Impact of Globalisation (Revision Essay Plan)

Here is a suggested answer to a question on the impact of globalisation on developed and developing countries.

Introductory Context

An estimated 9 percent of the global population still lives below the international poverty line of US$1.90 PPP a day.Success in reducing poverty in East Asia is clear with 7 percent of the population in the region living below the US$3.20 PPP line and 25 percent living below the US$5.50 PPP poverty line in 2018. However, almost 70 percent of Sub-Saharan Africa’s population lives on less than US$3.20 per day. Progress in cutting extreme poverty has been halted by the pandemic. The World Bank estimated that the pandemic pushed between 119 and 124 million people into extreme poverty around the globe in 2020. Many developing countries have limited resilience to the impact of economic shocks and threats from climate change.”.

Source: Adapted from the World Bank Poverty Report, 2021

Question

To what extent have the economic benefits of globalisation favoured developed over developing countries? (25 marks)

KAA Point 1

Globalisation involves deeper integration between countries through networks of trade, capital flows, ideas, technologies and movement of people. One argument that globalisation has favoured high-income countries lies in the growing dominance of TNCs from advanced nations. TNCs base their manufacturing, assembly, research and retail operations across several countries, and many have become synonymous with globalisation namely Nike, Apple, Amazon, Google (Alphabet) and Samsung. Some have annual revenues many times higher than the GDP of smaller low-income countries and there has been fierce criticism of numerous TNCs for following tax avoidance strategies such as transfer pricing. This has reduced tax revenues for governments in developing nations which then hampers their ability to use fiscal policy to fund public services such as education and basic health care. The effect is to limit progress in reducing extreme poverty and improving human development outcomes.

Evaluation Point 1

A counter argument is that globalisation is associated with a steady reduction in import tariffs around the world which has then improved access to high-income markets for businesses from emerging countries. Many nations in east Asia have achieved reductions in extreme poverty driven by export-led growth. The extract says that only 7 percent of this region’s population now live below the US$3.20 PPP poverty line and continued high growth – as economies recover from the effects of the pandemic - will lead to improvements in per capita incomes and living standards. Indeed, sixty percent of the value of world GDP now comes from emerging market and developing economies and several countries have their own TNCs operating on a global scale. The recent success of countries such as South Korea, India and Vietnam is testimony to the opportunities that globalisation has offered developing nations who have developed competitive advantage across a range of industries.

KAA Point 2

A second argument supporting the question is that nations succeeding in a globalizing world have diversified economies, a workforce with flexible skills and governments with fiscal resources to overcome external shocks such as the pandemic. In contrast, poorer low-income countries rely heavily on the production and export of primary commodities or incomes from tourism, both of which have been hit by the global recession in 2020-21. Many poorer nations also haveinadequate infrastructure which increases the costs of trade and their direct tax revenues as a share of GDP are low because of sizeable informal economies and persistently low per capita incomes. This means that national governments rely heavily on external debt, and many have low currency reserves. They are therefore more exposed to economic, financial and public health shocks. This is evidenced by the differences in vaccination rates between rich and low-income countries. As of January 2022, only 9% of people in low-income countries have received at least one dose and per capita incomes may take years to reach pre-2020 levels.

Evaluation Point 2

In evaluation, the globalisation process has been a catalyst for economic reforms in low and middle-income countries. Consider the example of Vietnam which has transitioned to a socialist oriented market economy and successfully attracted inward FDI from companies such as LG and Samsung. FDIhas flowed in helped by low unit labour costs costs, improving infrastructure and human capital and a deregulated business environment whilst the Vietnamesegovernment has moved to a managed floating exchange rateto help reduce some of the risks from regional and global economic shocks. Vietnam is a good example of a country that has successfully progressed from a low income to a low-middle income nation over the last two decades. The valueof their external trade accounts for roughly 180% of national output, more than any other country at its level of per-person GDP. And their educational scores on standardized tests are on a par with Germany and Austria.

Final Reasoned Comment

Overall, it is hard to reach a firm view on this question because globalisation as a process is uneven and not inevitable. Before and during the pandemic, there was evidence of a switch towards “regionalisation” rather than full-throttled globalisation. For example, most sub-Saharan African countries have joined the African Continental Free Trade Area which seeks to boost intra-regional trade and investment and encourage economies of scale among African businesses so that they can better compete against the dominance of Western TNCs. Developing nations often struggle to compete with developed countries, therefore it is argued free trade benefits high-income economies more. Gains from globalisation will never be equitably distributed.And this sense of deepening inequality and opportunity risks a further shift to tariff and non-tariff barriers to trade and moves towards economic nationalism.