A brief discussion over the desirability of global integration in the perspective of developing nations

1. GLOBALIZATION AND THE
WORLD ECONOMY

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.