Is globalisation a threat or an opportunity to

developing countries?
LITERATURE REVIEW

Globalization has often been regarded as the cradle of global

economic development. This so called world liberator however
has not escaped criticism as opponents claim that it has been the
cause of social evils and rising levels of poverty in developing
countries. Due to the nature of globalization and in its bid to open
up social, economic and political boundaries currently in place,
various functions in different countries have been affected
(Whiteford and Wright-St Clair, 2004, p. 353; Bhagwati, 2004, p.
4). The effect of globalization in developing countries has been a
subject of debate with different views being put forth about the
possible outcome of globalization in developing countries. IMF
(2001, p. 1) puts forth that most debates generally focus on
whether globalisation is a threat or an opportunity for developing
countries.

Globalisation as an opportunity

Economic development

According to Baghwati (2004, p. 28) globalisation can be said to

be economically benign; playing the significant role of enhancing
economic prosperity and offering a new beacon of hope to
developing countries. Globalization is often characterised by a
reduction in trade barriers such that there is a free flow of goods,
services and labour from one country to another (Gangod
Gangopadhyay and Chatterji, 2005, p. 281). Richardson (2000, p.
42) contends with these views and adds that that the effect of
this is increased trade which in turn translates into increased
income for developing countries. Globalisation therefore serves
as an opportunity for developing countries to stabilise their
economies by taking advantage of trade. These statements can
be considered true because globalisation has greatly reduced
barriers between countries through elimination of tariffs and
import duties. This is noted by Richardson (2000, p. 2) and Dierks
(2001, p. 63).

The rise in globalisation has led to increased capital flow into

developing countries economies. Foreign Direct Investment (FDI)
injects a considerable amount of capital into developing countries
thus easing their efforts towards economic stability. The
developing countries have also benefited in terms of increased
financing through loans and grants from developed countries
(Aurifeille, 2006, p. 254). It is true that increase in capital inflow
serves the purpose of enhancing economic development in a
country. What proponents fail to incorporate in their studies
however is that net capital inflow could lead to negative effects
on trade. Chan and Scarritt (2001, p. 154) note that large capital
inflows often result in appreciation of exchange rates and
inflationary pressures that impact on the countrys current
account. This means that globalisation in an attempt to improve
the economy could actually thwart the progress of the economy.

The reduction in trade barriers has led to the promotion of

specialisation. This is an economic concept which denotes that
countries can concentrate on the production of commodities that
they can produce at the least cost (Aurifeille, 2006, p. 252). This
commodity can then be traded to earn maximum income for the
country while other goods may be imported from other countries.
In this regard developing countries should take advantage of
globalisation to enhance their income through trading in goods
which they can produce most effectively. Such a development not
only gives developing countries an opportunity to prosper
economically but also to obtain goods that prove expensive to
produce in their own countries. Most studies on globalisation
contend that globalisation enhances competition as the flow of
goods and services between countries becomes easier. According
to Corsi (2009, p. 9), competition is an effective way of enhancing
innovation and the production of better quality goods.

Technological advancement and knowledge transfer

The transfer of technological know-how has taken an integral part

in globalisation. Corsi (2000, p. 9) points out that this has led to
increased innovation and better methods of production to
developing countries. The direct result of this is increased income
and thus appreciation of the countries economic development. At
the same time, globalisation has led to increased transfer of
knowledge and skills to developing countries (OECD, 2000, p. 61).
Foreign nationals coming to work in multinational companies add
to the knowledge banks of developing countries thus increasing
the level of efficiency. Increased knowledge about production
methods, economic policies and management techniques present
invaluable inputs in developing countries. At this juncture, it
would be worthwhile to note that developing countries should use
this as an advantage to tap these knowledge and skills because
foreign investors are not destined to stay there forever. Training
of professionals and development of technology within the
country are vital yet they are not effectively addressed in the
globalisation literature presented by these authors.

Employment and social welfare

Developing countries have an opportunity to increase their per-

capita income following the increase in globalisation. The
increase in Foreign Direct Investment following the reduction in
foreign investment laws has played a great role in reducing
unemployment in developing countries (Welfens, 1999, p. 158).
Increased employment levels raise the social welfare of the
citizens of developing countries as a result of increased
disposable income so that they can comfortably take care of their
needs. In consideration to this proposition, increased personal
income would be worthwhile for developing countries citizens. It
is however notable that education in developing countries is not
well established. As a result, many multinational companies have
to bring in foreign expatriates to take up management positions
while local citizens mostly take up positions requiring lower skills.
This is barely addressed by Welfens. If developing countries have
to benefit from globalisation through increased employment,
increased training and education must be provided to the
countrys citizens.

Globalization as a threat

Increased inequality

Critics of globalisation propose that globalisation does not negate

the needs of developing countries. According to Zedillo (2007, p.
11), globalisation only serves the interests of countries in the
developed world such as United States, Europe, Australia and
Canada among others. Developing countries are normally left out
of major decisions on globalisation even in cases where they are
directly involved. According to IMF (2000, p. 6), globalisation
serves to amplify the level of inequality between nations. As far
as opponents are concerned, developed countries have a larger
stake in influencing the world economy to an extent that they
influence the economic and social policies in developing
countries. Multi-national Corporations have not made the
situation any better in developing countries. According to Robert
and Lajtha (2002, p. 186), multinational companies take
advantage of the cheap labour that can be obtained from
developing countries citizens. These companies normally provide
poor working conditions and do little to upgrade the knowledge of
their workers. Consequently, the workers are not in a position to
improve their social welfare. It is true that inequality has been on
the rise due to globalisation. Studies conducted by the World
Economic Outlook indicate that while the average per capita
income rose considerably in the 20th century, the income gap
between the developed and developed countries had become
wider (IMF, 2000, p. 6). Income distribution was more unequal at
the end of the century than at the beginning.

Increased control by developed countries

With increase in globalisation, the level of control over developing

countries over developing countries has increased. This not only
threatens political systems but the social aspects as well. Political
leaders in developing countries are under the control of
developed countries and the policies taken in developing
countries mostly result from pressure by developed countries
(Richardson, 2002 p. 2). Zedillo (2007, p. 11) notes that these
policies are mostly meant to address particular developing
countries interests. Developing countries often have to submit
because failure to do so could lead to deleterious effects
including the withdrawal of financial assistance, FDI and possible
trade restrictions through trade embargos. It is notable that even
when developing countries receive financial aid from developing
countries and international financial organisations, they are not at
liberty to spend the finances in the projects that they desire to
develop. The projects to be undertaken using the funds are often
dictated by the donor countries; most often to promote their own
self interests. While the concept of dominance is true, it is a
perfect example of the struggle for dominance that characterises
societies. According to Joseph (2003, p. 131-133), societies strive
to outdo one another politically, socially and politically through
development of methodologies to dominate others even if it
means using acts that may be considered unethical. To a certain
extent therefore, the actions of developing countries cannot
entirely be blamed on globalisation.

Threat to the workforce

The ease with which individuals can move from one country to
another has been a threat to the level of professional skill and
expertise for developing countries. Highly qualified professionals
are now moving to developed countries where they are assured
of better pay incentives (IMF, 2000, p. 4). The direct result of this
is that the developing countries are now experiencing shortage of
qualified staff to run local institutions. This is a great threat to the
developing countries workforce which is bound to decrease as
more learned and experienced workers migrate to developed
countries. IMF fails to mention the decision to go for higher
incentives in foreign countries is a question of rational choice. It
is only normal for employees to seek greener pastures and
attractive packages in international firms provide them with
these.

Increased dependence on developed countries

Reduced trade barriers have led to increased supply of cheap

products from developed countries to developing ones.
Developed countries are in a position to produce cheaper
products due to the availability of advanced technology, capital
and economies of scale (Robert and Lajtha, 2002, p. 183).
Cheaper goods often lead to unfair competition to companies
producing similar goods in developing countries thus putting
them out of business. The result of this is that countries now have
to depend on imports to furnish their demand for such goods.
This increases dependency on developed countries. As far as
unfair competition is concerned, this should in fact be a wake up
call to developing countries and not a reason to allow the closure
of industries. As noted by Whiteford and Wright-St Clair (2004, p.
353), companies should rationalise production so as to ensure
that they are as efficient as possible to compete with others in
the market. This shows that increased competition could indeed
play to the advantage of countries if proper measures are taken
to address the countrys shortcomings.

Effect on the socials structure

As far as conservatives are concerned, globalization has been the

cause of culture erosion, increase in the level of crime, immorality
among other evils. According to Whiteford and Wright-St Clair,
2004, p. 350), the concept of culture erosion has led to wide
criticism of globalisation. There is a considerable erosion of
cultural identities and boundaries between nations. This is what
has been referred to as a borderless world such that leads to the
loss of identity as people start behaving in similar ways across
the globe. The critics of globalisation under this claim have not
taken time to look at the positive side of cultural interaction. Not
only does it promote communication across nations thus
enhancing interdependency but also eliminates undesirable
behaviour such as racial and ethnic segregation hence increasing
international cohesiveness. When people interact socially,
political and economically, their differences are less visible such
that they can effectively work together.

What next for globalisation and developing countries?

From the above review, it is possible to identify that globalisation

has both its upsides and downsides. Globalisation is desirable
because it draws the world together in a mutually interdependent
manner through enhancing trade and breaking political and
cultural barriers. Globalisation on the other hand proves to be a
threat to developing countries in certain aspects. It is notable
however that globalisation is advancing at a fast rate and
attempts to stop it would only result in remote results. The
question of what next for globalisation then arises. There is a
general contention that despite the benefits associated with
globalisation; there are downsides of the same which often make
globalisation undesirable. Globalisation even then is a
phenomenon that is here to stay (Chan and Scarritt, 2002, p. 51).
In a way, creation of policies and institutions to reduce the
probability of globalisation downsides is what should be adopted
in order to make globalisation useful to every country (Bhagwati,
2004, p. 32).

Handling globalisation downsides

The IMF and other international bodies have offered

recommendations as to how the developing countries can catch
up and to help reduce the negative effects of globalisation. IMF
(200, p. 6) cites the presence of factors that hinder the
accumulation of human and physical capital and technology
advancement as the reasons for slow advancement in poor
countries. If these are eliminated through modification of policies,
technical and financial assistance, the level of inequality between
poor and rich countries could be reduced. In order for developing
countries to integrate into the global economy, the following
should be addressed: improvement of trade, encouraging foreign
direct investment, increase in debt relief for developing countries,
macroeconomic stability, increased education and research,
structural reforms and outward oriented policies. These
developments will not only aid developing countries in benefiting
from globalisation but also in enhancing overall development of
their economies, political and social systems.

Word Count: 2191

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