Definitions of Globalization

According to businessdictionary.com, globalization is the worldwide movement toward economic, financial, trade, and communications integration. Globalization implies the opening of local and nationalistic perspectives to a broader outlook of an interconnected and interdependent world with free transfer of capital, goods, and services across national frontiers. According to Wikipedia.com, globalization can be defined as the increasing economic and financial integration of economies around the world. The term broadly refers to the worldwide changes that are taking place to remove national boundaries from the financing, production, sale and distribution of goods and services.It is important to note that globalization not only refers to the actual movement of trade but also to the capacity and the potential to move across the borders of nations, investment, technology, finance and labour. According to the Lexicon dictionary, Globalization describes a process by which national and regional economies, societies, and cultures have become integrated through the global network of trade, communication, immigration and transportation. According to Investopedia.com, globalization is the tendency of investment funds and businesses to move beyond domestic and national markets to other markets around the globe, thereby increasing the interconnectedness of different markets.

Factors Responsible for Globalization

Innovation of Technology
Technological developments are conceived as the main facilitator and driving force of most of the globalization processes. It has contributed to globalization by supplying infrastructure for trans-world connections where it is possible to share and process information among nations and people regardless of geographic location. In particular, developments in means of transport, communications, and data processing have allowed global links to become denser, faster, more reliable, and much cheaper. Technology has enabled the world to become more interconnected, beyond the economic sphere, with greater access to information and communication which is having a profound impact on societies. The Internet has transformed commerce by creating new ways for retailers and their customers to complete transactions. Information technology was necessary to enable globalization because it made knowledge an increasingly important component in the production of goods and services. Technology has typically been introduced to developing countries by large multi-national companies doing business there and so the technology used has originated in developed countries, where most of these companies research and development takes place.

Trade liberalization
Global production and trade are greatly promoted by liberalization, since the 1980s, governments have reduced many barriers to international trade through international agreements such as the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO). These agreements have led to many initiatives to promote what is called free trade, including: The elimination of tariffs (taxes on imported goods) The elimination of import quotas (limits on the amount of any product that can be imported) The creation of free trade zones where there are only small or no tariffs as well as cheap land and skilled, but controlled, labour The reduction or elimination of controls on the movement of capital out of a country so profits can easily be returned to the base country or a tax-haven The establishment of local subsidies for global corporations so that they can make things cheaper in one country rather than another These economic and trade reforms are a central part of free -market economics which greatly increased opportunities for international trade and investment. Taking advantage of new opportunities in foreign markets, large corporations are able to source their raw materials from many different countries and establish factories and sales outlets all over the world. Thus, while there are many forms of globalization, one of its most significant aspects is its dependence on free trade.
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Liberalization of Capital Markets

Capitalism has been a further force for globalization. More specifically, global markets offer prospects of increased profits through higher sales volumes. In addition, larger production runs to feed global markets promise enhanced profits due to economies of scale. Capitalists also pursue globalization since it allows production facilities to be sited wherever costs are lowest and earnings greatest. Furthermore, global accounting practices enable prices and taxes to be calculated in ways that raise profits. Finally, global connections themselves

(telecommunications, electronic finance, and so on) create major opportunities for profit making. Economists believed that globalization increases the economic opportunity and prosperity to the developing world. International trade became significantly profitable throughout the process of openness to foreign direct investment stimulating of domestic capital formation and enhancing efficiency and productivity by the foreign direct investment can contribute to the economic growth. Trade liberalization is being found to increase economic opportunities for consumer and producers to lift up earning for workforce and that under greater openness to trade, resources tend to be reallocated away from less efficient activities and towards productive activities. Surprisingly, Foreign Direct Investment (FDI) managed to attract the openness towards the free flow of capital, which leads to the development of domestic investment and contribute to employment generation for economic growth. Financial openness certainly helps to increase the depth and breadth of domestic financial markets which cause to increase the efficiency in financial markets through lower costs and improved resources allocation.

Effects of Globalization on Developing Countries

Economic integration and free trade conditions have produced an unstoppable movement towards economic globalization. Most economists applaud the trend, pointing to the modernization and growing wealth that have resulted. Some positive effects of Globalization on developing countries are as follows:

Access to New Markets

Globalization leads to freer trade between countries. This is one of its largest benefits to developing nations. Home-grown industries see trade barriers fall and have access to a much wider international market. The growth this generates allows companies to develop new technologies and produce new products and services.

Cheaper Prices for Consumers

When businesses start to venture across international borders, what they often do is introduce a new standard into the global marketplace. Consumers have more options to choose from. With more competitors to fight over market share, each company has to constantly look to improve their goods or services or create more value for their customers. This means better products and sometimes lower prices, which is always a good thing for buyers.

Increased Competition
Another effect of globalization is the improved quality of products due to global competition. Customer service and the 'customer is the king' approach to production have led to improved quality of products and services. As domestic companies have to fight out foreign competition, they are compelled to raise their standards and customer satisfaction levels in order to survive in the market. Besides, when a global brand enters a new country, it comes in riding on some goodwill, which it has to live up to. This creates competition in the market and a 'survival of the fittest' situation.

Employment
With globalization, companies have ventured into developing countries and hence generated employment for them. The influx of foreign companies into developing countries increases employment in many sectors, especially for skilled workers. It has given an opportunity to invest in the emerging markets and tap the talent which is available there. In developing countries, there is often a lack of capital which hinders the growth of domestic companies and hence, employment.

Investment and Capital Flows

Globalization has also enabled increased levels of investment. It has made it easier for countries to attract short term and long term investment. Investment by multinational companies can play a big role in improving the economies of developing countries. Companies

which perform well attract a lot of foreign investment and thus push up the reserve of foreign exchange. The recent globalization process poses significant challenges to small developing economies such as those in the Caribbean, for Caribbean countries the impact of globalization on trade has been reflected in increased liberalization and market-opening policies. Some negative effects are as follows:

Unemployment
Automation in the manufacturing and agricultural sectors lessens the need for unskilled labour and unemployment rises in those sectors. If there is no infrastructure to help the unemployed train for the globalized economy, social services in the country may become strained trying to care for the new underclass.

Widening Disparity in Incomes

While an influx of foreign companies and foreign capital creates a reduction in overall unemployment and poverty, it can also increase the wage gap between those who are educated and those who are not. Over the longer term, education levels will rise as the financial health of developing countries rise, but in the short term, some of the poor will become poorer. Not everyone will participate in an elevation of living standards.

Loss of Preferential Markets

Developing countries often struggle to compete with developed countries; therefore it is argued free trade benefits developed countries more. There is an infant industry argument which says industries in developing countries need protection from free trade to be able to develop.

Environmental Costs
One problem of globalization is that it has increased the use of non-renewable resources. It has also contributed to increased pollution and global warming. Firms can also outsource production to where environmental standards are less strict.

Labour Drain
Globalization enables workers to move more freely. Therefore, some countries find it difficult to hold onto their best skilled workers, who are attracted by higher wages elsewhere.

Less Cultural Diversity

Globalization has led to increased economic and cultural hegemony. With globalization there is arguably less cultural diversity, however it is also led to more options for some people. The implications of globalization for a national economy are many. Globalization has intensified interdependence and competition between economies in the world market. This is reflected in

Interdependence in regard to trading in goods and services and in movement of capital. As a result domestic economic developments are not determined entirely by domestic policies and market conditions. Rather, they are influenced by both domestic and international policies and economic conditions. It is thus clear that a globalizing economy, while formulating and evaluating its domestic policy cannot afford to ignore the possible actions and reactions of policies and developments in the rest of the world. This constrained the policy option available to the government which implies loss of policy autonomy to some extent, in decision-making at the national level.

Bibliography
Internet Sources
Lexicon dictionary.com businessdictionary.com Investopedia.com Wikipedia.com Economics.com Tutor2u.com

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