Globalization and National Economic Development: Analyzing Benefits and Costs

By Anwar, Sajid | Journal of Business and Management, Fall 2002 | Go to article overview

Globalization and National Economic Development: Analyzing Benefits and Costs


Anwar, Sajid, Journal of Business and Management


GLOBALIZATION AND NATIONAL ECONOMIC DEVELOPMENT: ANALYZING BENEFITS AND COSTS*

Recognizing that liberalization of economies leads to economic growth, many governments throughout the world have been eager to embrace globalization. Generally this has led to higher rates of growth. Indeed, those countries which have avoided globalization have been the slowest growing group of economies. However, a growing number of individualsmany within the fastest growing economies, including the developed countries-are joining the protests against globalization. This paper attempts to explain the reasons for the push for and the protests against globalization. The objective of the paper is achieved by examining the impact of globalization on labor and capital markets.

INTRODUCTION

Globalization refers to a situation in which national economies amalgamate into an autonomous global economic system (Hill, 2002). In other words, globalization can be viewed as the shift towards a more integrated and interdependent world economy.1Globalization provides opportunities beyond domestic markets and allows for a greater degree of economies of scale in production and sales potential. As Adam Smith might have argued, the extent of specialization is extended by the size of the market. Globalization is closely linked to economic growth, which is related to the growth of international trade (Van Den Berg, 2001). Multinational Corporations (MNCs) are among the main engines of globalization, which is driven by capital seeking profits across national borders.

As this process of economic globalization proceeds, however, it impacts on other aspects of human organization. Critics charge that globalization will destroy the political power of a community by eroding the capacity of the state to operate as a defender of local customs and laws and an agency for mitigating the egalitarian impact of an unrestrained market and checking the power of large organizations of capital. They also argue that cherished aspects of society and culture may be homogenized by the conformist-encouraging products and marketing methods of private institutions with a global reach and an interest in creating a more uniform market for their products.

Globalization can be divided into two broad categories: the globalization of markets and the globalization of production. The globalization of markets is the coming together of distinct and separate national markets into a single global market. Globalization of markets is not standardization. As far as the consumer goods are concerned at present due to cultural and other differences there is little convergence in taste.2 However in the area of capital-intensive manufactured products tastes are very similar, as, for example, with microprocessors, cars and aircraft. The same applies to the market for financial assets. Due to improvements in standards of living, customers are demanding specialized and customized products that draw from worldwide best practices.

Globalization of production refers to the inclination of firms to source goods and services from locations around the globe to take advantage of the availability of cheaper factors of production. This allows firms to reduce the average cost of production. In addition firms are able to supply a wider range of goods and services. Consumers benefit from lower costs and greater product diversity.3 For a firm to have a sustainable long-term competitive advantage, it has to cater to customer needs in a way that cannot be easily copied or imitated. This must be done across a wide variety of markets (Prahalad & Hamel, 1990). Globalization became a buzzword for describing business practices in the 1990s. Globalization is not a new phenomenon. It is a process that has been going on for centuries. However it gained momentum during the past few decades.4 The big leap to more globally integrated markets took place in the second half of the 1911 century.

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