International Business

Custom Student Mr. Teacher ENG 1001-04 25 December 2016

International Business

In present time and age globalisation has gained much more importance then what it had about thirty years ago. No doubt globalisation started ever since human being existed on this planet, but it is observed that in this era geographical boundaries has a very little part to play, when it comes to trade, culture, travelling and communication. Effects of this integration of different economies will have its outcomes and many of them can be seen already.

In most countries however due to Globalization one can see the growing concern regarding employment and income distribution (Lee & Vivarelli 2006, p. 168). Based on qualative and quantative analysis this paper would come with the conclusion to suggest wether globalisation is beneficial for everybody or the complete opposite. Globalisation means increasing flows of trade, finance and factors of production across the border, with the help of faster transportation and effective communications set up.

It is globalisation which is compeletly responsible for making this world a global village. With globalisation, international bonds develop not just amongst specific groups of countries but across a wide global network in which factors of production or finished goods can move freely. The second era of globalisation that we are now living has come as a outcome of a numerous factors, not only because of of internet (which has allowed the speedy flows of massive volumes of information) but also because of intense changes in institutional environments.

The economic ideas of the 1970s promoted moves towards financial liberalisation and deregulation within a large number of OECD countries during the 1980s and 1990s, the policy approaches of the Bretton Woods institutions were also modified with the Washington Consensus being built upon the promotion of economic severity, privatisation and liberalisation Stiglitz and Gualerzi (cited in Baddeley 2006, p 392). Furthermore, Baddeley claims that this deregulation has made the movement of capital and factors of production across national boundaries, contributing to the globalisation process

In most countries, however, the current wave of “globalization” has been accompanied by increasing concern about its impact in terms of employment and income distribution (Lee & Vivarelli 2006). Evidence has been provided from group studies to explain that globalisation does promotes growth by Dreher (cited in Baddeley 2006, p 393). However, it has been argued that the benefits do not essentially help to alleviate poverty.

Krugman and Venables( cited in (cited in Baddeley 2006, p 393) emphasize that globalisation has the potential to benefit less-developed nations but at the start globalisation will worsen world inequality but then it will reduce it down. For example—as transport costs fall below a threshold, developing nations suffer real income declines. Falling transport costs allow core nations to exploit greater economies of scale in manufacturing to the loss of manufacturing sectors in developing economies. Labour demand will fall in peripheral nations and rise in core nations as a consequence.

Milanovic (cited in Baddeley 2006, p. 394) completely discards the view of globalisation as something that would benefit any economy, he also provides evidence that, since 1870, globalisation has worsen international inequality with particularly prominent increases in inequality during the 1978–1998 globalisation era. He argues that the blow on less developed countries have been severe which means per capita GDP has not increased in Africa and a number of less developed countries are in a financial crisis and many transition economies are facing extraordinary levels of debt.

The point worth mentioning here is that globalisation has increased the level of business activity all around the world but to be honest for many developing countries this is of very little use rather it is to the their detriment. Now when the host country provides its labour and resources, it is just like other economies eating away host countries resources. Plus all the profits are gone somewhere else. And the story does not end here, on the other side developing countries have always been forcing all the countries to reduce the amount of tariff and import duties and talking about how good free trade is.

Now the rich countries enjoy economies of scale therefore the imported goods in some poor countries are cheaper than their own home base industry products. This discourages the economy of developing countries and does not allow it to become self sufficient. (Kaplinsky 2001, p. 60) When we look at the labour market outcomes, (Wood 1998, p. 1463) explains that there have been gaps between skilled and unskilled labour both in terms of wages and in terms of unemployment rates and claims that globalisation is the most likely cause for this rising inequality. Feenstra 1998, p. 37) adds outsourcing into the reasearch to prove that the outcomes of globalisation on employment and wages will be comparable to the outcomes of skills-biased technological innovation.

Which means demand for skilled labour in less developed countries will rise but the demand for unskilled labour will fall contributing to wage inequality. Even though globalisation has encouraged factor price equalisation, it has been at the expense of lower incomes for low-skilled workers. (Williamson 1997, p. 5) explains that factor-price convergence in the earlier stages of globalisation improved conditions for unskilled workers in Europe but made the situation worse for poor unskilled workers in the new global village. As per the concept of comparative advantage, trade and FDI both should take advantage of the cheap and readily available amount of labour in developing countries and so generate a movement of specialization in domestic labour intensive Activities and, ultimately, an expansion in local employment (Lee & Vivarelli 2006, p. 170)

On the contrary Heckscher-Ohlin recent research leads to the conclusion that the employment impact of increasing trade is not necessarily positive for a developing country. In a developing country, the final employment impact of increasing trade depends on the interaction between productivity growth and output growth both in traded-goods sectors and in non-traded sectors. The final outcome cannot be assessed for different reasons. On the one hand, export may involve demand-led economic and employment growth, but – on the other hand – imports may displace previously protected domestic firms, inducing labour redundancy.

Moreover, in the presence of supply constraints (lack of infrastructure, scarcity of skilled labour, under-investment, labour market inefficiencies), productivity growth may exceed output growth even in the exporting sectors, to the detriment of job creation Fosu and Reddy (Lee & Vivarelli 2006, p. 171). Finally, lucky sectors of the domestic economy e. g. agriculture, public administration, construction, non-traded services may act as labour sinks, often implying hidden unemployment and underemployment in the informal labour market .

Shifting the center of attention from trade to FDI inflows, when a developing country opens its borders to foreign capital, FDIs generate positive employment effects directly and indirectly through job creation by suppliers and retailers. They also produce a tertiary employment effect by generating extra incomes and in that way increasing total demand (Sanjaya 2004, p. 91). By comparing the labour intensities of exported, imported and non-traded goods, it is sorted out that in 21 out of 39 sampled developing country which is an increase in the level of trade resulted in an increase in employment.

In the remaining group of 18 countries, however, increased integration in the global economy produced a reduction in employment which is the opposite of (Heckscher-Ohlin theorem). In reality inequality comes from a bunch of other sources: corruption, the overextended power of states, technological change, demographic change and diseases, the spread of AIDS in Africa etc. Globalisation, engagement with the wider changes in the world, is as crucial for the less developed countries as it is for the more developed ones.

No country which has cut itself off from the wider world has prospered. Take a look at North Korea or Burma to see what happens to a country which tries to simply isolate itself from the world economy. Future is not in regionalism or dull protectionism. That does not mean you should simply accept free trade. Industries should only be opened up to markets when certain favourable conditions prevail. Nonetheless, you do need to tackle with the wider global economy. “The main challenge for poorer countries is to find what circumstances of that engagement are” (Giddens 2000)

People on both sides of this debate have been very swift to draw conclusions about the Impacts of “globalization” from their measured poverty numbers. The title of a book published recently by the International Forum of Globalization asks: “Does globalization help the poor? ” and the book confidently answers the question with a big “no. ” The back cover of Bhalla (2002) asks: “Who has gained from globalization? ” and answers with equal confidence: the poor. However, readers of neither book will become any wiser about the answer to these questions than when they started.

Actually neither book contains the sort of analysis that would be needed to convincingly allow acknowledgment of the claimed changes in poverty and inequality to “globalization. ” I am not given any evidence that would allow me to identify the role played by greater openness to external trade in the distributional changes observed, against other factors such as rising agricultural productivity, demographic factors, changes in the distribution and returns to education and internal policy reforms (Ravallion, p. 15). Globalisation is like a fire, a form of force which is bad if not controlled but useful if channelled responsibly.


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  • University/College: University of California

  • Type of paper: Thesis/Dissertation Chapter

  • Date: 25 December 2016

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