Driving Force of Globalisation Essay
Driving Force of Globalisation
An NIC stands for a Newly Industrialised Country. It is a term used to describe a country that has moved away from an agriculture-based economy and into a more industrialised, urban economy. These countries have a high growth rate. Current NICs include China, India, Brazil, Malaysia, Mexico, South Africa, Philippines, Thailand and Turkey. The average growth rate between these countries is approximately 7.64% compared to the world average of 3.7% (2011). The average Gross Domestic Product (GDP) per capita for these NICs is US$10,769 compared to the world average GDP per capita of US$12,000.
GDP is a useful indicator of development and a great measure for comparing differences between countries, therefore allowing a clear differentiation between countries that are Highly Industrialised Countries (HICs), Newly Industrialised Countries (NICs) or Low Industrialised Countries (LICs). The Human Development Index (HDI) is another strong indicator of development, it includes a combination of statistics: life expectancy, education and income. The average HDI of these NICs is approximately 0.6874. The world average HDI is 0.862.
India is now an NIC, as the IT services boom has transformed the country’s economy, which is now growing at more than 9% per year, the same rate as China. India’s HIC is 0.547(2011 estimate). Since China opened up its markets to the West in the 1980s, the city of Shanghai has transformed into a booming metropolis consisting of about 21 million people. Shanghai accounts for 30% of China’s foreign exports and attracts 25% of all foreign investment into the country. The GDP of Shanghai alone is US450 billion! China’s HDI is 0.867 (2011 estimate).
Globalisation is the stage of processes and impacts that occur at a global scale, usually economic systems, but it can include physical systems (global warming) and socio-cultural systems (fashion, music, film industry). Globalisation can be measured using the Globalisation Index, which tracks and assess changes in the 4 key components of global integration. Another measure of globalisation is the KOF Index of Globalisation. This calculates the overall index of globalisation and sub-indices referring to actual economic flows, economic restrictions, data on information flows, data on personal contact and data on cultural proximity.
NICs have been and continue to be the driving force of globalisation. Manufacturing tends to occur mainly in industrialised countries. Globally, manufacturing output continues to increase and most manufacturing still occurs in industrialised countries. Although relative contribution of manufacturing to most industrialised countries economies has declined, manufacturing remains fundamental to all economies. Many of the new industrialised countries are dramatically increasing their manufacturing output, by establishing their unique multi-nationals and implement manufacturing plants in developed countries. An example of a country doing this is South Korea. NICs have a variety of advantages over fully developed countries, as they are able to benefit from cheap labour costs, lower business taxes, cheaper land and fewer environmental controls.
Multi-nationals are hugely responsible for a large majority of the rise in globalisation, for example; the introduction of Trans-national companies (TNCs). These multi-nationals have huge benefits, i.e. they have generated millions of new jobs in NICs, however; they have also lead to social, political and economic problems within a country, as well as between countries. For example, Uganda, a very poor country with a GDP per capita of just $1,300 (2011), has been forced to lower its prices of exporting coffee, which is what its economy relies on.
Coffee prices have fallen by 70% since 1997, costing exporters in developing countries $8 billion in lost foreign-exchange earnings. This divides the gap between the rich and the poor, as the richer countries will benefit from trading, while the poorer countries, such as Uganda, will loose out in gaining money on exports, therefore making them poorer. TNCs dominate industrial production including manufacturing and services, therefore further dividing the gap between the rich and the poor, and being the main leader of globalisation as a consequence.
TNCs work to meet the demand for its good from HICs. For example, Toyota, like many other TNCs undertakes much of its manufacturing in LICs in order to meet the high and constant demand from HICs. Manufacturing in LICs is preferred as it provides these large companies with cheap labour. Toyota was recorded as the fifth largest TNC in 2010. It has 51 overseas manufacturing companies in 26 countries and regions, it has Design and Research and Development centres in the USA, Japan, Belgium, the UK, France, Thailand and Australia, and its headquarters are in Japan.
Globalisation inevitably increases pressure to liberalise trade and to eliminate tariffs and non-trade barriers. Liberalisation of trade within OPEC clearly resulted in China (an NIC) for example, gaining a comparative advantage over the US (MIC) in the manufacture of machinery products.
Globalisation has also been a resulting factor for the dramatic increase in technology. Bangalore, in the Silicon Valley of India is experiencing a remarkable IT boom, that is transforming the prospects of India’s economy. The internet is the fastest growing tool of communications. It took just 4 years for the internet to reach 50 million years, in contrast to the 38 years it took for radio and 13 years for television. However, the bulk of internet traffic is between and within North America, Western Europe and, to a limited extent, East Asia i.e. HICs and NICs. In Asia, Japan accounts for the major share of internet traffic, which is the reason for why this country has become an NIC, where as most other countries in Asia are LICs.
A number of charismatic new Indian companies are now challenging the multinationals for global leadership in this area, including TCS (TATA Consultancy Services), Infosys and WIPRO (the current global leader in technology). The IT services boom has helped to transform the Indian economy, which is now growing at more than 9% a year, comparable to China. The new-found affluence of the young workers in the IT sector has led to a change in attitudes to wealth and consumption in the country. More and more young people are increasingly being able to afford such luxuries, for example cars and home ownership.
On the other hand, NICs are not necessarily the driving force to globalisation. The reason for this is that these countries have only been able to develop due to the richer western countries. These MICs have the money to buy up land in poorer countries, as part of land colonization in order to meet the demand of these MICs. Many of the new industrializing countries (NICs) are dramatically increasing their manufacturing output, however this is only as a result of industrialised countries becoming established in the NICS.
The core periphery is a theory to explain the process by which some countries become wealthy and others become poor, subsequently increasing the divide between them. The patterns of trade that emerges from the 1500s onwards created a wealthy ‘core’ of European countries. The nations who supply these rich European countries remained poor and on the edge, known as the periphery. The Global core regions include North America, Europe and Japan. This core owns and consumes 80% of global goods and services, earns the highest incomes, makes most decisions about the global economy, e.g. what goods are produced, and provides most global investment. Therefore, richer countries control trade, and so have control of LICs to meet their large demand, subsequently being the driving force of globalisation.
Trade has been the engine of globalisation, with world wide trade in manufactures goods increasing more than 100 times (from $9.5 billion to $12 trillion) in the last 50 years. This has outpaced the overall growth of the global economy. Since 1960, increased trade has been made easier by international agreements to lower tariff and non-tariff barriers on export of manufactured goods, especially to rich countries. Those countries which have managed to increase their role in the world trading system (through implementing TNCs) by targeting exports to rich countries – such as Japan, Korea and now China. All these countries have seen a dramatic increase in their standard of living.
In conclusion, I strongly believe that NICs have been the driving force to globalisation. Moving to a more industrialised, urban economy will help any country to perform better in the global market, helping it to gain a higher growth rate and GDP. Having a higher HDI in a country will also help those countries to receive higher standards of living and an enhanced quality of life. Globalisation occurs as factor of change to economic, physical and socio-cultural systems, which all have large global influences. HICs have therefore, increasingly been the cause for globalisation, as they develop from an agriculture-based economy into an industrialised, urban economy.
University/College: University of California
Type of paper: Thesis/Dissertation Chapter
Date: 23 November 2016
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