2. The most important part of economic reforms
Aims at ensuring laissez-faire (as mentioned by
the neoclassical economists)
The integration of the distinct economies to
form an integrated global system
3. Removal of trade barriers e.g. tariff, quota etc.
Removal of barriers on international capital
movement
Ensuring higher global competitiveness
Technology transfer through MNCs
More freedom to domestic entrepreneurs
Serving interests of the consumers through
enhanced competition
4. Technology transfer ensures higher
productivity
Higher degree of competitiveness implies
higher productivity and efficiency
Domestic inflation can be controlled.
More freedom of choice for consumers
More efficient international specialization of
labour
5. Problem of uneven competition
“Export desperation” faced by LDCs
Emergence of a Centre-Periphery relationship
The MNCs become huge problems for LDC s
Exploiting the LDCs and causing
environmental damage by DC s
Problems of discriminations by developed
nations .
6. Foreign direct investment (FDI) : investment
made by a company or individual
Originating from one country and operating in
other country in following forms
1. establishing business operations
2. acquiring business assets in the other country
3. Collaboration with the domestic investor of
the host country.
7. Technology transfer
Transfer of knowledge
Employment opportunity in the host nation
Support to ancillary industries
Creates forward and backward linkage effects
Solves the problem of dual gap
8. The domestic industries are thrown out of
competition
Knowledge transfer doesn’t actually take place
Instead of supplementing domestic saving it
chokes off private savings
Exploits the cheap labour of the host
developing nation
Extracts surplus from the host nation
9. In favour of globalization
I. Vent for surplus theory
II. Ricardian theory of increasing TOT in favour
of LDCs
III. LDC s enjoy the benefit of technological
progress in DC s
10. Against globalization
1. Prebisch-Singer Hypothesis of secular decline
in TOT
2. Theory of “Immiserizing Growth” by Jagdish
Bhagawati
3. More chances of imported inflation
4. More exposed to international business cycle
facts
11. The new trend in the global economy during early
80’s
Own, control and conduct production unit in
several nations.
Maximum FDI’s are supplied by the MNC s.
The units in the host country works on contract
basis.
12. To access wider advantage for enhancing
global competitiveness
Benefits of horizontal and vertical integration
Economies of scale
More extensive way for market study and R&D
More efficient division of labour
13. Indirect exporting (through domestic agents of
host countries)
Direct exporting (through distribution offices )
Licensing (through local business unit on
contract)
Franchising ( a mode of payment contract)
Joint Ventures (partnership with a domestic
firm of the host country)
FDI
14. Solution of dual gap of LDCs
Solving the BOP crisis
Revenue for the government
Diffusion of managerial knowledge
Higher wage for domestic labour
Benefit for consumers (lower price and better
quality of goods)
Boost up for domestic investment
15. Squeezes profit of domestic industries
BOP crisis in the long run if the profit not
reinvested
Less contribution to public revenue
Employment opportunities confined into skill
labour
Widens economic gap
16. Key driver of Global FDI since 1980s
Merging with firms of host country
Acquiring firms in the host country
Acquisition requires equity stake of 10% or
more
17. Funds raised from both international and
domestic financial markets
Class between BOP concept (FDI
measurement) and the value of transaction
concept (measuring data on cross border M&A)
Payment for acquisition might exceed one year.
18. Merger of two MNCs can generate a Giant
MNC (e.g Mercedes and Chrysler)
Deregulation and liberalization support M&A.
The MNCs have also started to originate for
developing nations
The MNCs have also entered into important
service sectors.
19. Nations with rapid growth and
industrialization
Market hedge fund capital booming
Booming inflation adjusted GDP
Examples of emerging economies
1. BRIC- Brazil, Russia, India, China
2. MIKT- Mexico, Indonesia, South Korea,
Turkey
20. PCI range (10%-75% of average EU income in
terms of PPP per capita)
Converging towards DCs in growth rate
Economic integration through institutional
measures
45% of world GDP of the group of 50 countries
consisting BRIC, MIKT etc.