information and imperfect contract enforcement. Though many crises are triggered by domestic factors and countries have had crises for a long time (even in periods of low financial integration), globalization can increase the vulnerability of countries to crises. In open economies countries are subject to the reaction of both domestic and international markets, which can trigger fundamental-based or self-fulfilling crises. Moreover, the cross-country transmission of crises is characteristic of open economies. The evidence is still very scarce, but it is far from clear that open countries are more volatile and suffer more from crises. The evidence suggests that, in the long run, volatility tends to decrease following liberalization and integration with world markets, probably thanks to the development of the financial sector. When countries first liberalize their financial sector, volatility and crises might arise, particularly in countries with vulnerable fundamentals.

the stock market become less pronounced while they become more pronounced in the aftermath of liberalization.

Net effects:

The previous sections argued that globalization can bring benefits by developing the domestic financial system. But globalization can also be associated with crises and contagion. As discussed in Obstfeld (1998), this is inescapable in a world of asymmetric information and imperfect contract enforcement. Though many crises are triggered by domestic factors and countries have had crises for a long time (even in periods of low financial integration), it is the case that globalization can increase the vulnerability of countries to crises. In open economies, countries are subject to the reaction of both domestic and international markets, which can trigger fundamental-based or self-fulfilling crises. Moreover, the cross-country transmission of

The fiscal costs of crises are also widely studied, especially in the banking crisis literature. For a sample of 40 banking crises, Honohan and Klingebiel (2003) find that governments have spent an average of 6.2 percent of GDP in developed countries and 14.7 percent of GDP in emerging markets in the resolution.

Policy support for Developing countries:

We live in the age of globalization. So no one can turn out from this era as like third world countries. So they should take some unique policy for achieving the advantage of globalization as like developed one. Globalization is a two-edge knife. Both developing and third world have reaped benefits by embracing globalization. At the same time, however, both have felt the negative repercussion of globalization. But It is unwise and impossible to keep this irresistible historical trend out of the door

Partial reforms:

Clearly, this unilateral approach is and should be central to achieving reforms, and can be successfully pursued in many countries and in many situations. For many types of reform, it is both necessary and sufficient, and no international engagement is required.While nationally-determined trade policy choices remain the most important influence on global trade policies; there are limitations to relying solely on this approach. Firstly, the process of formulating domestic policies tends to include only the interest groups directly affected by trade barriers. In this situation, the relatively more powerful interest groups are frequently able to obtain trade barriers that benefit their individual interests, while diminishing those of the society as a whole. Secondly, trade distortions in one country impose an externality on partner countries by causing their terms-of-trade to deteriorate. Thirdly, government commitments to policy reform are not binding on their successors, making it difficult to secure the investments in export-oriented activities that are needed to obtain the full gains from liberalization. Fourthly, a focus on policy making for individual countries leaves countries without rules to regulate their interactions with their trading partners. As in domestic interactions, there are substantial potential benefits, particularly for smaller and weaker trading entities, from agreed rules (World Bank 2002).

Exploitation in Trade Patterns:

Since the 1980s, developing countries have drastically increased their reliance on manufactures exports, and increased their reliance on exports to other developing countries. Further, exports of services have become much more important for developing countries. The highly protectionist policies followed by most developing countries prior to the 1980s were frequently designed, at least in part, to stimulate industrialization. <href=”#_ftn5″ name=”_ftnref5″ title=””>[5]However, one of their effects was to greatly constrain countries’ ability to participate in the more dynamic parts of international trade—trade in manufactures, and trade in services. Both of these typically require access to intermediate inputs, capital and technology that are best obtained from abroad.1

Exports of Developing Countries as a Group:

Figure 4 shows the changes that have occurred in the pattern of merchandise exports from developing countries as a group over the period from 1965 to 1998. This figure reveals the dramatic nature of the transformation in the commodity specialization of developing country4 exports. In 1965, agricultural commodities made up roughly 50 percent of developing country exports, and manufactures only around 15 percent.The share of manufactures in developing country exports has risen without interruption, except for a transient decline in 1997 associated with the onset of the East Asian crisis. The share of agricultural products has shown a similarly consistent decline, falling to around 10 percent by 1998. The share of metals and minerals has fluctuated, with a rise in 1973 associated with the OPEC increase in oil prices lifting the share of this category from 1973 through the early 1980s. However, since the early 1980s, the share of mineral exports has declined almost continually, falling below 10 percent of total developing country exports by 1998. Clearly, developing countries as a group have been leading the change in the overall pattern of world trade, transforming their export pattern from commodities to manufactures much more rapidly than the world as a whole. These dramatic changes in the composition of developing country exports clearly have many underlying sources. The shift out of agriculture in developing countries does not appear to have been driven by higher productivity growth in manufacturing. In fact, productivity growth over recent decades appears to have been higher in agriculture both in developed and developing countries (Martin and Mitra 2001; Bernard and Jones 1996).

External influence:

External engagement, with regional trading blocs or through the multilateral trading system, can help address each of these concerns. It can help address the interest group problem by widening the process of policy formulation to include powerful interest groups involved in export activities, as well as the import-competing interest groups normally engaged in the process of trade policy formulation.

International trade negotiations can directly deal with the terms-of-trade problem resulting from foreign trade barriers by increasing market access in partner markets, and by increasing the supply and lowering the price of imports from partners (Bagwell and Staiger1999). Developing countries’ commitments to lower barriers in the future, or to maintain low barriers, can acquire greater credibility when made through international treaty commitments than through autonomous reforms. Finally, internationally agreed rules and dispute settlement mechanisms can help provide protect small countries against unilateral actions by larger countries.1<href=”#_ftn6″ name=”_ftnref6″ title=””>[6]

International trade agreements can also help overcome the inability of autonomous governments to commit their successors to continuation of a policy reform. This is potentially an important gain in countries with a long history of policy reversal, where investors are likely to be unwilling to invest on the basis of a policy reform that may turn out to be short-lived. Such a gain, of course, assumes that the international treaty is sufficiently strong as to substantially reduce the likelihood of reversal.

Exports of Sub-Groups of Developing Countries:

The considerable success of developing countries in transforming their export patterns may be consistent with a sub-group of these countries being left behind, and continuing to depend on traditional commodity exports. To see whether major sub-groups of developing countries have been left out of the process, it is useful to examine the developments in individual countries and groups. Many developing countries, including relatively low-income countries such as China, Bangladesh and Sri Lanka, have manufactures shares in their exports that are above the world average of 81 percent. Others, such as India, Turkey, Morocco and Indonesia have shares that are nearly as high as the world average. Clearly, a great deal depends on the composition of exports within these commodity groups. If countries have been developing new commodity exports and markets, as in the case of Chile, then a heavy dependence on commodity exports may be consistent with rapid growth in For regions such as sub-Saharan Africa, there is more of a concern that continuing dependence on commodity exports may reflect a lack of investment in the infrastructure, plant equipment and skills needed for successful participation in global trade1.

Regional Approaches:

The regional approach to international engagement frequently appears attractive for two reasons: because it provides preferential access to partner markets, and because it may be easier to make progress with as small number of partners than with the 142 members of the WTO. These perceptions, and the increasing length of multilateral negotiations, have contributed to the dramatic increase in the number of regional negotiations during recent years evident in Figure10. However, these advantages are typically much less substantial than they might at first appear. These issues are discussed in detail in World Bank (2000) and only some of the key distinctions of importance to our discussion are considered below. 2

The apparent advantage of preferential access needs to be discounted for two reasons.

Firstly, it is the adverse side of the coin of trade diversion. When country enters a preferential trading arrangement, it must give preferential access to its trading partners. This reduces government revenues7 in the importing country, and creates incentives to divert its import sourcing from the most efficient and lowest-cost suppliers to the countries that happen to be its partners.

A second reason, to discount the value of preferential market access is that it is likely to diminish in value over time. One common cause of diminution in the value of such access is the grant of preferential access to additional trading partners. Irwin (1992) points out that the MFN principle arose in the 19thcentury because of uncertainties about the value of preferences when subsequent bilateral trading partners could be given better terms of access. A second source of erosion of preferential access is subsequent MFN liberalization by trading partners. Fukase and Martin (2001) find, for instance, that for all of the newly acceding members of ASEAN, further liberalization of their MFN tariffs is highly advantageous. A third source of erosion in the value of preferential access is the imposition of restrictive rules of origin that raise the costs of obtaining preferential access


Strengthening National Decision-Making Institutions:

Developing countries have to identify their specific interests and objectives in respect of the subjects of the WTO. This can be done through the process of a broad-based and in-depth examination of the issues and implications.1 It requires some institutional changes in the decision-making process. The subjects are so complex and their implications so widespread that any particular ministry in a government would not be fully equipped to handle them on its own. Almost every issue being taken up in the WTO involves differing interests of various wings of the government. It also involves a clash of interests among various industry groups and economic operators. The overall interest and stand of the <href=”#_ftn7″ name=”_ftnref7″ title=””>[7]country can be worked out only after balancing and harmonizing all these differing and clashing interests.2

For example, a simple proposition of reducing the tariff on a particular product will invite different reactions from different industry sectors and different wings of the government. The producer industry will feel threatened by competition from imports, whereas the consumer industries will feel happy as they will have the prospect of cheaper supplies of inputs. Likewise the wing of the government responsible for the development of the producer industry will have a tendency to oppose the proposal, while the one responsible for the downstream industries will be inclined to support it. This is not a new dilemma. But now there are more of such dilemmas and they have complex ramifications

Policy support to Deal with Financial Globalization:

First, government regulations and supervision over the financial sector is highly necessary. The financial sector is very important in the economy, and a well-functioning financial system can allocate resources efficiently. More and more researchers have found that liberalizing this sector does not necessarily mean that all financial regulations should be abandoned. The financial crises in Latin America and East Asia indicate clearly that lax regulations and supervisions over the financial sector can cause serious consequences.

Second, the first line of guarding against financial risks is in the hands of the market players themselves. For instance, the banks, which are usually the most important in the financial sectors of the developing countries, should maintain their prudential standings on a solid base. The recent financial crises in the emerging markets seem to indicate that, before capital account liberalization is undertaken, the domestic financial system should be made stronger.

Third, regarding timing, speed and sequencing in dealing with capital account liberalization, we can often hear three arguments. Some believe that capital account opening can take place at a later stage of reform. That is to say, macroeconomic stability should come first and sound financial institutions are in place. Others contend that capital account should liberalize at an early stage, because, without external pressure to be generated by the liberalization move, reform would not be possible to proceed necessity.

Fourth, a proper system of foreign exchange rate is needed to protect the domestic financial sector. As is well known, both the peso crisis in Mexico and the financial crises in East Asia were triggered by their currency devaluation. Therefore, “putting the exchange rate right” is all the more important.

While fixed exchange rate can reduce some uncertainty of the economy and cut the cost of market transaction activities, it also has its inherited shortcomings. For instance, in order to maintain stability, the government sometimes needs huge reserves to intervene in the market. In addition, it is likely that the system of fixed exchange rate would “import” inflation from foreign countries. As a result, the government does not need large amount of reserves to intervene frequently in the market. However, the floating system encourages speculative activities, which tend to increase financial risks.<href=”#_ftn8″ name=”_ftnref8″ title=””>[8]


In the last decades, countries around the world have become more financially integrated, culturally diverse driven by the potential benefits of financial globalization. One of the main benefits of globalization is the development of the financial sector. Effects of globalization become deeper and more sophisticated when they integrate with world markets, increasing the financial alternatives for borrowers and investors. Financial markets operating in a global environment enable international risk diversification and facilitate consumption smoothing. Although financial globalization has several potential benefits, financial globalization also poses new challenges. The crises of the 1990s, after many countries liberalized their financial system, have questioned in part the gains of globalization. Countries become exposed to external shocks and crises, not only generated in their own country, but also from contagion effects. In the initial stages of liberalization, if the right infrastructure is not in or put in place, financial liberalization can lead to increased risks. Moreover, in a financially integrated economy, policymakers have fewer policy instruments to conduct economic policy.

The recent experiences with financial globalization yield some useful lessons for policymaking. Globalization’ has been established as one of the organizing terms of contemporary political economic inquiry. The term indicates that the idea of a cohesive and sequestrated national economy and domestic society no longer holds and that we witness the creation of a truly global economy and society and that everyday life is dependent on global forces. Thus, the claim is made that ‘globalization’ constitutes a Qualitative transformation of capitalism in that there has developed a new relationship of interdependence beyond the national states. Marx’s view of the world market and his notion that the need for a constantly expanding market for its products chases the bourgeoisie over the whole surface of the globe, appears to be emphasized by the ‘theory’ of globalization. Yet, it is not. For the globalist, there is no such thing as the bourgeoisie; instead ‘capitalism’ is viewed as some sort of economic system endowed with functional mechanisms that pertain over and above the social individual rendering both the working class and the bourgeoisie helpless. Both are seen to be subjected to the risk that globalization appears to present (Beck, 1992).


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