<–2/”>a >Definition of Globalization/”>Globalization-3/”>Globalization :- Its a process(not an outcome) characterized by increasing global Interconnections by gradual removal of barriers to trade and Investment between nation and higher economic efficiency through competitiveness.
Various economic, political, social and cultural effects of globalization are as follows:-
[su_heading size=”21″]Economic:-[/su_heading]
- Breaking down of national economic barriers
- International spread of Trade, Financial and productive activities
- Growing power of transnational cooperation and International financial Institutions(WTO, IMF)Through the process of:-
1- Liberalization-2/”>Liberalization– relaxation of restrictions, reduction in role of state in economic activities,decline in role of govt in key industries, social and infrastructural sector.
2- Privatization– Public offering of Shares and private sale of shares, entry of private sector in public sector and sale of govt enterprises.
3- FDI
4- International regulatory bodies(WTO,IMF)
5- MNC’s
6- Infrastructural development
7- Expansion of Communication-technology/”>Information and communication technology and birth of information age.
8- Outsourcing of Services– ie BPO and Call Centres.
9- Trade related Intellectual Property Rights(TRIPS)- product based patent rather than process based.
[su_heading size=”21″]Social effects:-[/su_heading]
- Withdrawal of National govt from social sectors ie declining share of govt in public spending, reducing social benefits for worker(social dumping,pension cuts,subsidies reduction)
- Labor reforms and deteriorating Labor welfare:-
- Labour Market deregulation:-
- Minimum wage fixing
- EMPLOYMENT security
- Modifying tax regulation
- Relaxed standards of security
- Increased Mechanization demands skilled labour and thus loss of job for unskilled labour
- Loss of jobs for traditional workers for example bihar silk workers due to imported Chinese- Korean silk
- Labour Market deregulation:-
- Feminism of Labour ie increased Women participation specially in soft industries
- Trickle down theory of POVERTY reduction has limited success and in agricultural nations poverty has infect increased.
- Unsustainable development practices such as:- excessive use of Fertilizers, Irrigation, fish trawling by mnc’s(Protein flight ),Exploitation of natural Resources by MNC’s.
- Migration and Urbanization have lead to problem of slums
- Commercialization of indigenous knowledge:- patenting
- Rising inequality in wealth concentration
[su_heading size=”21″]Cultural:-[/su_heading]
- Increased pace of cultural penetration
- Globalization of culture
- Development of hybrid culture
- Resurgence of cultural nationalism ie shivsena opposing valentine day
[su_heading size=”21″]Political:-[/su_heading]
- Globalization of National Policies- Influenced by International agencies
- Reducing economic role of govt
- Political lobbying
[su_heading size=”21″]Positive effects of Globalization[/su_heading]
- Increased competition
- Employment generation
- Investment and capital flow
- Foreign Trade
- Spread of technical know how
- Spread of Education
- Legal and ethical effects
- Improved status of women in the Society
- Urbanization
- agriculture:- greater efficiency,productivity, use of HYV seeds, Future contracts and Cooperative Farming
- Higher standard of living
Why there is a need of foreign capital?
Foreign capital is required because of following reasons.
- Inadequate domestic capital to fuel the economic Growth.
Foreign capital is perceived as a resource of filling the gap of the capital scarce country. It helps in maintaining the Foreign Exchange, accelerating government revenue, planning the investment necessary to achieve development target.
For example ‘Savings-investment’ gap
To achieve a planned growth rate of 7 percent per annum and the capital-output ration of 3 percent, rate of saving should be 21 percent. For domestic mobilization of 16 percent, there will be a shortfall of 5 percent. Thus the foremost contribution of foreign capital to national development is its role in filling the resource gap between targeted investment and locally mobilized savings.
- Stability of Foreign exchange.
Foreign capital is needed to fill the gap between the targeted foreign exchange requirements and those derived from net export earnings plus net public foreign aid. This is generally called the foreign exchange or trade gap.
- Reducing the Balance of Payment deficit.
An inflow of private foreign capital helps in removing deficit in the Balance of Payments over time if the foreign-owned enterprise can generate a net positive flow of export earnings.
- Helps in realizing the estimated tax revenue of government
The third gap that the foreign capital and specifically, foreign investment helps to fill is that between governmental tax revenue and the locally raised taxes. By taxing the profits of the foreign enterprises the governments of developing countries are able to mobilize funds for projects (like energy, Infrastructure-2/”>INFRASTRUCTURE) that are badly needed for Economic Development.
- Foreign investment meets the gap in management, Entrepreneurship, technology and skill.
These can be transferred to the host country through suitable training programmes and the processes. Further foreign companies bring with them sophisticated technological knowledge about production processes while transferring modern machinery equipment to the capital-poor developing countries.
In fact, in this era of globalization, there is a general belief that foreign capital transforms the productive structures of the developing economics leading to high rates of growth. Besides the above, foreign capital, by creating new productive assets, contributes to the generation of employment a prime need of a country like India.
Forms and types of foreign Capital
Foreign capital flow in a country can take place either in the form of investment, concessional assistance, foreign aid.
- Foreign Investment includes Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) / Foreign Institutional Investment (FII).
FPI includes the amounts raised by Indian corporate through Euro Equities, Global Depository Receipts (GDR’s), and American Depository Receipts (ADR’s).
- Non-Concessional Assistance mainly includes External Commercial Borrowings (ECB’s), loans from governments of other countries/multilateral agencies on market terms and deposits obtained from Non-Resident Indians (NRIs).
- Concessional Assistance includes grants and loans obtained at low rates of interest with long maturity periods. Such assistance is generally provided on a bilateral basis or through multilateral agencies like the World Bank, International Monetary Fund (IMF), and International Development Association (IDA) etc.
Grants do not carry any obligation of repayment and are mostly made available to meet some temporary crisis. Foreign Aid can also be received in terms of direct supplies of agricultural commodities or industrial raw materials to overcome temporary shortages in the economy. Foreign Aid may also be given in the form of technical assistance.
Role of Multinational Corporations in the Indian Economy
Prior to 1991 Multinational companies did not play much role in the Indian economy. In the pre-reform period the Indian economy was dominated by public enterprises.
Earlier Industries and firms are regulated through Industrial Policy, 1956 put some kind of restraint on private firms, as a consequence of which they didn’t able to expand beyond a limit.
While multinational companies played a significant role in the promotion of growth and trade in South-East Asian countries they did not play much role in the Indian economy where import-substitution development strategy was followed. Since 1991, with the adoption of industrial policy of liberalization, privatization
And globalization role of private foreign capital has been recognized as important for rapid growth of the Indian economy. So Multinational corporations have been allowed to operate in India subjected to some regulations.
Impact of Multinational countries on the country and general Population.
- Promotion Foreign Investment:
In the recent years, external assistance to developing countries has been declining. This is because the donor developed countries have not been willing to part with a
larger proportion of their GDP as assistance to developing countries. MNCs can bridge the gap between the requirements of foreign capital for increasing foreign investment in India.
The liberalized foreign investment pursued since 1991, allows MNCs to make investment in India subject to different ceilings fixed for different industries or projects. However, in some industries 100 per cent export-oriented units (EOUs) can be set up. It may be noted, like domestic investment, foreign investment has also a multiplier effect on income and employment in a country.
For example, the effect of Suzuki firm’s investment in Maruti Udyog manufacturing cars is not confined to income and employment for the workers and employees of Maruti Udyog but goes beyond that. Many workers are employed in dealer firms who sell Maruti cars.
Moreover, many Intermediate Goods are supplied by Indian suppliers to Maruti Udyog and for this many workers are employed by them to manufacture various parts and components used in Maruti cars. Thus their incomes also go up by investment by a Japanese multinational in Maruti Udyog Limited in India.
2. Non-Debt Creating Capital inflows:
In pre-reform period in India when foreign direct investment by MNCs was discouraged, we relied heavily on External Commercial Borrowing (ECB) which was of debt-creating capital inflows. This raised the burden of External Debt and debt service payments reached an alarming figure of our Current Account receipts.
This created doubts about our ability to fulfill our debt obligations and there was a flight of capital from
India and this resulted in balance of payments crisis in 1991. As direct foreign investment by multinational corporations represents non-debt creating capital inflows we can avoid the liability of debt-servicing payments. Moreover, the advantage of investment by MNCs lies in the fact that servicing of non-debt capital begins only when the MNC firm reaches the stage of making profits to repatriate Thus, MNCs can play an important role in reducing Stress strains and on India’s balance of payments (BOP).
3. Technology Transfer:
Another important role of multinational corporations is that they transfer sophisticated technology to developing countries which are essential for raising productivity of working class and enable us to start new productive ventures requiring high technology. Whenever, multinational firms set up their subsidiary production units or joint-venture units, they not only import new equipment and machinery embodying new technology but also skills and technical know-how to use the new equipment and machinery.
As a result, the Indian workers and engineers come to know of new superior technology and the way to use it. In India, the corporate sector spends only few resources on Research and Development (R&D). It is the giant multinational
corporate firms (MNCs) which spend a lot on the development of new technologies can greatly benefit the developing countries by transferring the new technology developed by them. Therefore, MNCs can play an important role in the technological up-gradation of the Indian economy.
4. Promotion of Exports:
With globalization and producing products efficiently and therefore with lower costs multinationals can play a significant role in promoting exports of a country in which they invest. For example, the rapid expansion in China’s exports in recent years is due to the large investment made by multinationals in various fields of Chinese Industry.
Historically in India, multinationals made large investment in plantations whose products they exported. In recent years, Vistara airlines made a large investment in airline industries with a joint collaboration with Tata Industries.
BrahMos missile is a joint venture of Govt. of India with Russia, which is being sold to Vietnam, will bring income to India.
As a matter of fact until recently, when giving permission to a multinational firm for investment in India, Government granted the permission subject to the condition that the concerned multinational company would export the product so as to earn foreign exchange for India.
However, in case of Pepsi, a famous cold -drink multinational company, while for getting a product license in 1961 to produce Pepsi Cola in India it agreed to export a certain proportion of its product, but later it expressed its inability to do so. Instead, it ultimately agreed to export things other than what it produced such as tea.
5. Investment in Infrastructure:
With a large command over financial resources and their superior ability to raise resources both globally and inside India it is said that multinational corporations could invest in infrastructure such as power projects, modernization of Airports and posts, Telecommunication.
The investment in infrastructure will give a boost to industrial growth and help in creating income and employment in the India economy. The external economies generated by investment in infrastructure by MNCs will therefore crowd in investment by the indigenous private sector and will therefore stimulate economic growth.
In view of above, Make in India initiative, Skill India Initiative, current demographic scenario of India, foreign direct investment (FDI) will be encouraged and actively sought, especially in areas of (a) infrastructure, (b) high technology and (c) exports, and (d) where domestic assets and employment are created on a significant scale
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Globalization is the process of increasing interconnectedness between countries and people. It has been driven by advances in technology, communication, and transportation. Globalization has had a profound impact on the world economy, society, and Environment.
Economic impacts of globalization
Globalization has led to increased trade and investment, which has boosted economic growth in many countries. However, it has also led to job losses in some industries, as companies have moved their production to countries with lower labor costs.
Increased trade and investment: Globalization has led to increased trade and investment between countries. This has been driven by the reduction of trade barriers, such as tariffs and quotas, and the improvement of transportation and communication infrastructure. Increased trade has led to lower prices for consumers and increased choice. Increased investment has led to new jobs and economic growth.
Job losses: Globalization has also led to job losses in some industries, as companies have moved their production to countries with lower labor costs. This has been particularly evident in the manufacturing sector, where many companies have moved their production to China and other low-wage countries. Job losses have led to increased Unemployment and economic hardship in some countries.
Increased economic growth: Overall, globalization has led to increased economic growth in many countries. This is due to the increased trade and investment that globalization has brought about. Increased economic growth has led to higher incomes, more jobs, and improved living standards for many people.
Increased inequality: However, globalization has also led to increased inequality in some countries. This is because the benefits of globalization have not been evenly distributed. The wealthy have benefited more from globalization than the poor. This has led to a widening gap between the rich and the poor in some countries.
Increased poverty: Globalization has also led to increased poverty in some countries. This is because globalization has led to the displacement of some workers, who have been unable to find new jobs. It has also led to the decline of some industries, which has led to job losses and economic hardship.
Increased debt: Globalization has also led to increased debt in some countries. This is because governments have borrowed Money to finance infrastructure projects and to support social programs. The debt burden has made it difficult for some countries to invest in their economies and to provide basic services to their citizens.
Social impacts of globalization
Globalization has led to increased cultural exchange and understanding, but it has also led to increased cultural conflict and the spread of negative stereotypes. It has also led to increased migration, which has put a strain on some countries’ resources.
Increased cultural exchange and understanding: Globalization has led to increased cultural exchange and understanding. This is because people from different cultures are now more likely to interact with each other. This has led to a greater understanding of different cultures and a more tolerant society.
Increased cultural conflict: However, globalization has also led to increased cultural conflict. This is because people from different cultures may have different values and beliefs. This can lead to conflict, especially when people are not tolerant of other cultures.
Spread of negative stereotypes: Globalization has also led to the spread of negative stereotypes. This is because people from different cultures may not understand each other. This can lead to the spread of negative stereotypes about other cultures.
Increased migration: Globalization has also led to increased migration. This is because people are now more likely to move to other countries in search of better opportunities. This has put a strain on some countries’ resources, such as housing and healthcare.
Environmental impacts of globalization
Globalization has led to increased pollution and Environmental Degradation, as companies have moved their production to countries with less stringent environmental regulations. It has also led to increased consumption of resources, which is putting a strain on the planet’s Ecosystems.
Increased pollution: Globalization has led to increased pollution. This is because companies have moved their production to countries with less stringent environmental regulations. This has led to increased emissions of greenhouse gases and other pollutants.
Environmental degradation: Globalization has also led to environmental degradation. This is because companies have moved their production to countries with less stringent environmental regulations. This has led to deforestation, Water Pollution, and other forms of environmental degradation.
Increased consumption of resources: Globalization has also led to increased consumption of resources. This is because people are now more likely to buy goods and services from other countries. This has put a strain on the planet’s resources, such as water, oil, and Minerals.
Climate change: Globalization has also contributed to Climate Change. This is because the increased consumption of resources has led to increased emissions of greenhouse gases. Climate change is a major threat to the planet’s ecosystems and to human society.
Loss of Biodiversity-2/”>Biodiversity: Globalization has also led to the loss of biodiversity. This is because the increased consumption of resources has led to the destruction of habitats and the extinction of species. Biodiversity is essential for the planet’s ecosystems and for human Health.
What is globalization?
Globalization is the process of increasing interconnectedness between countries and people. It is driven by the spread of technology, trade, and investment.
What are the benefits of globalization?
Globalization can lead to increased economic growth, trade, and investment. It can also lead to the spread of technology and ideas.
What are the costs of globalization?
Globalization can lead to job losses in some countries, as companies move their operations to countries with lower labor costs. It can also lead to environmental problems, as companies produce more goods and services.
What are the challenges of globalization?
One of the biggest challenges of globalization is the rise of inequality. As companies move their operations to countries with lower labor costs, workers in developed countries can lose their jobs. This can lead to increased inequality between rich and poor countries.
Another challenge of globalization is the environmental impact. As companies produce more goods and services, they use more resources and produce more pollution. This can lead to environmental problems, such as climate change.
What are the future trends of globalization?
Globalization is likely to continue in the future. The spread of technology and the growth of the global economy will continue to drive globalization.
However, there are some challenges that could slow down globalization. The Rise of Nationalism and protectionism could lead to more trade barriers. The environmental impact of globalization could also lead to more regulations.
What can be done to address the challenges of globalization?
There are a number of things that can be done to address the challenges of globalization. One is to invest in education and training so that workers in developed countries can compete with workers in developing countries. Another is to promote trade agreements that protect workers’ rights and the environment. Finally, we need to find ways to reduce inequality and promote Sustainable Development.
Sure, here are some MCQs on the topics of globalization, international trade, and foreign direct investment:
-
Which of the following is not a factor that has contributed to the growth of globalization?
(A) The fall of the Berlin Wall
(B) The rise of the Internet
(C) The invention of the printing press
(D) The Industrial revolution -
Which of the following is not a benefit of globalization?
(A) Increased trade and investment
(B) Lower prices for consumers
(C) More choices for consumers
(D) Increased competition -
Which of the following is not a cost of globalization?
(A) Job losses in developed countries
(B) Environmental damage
(C) Increased inequality
(D) Increased poverty -
Which of the following is the most common form of international trade?
(A) Goods
(B) Services
(C) Capital
(D) Technology -
Which of the following is the most common form of foreign direct investment?
(A) Greenfield investment
(B) Mergers and acquisitions
(C) Portfolio investment
(D) Reinvestment of earnings -
Which of the following is not a reason why companies engage in foreign direct investment?
(A) To access new markets
(B) To exploit economies of scale
(C) To reduce costs
(D) To avoid taxes -
Which of the following is the most common form of government intervention in international trade?
(A) Tariffs
(B) Quotas
(C) Subsidies
(D) Embargo -
Which of the following is the most common form of government intervention in foreign direct investment?
(A) Performance requirements
(B) Screening
(C) National Treatment
(D) Most-favored-nation treatment -
Which of the following is the most common international organization that deals with trade?
(A) The World Trade Organization
(B) The International Monetary Fund
(C) The World Bank
(D) The United Nations -
Which of the following is the most common international organization that deals with foreign direct investment?
(A) The Organization for Economic Co-operation and Development
(B) The United Nations Conference on Trade and Development
(C) The International Monetary Fund
(D) The World Bank