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IMPACT OF GLOBALIZATION

ON DEVELOPING COUNTRIES

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How globalization takes place

Globalization has its roots in neo-liberal


theory.

Trade and finance liberalization, deregulation,


privatization and structural adjustments are
aspects / elements common to globalization.

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(a) Trade Liberalization


Trade liberalization is also known as free
trade.
Specifically trade liberalization is the
agreement between governments of poorer
nations and either richer countries or
multinational investment banks and or TNCs.
The free trade policies of these trade
agreements break down national barriers to
trade be it tariffs, taxes or labour unions (or
TNCs intellectual property rights).
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The theory behind trade liberalization is that of increase


quality of life through freer foreign market access.
The reality of the trade liberalization is:
Increased poverty
Elimination of national control over markets
Removed internal market protections
Actual economic benefits is minimal compared to the
social deconstruction
TNCs benefit more than poorer nations
Homogenization of cultures.
These trade agreements benefited a small few but
significantly hampered growth of entire regions.

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(b) Financial Liberalization


Financial liberalization is the manipulation of
the financial structure, national interest
rates and currency of nations on the IMF and
World Bank doll / model.
This basically refers to free capital mobility ie
the opening up by a country to international
capital flows.
The collapse of the international fixed
exchange rate system made it possible for
profit to be made from speculation on
changes in the rates of currencies.
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The theory behind financial liberalization is


make economic climate acceptable to
investments
The reality of the theory is however:
(i) Deeper recessions (fall of countrys gross
national product) decline in business
activity.
(ii) Lay offs (stops / end)
(iii) Currency collapse
(iv) Financial crisis

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(c) Deregulation

This refers to the process which reduces


state control over business and the market
place.

Deregulation means no price controls, no


minimum wage and the de-unionizing of
workers.

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The theory behind deregulation is allow unrestricted


access to internal markets by foreign investors. Strip
down government to allow for competitiveness on the
open market.
The reality has however been:
(i) It created economic stagnation
(ii) Caused capital shift from the periphery to the core
(iii) Double standard between periphery and core
resulting in trade imbalances.
(iv) Shifts control of trade from nation to foreign
investors.
(v) Externalizes societal costs.

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(d) Privatization
This refers to the practice of taking what was
once a public service and handing it over to
for-profit organization.
The theory behind privatization is: provide
for foreign investment opportunity and
stabilize fragile peripheral economies.
The reality of the theory has been putting
needed social care and basic necessities of
life in the hands of profit motivated
corporations.
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(e) Structural Adjustment Programs

This is aimed at the promotion of production


and resource mobilization through promotion
of commodity exports, public sector reforms,
market liberalization and institutional reforms.
The program seeks to limit the role of
government in the economy, promote private
sector operations and remove restrictions in
the economy and ensure market determined
prices.
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The theory behind SAPs is remove fat from the


government to increase national profit
The reality of SAPs theory has however been:
(i) Increases government indebtedness and
shrinking tax base undermined shaky
national finances
(ii) Removal of social services increase poverty
(iii) Women and children are required to make
do with less assistance
(iv) Debt payback is used as a leverage to force
nations against their democratic rule.
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According to the IMF and WB SAPs will


spur growth but the reality has been
poverty.
SAPs have been used as loan
conditionality by the IMF and WB.
The Bretton Woods institutions eg. WTO
have become much more powerful than
the UN. As a result their type of
globalization has predominated.

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Bretton Woods Institutions promote the principles


of liberalization and the laissez-faire market model
and give high priority to commercial interests, thus
they are given the role of leading the globalization
of policy making.

The UN and its agencies represent the principles


of partnership where the richer countries are
expected to contribute to the development of the
poor countries and where the rights of people to
development and fulfillment of social needs are
highlighted. (This is not favoured by powerful
nations).

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Opportunities and challenges of globalization


Opportunities
Each country is expected to design and implement
national policies in various areas in order to take
advantage of the opportunities that globalization
provides.
There are three distinct opportunities:
The demand for a countrys product is no longer
constrained by its own markets
A countrys investment is no longer constrained
by what it can save itself.
A countrys producers can have access (at a
price) to the most advanced technology
Despite the above opportunities there are challenges /
risks that come along with globalization.
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Challenges / risks
Some of the challenges are:
Lack of complete access to product markets
caused by both trade barriers and hefty subsidies
in developed countries on commodities of interest
to agricultural producers.
Limited access to financial resources and for
some countries high conditionality attached to
concessional resources.
The constraints on acquiring technology in terms
of resources both human and financial and
inadequate infrastructure.

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Generally globalization has become all pervasive; it has


even appeared to many to be almost a force of nature.
The UN and other multilateral agencies initiated a number
of international conferences at the summit or ministerial
level to achieve a global consensus on issues of
globalization and development.
The aim of these multilateral agencies is to see to it that
as nations and people become interconnected and
interdependent, they recognize that there is a collective
responsibility to uphold the principles of human dignity,
equality and equity at the global level.
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