Developing Nations and Global Markets, Research Paper Example

Introduction

It is usual today to hear of economic globalization referred to as an immensely valuable and modern process. The implication is that, as nations more fully engage in interactive trade and financial cooperation, benefits accrue to virtually all as the markets inevitably expand.  Importantly connected to such a viewpoint is the perception that the expansion of the global economy must produce desirable results for those nations in various stages of development; in plain terms, the interaction on the global scale must both infuse such countries with capital and significantly promote the internal growth necessary for them to engage more fully in the international currents of finance. To some extent, there is validity to this; global integration does encourage accelerated development, and particularly in regard to trade.  At the same time, however, there is as yet no conclusive evidence that the integration of developing countries into the global economy uniformly produces benefits for those countries.  The research thus far indicates that individual national variables, as will be discussed, are critical factors, and that trade openness may be more advantageous than financial openness (Presad et al 8).  As the following will investigate and affirm, the unique characters of developing nations themselves potently affect how integration into international markets goes to their further development.  Ultimately, while such integration is seen to yield important benefits to the countries involved, the evidence suggests that, given the individual natures and needs of least developed countries, positive effects are by no means assured, and all due consideration must be given to a specific country’s actual state of economic being if the integration is to be beneficial for all concerned.

Primary Factors

Given the enormity of the issue at hand, it is necessary that dominant, and generally universal, factors be considered before focusing on actual effects of such integration.  As noted, and inevitably, the developing nation has a structure, government, and economy unique to itself, no matter similarities to others.  The nature of development itself, and particularly in regard to a country’s entirety as a commercial society, is marked by virtually limitless gradation, and varying stages of actual development exponentially affect the country’s potential to more successfully integrate into global markets.  More exactly, the specific ways in which the developing nation relies on a commercial and economic structure all its own will often go to issues when that nation interacts in international financial cooperation.  An example of this is seen with Mexico, moving toward integration in the late 20^th century: “When Mexico joined the General Agreement on Tariffs and Trade (GATT) in the mid-1980s, it opened its borders to the less-skill-abundant world” (Mishra, Topalova).  Consequently, Mexico experienced more extreme wage inequality by the end of the decade, indicating the precarious relationship between external economic processes and internal, or domestic, realities.  In essence, the gulf between skilled and unskilled wages dramatically increased, and not to the advantage of the Mexican standard of living.  A number of theories exist to explain the undesirable result, and the most prominent go to the reality that, as Mexico was emphasizing a need for advanced technology in its industry and higher skill levels of its workforces, unskilled labor was more discouraged and consequently compensated accordingly.  In a manner of speaking, Mexico’s ambition to advance industrially, in part expressed in its participation in the GATT, actually enabled more of what the country was seeking to reduce, in terms of immigrating workforces: unskilled labor (Lopez-Calva, Lustig 189).  It is then seen that a developing nation’s specific circumstances in domestic terms must affect how specific forms of global integration affect it.

There is as well the significant consideration of what may be termed the imperative for developing nations to integrate within global finance. There can be no discounting of the immense force of international finance as having steadily – and dramatically – expanded in recent decades: “According to the World Bank, total net long-term resource flows to all developing countries (including Eastern Europe and Central Asia) rose from $11 billion in 1970 to $83 billion in 1980” (Stallings).  This creates a scenario in which developing countries are virtually permitted “no choice” in integration; to fail to work to such an effort translates to an increased presence as both undeveloped and denied opportunities for growth.  The imperative in place – and possibly going to the Mexican case cited – may then easily equate to a nation’s undertaking integrative efforts thwarted by its own infrastructure and commercial realities.  As is commonly known, for example, developed countries have enormous interests in assisting in the advances of the undeveloped, in terms of negotiating industry and trade beneficial to all parties.  At the same time, and when the undeveloped nation’s commercial/financial culture is not taken into account, actual benefits to the undeveloped nation are at best questionable.  The reality appears to be that the income gap between the developed and the undeveloped nations remains wide, increases in integration notwithstanding; both China and India, for example, while making strong efforts to participate in the global economy, remain lower middle-income nations (UNIDO  89).  It then becomes all the more important that the global economy comprehend how individual countries exist in circumstances not necessarily admitting to a uniformity of progress, and that the increasing insistence on integration may well be occurring at rates, and in ways, not conducive to the true development of the nations in question.

Lastly, in examining the true effects of global integration on developing countries, it is necessary to note a significant aspect of globalization itself: emigration.  As trade and commercial opportunities expand and become internationally interactive, workforces from undeveloped nations have strong incentives to, not remain and “assist” in their home country’s development, but pursue opportunity elsewhere.  Generally, source nations do not record such emigration tides, but the existing evidence is nonetheless important: “The labor forces in Barbados, Belize, El Salvador, Guyana, and Jamaica have been reduced by 20 percent or more owing to emigration” (Mishra, Topalova).  On one level, this is beneficial to the source nations, as well as likely so to those emigrating; the emigrants are responsible for remittances sent back to the home nation, which improves quality of life.  On another, however, this is the case of “brain drain” so commanding attention in recent decades, and is as well a factor very much going to effects of integration.  Extensive research on the modern phenomenon has been conducted, and the prevailing thinking supports that, if emigration of skilled labor enhances the economy of the destination country, it also creates negative effects there and in the source nation.  The immigrant talent creates a competitive force in the destination market not easily countered, just as the emigration from the home country depletes human resources pivotal to domestic development (Solimano 169).  This factor, while a facet or aspect of global integration, nonetheless illustrates how such integration itself is a vastly complex process, and one in which developing and developed nations respond to the economic changes occurring and prompted by international cooperation.  Importantly as well, emigration, as noted above, reveals how the nature of a developing country goes more to immediate response, a reality to be expected as there is a weaker foundation to support domestic stability.

Effects and Potentials

The factors above acknowledged, the measurable effects of global integration are then seen more clearly. It must be first emphasized, however, that causal relationships between documented development and integration are inherently subject to question. The exponential nature of the expansive process is such that it is difficult at best to distinguish between cause and effect; for example: “Countries that manage to enjoy a robust growth may also choose to engage in financial integration even if financial globalization does not directly contribute to faster growth” (Presad et al  27). It is as well important to recognize that “globalization” is not necessarily an accurate term, in regard to developing nations’ participating in “worldwide” economic processes.  More exactly, the research indicates that specific international relationships are more common.  In the 1990s, for example, developing Asian nations primarily traded and interacted with themselves and Japan, just as external investments were similarly restricted.  In this same period, African and Eastern European financial exchanges focused on Western Europe, and developing Latin American countries were – and remain – more linked to U.S. activity (Stallings).  Such partisanship then goes to a definable effect of integration, in that it appears that nations are more inclined to economically and commercially interact with those geographically nearer to them, and subsequently more likely to share interests and resources.  Moreover, it is reasonable to affirm this as a beneficial effect, given the mutual interests as more reliable than those of distanced interactions with other nations.

In terms of further benefits, research supports that trade, a vital component of global financial integration, is proving advantageous for developing countries, and increased international trade activity tends to promote internal productivity rates in such nations (Mishra, Topalova).  Until the 1980s, trade itself was a vastly constricted matter, dominated by flows between high-income nations.  This was reinforced by the many barriers to international trade, from unstable regimes to lack of industrialization, presented by developing countries (Hanson).  Even today, integration is significantly affected, in terms of trade, by the inability of developed nations to provide goods meeting the standards of those developed nations seeking interaction. This in turn emphasizes the exponential element of the subject in its entirety; capacity-building, critical to global economic integration, relies in part on the developing nation’s evolving status as developed, and with an infrastructure sufficient to engage correctly in the global markets (UNIDO  91). At the same time, there is strong evidence that this process occurs in a consistent pattern; as with Chinese industry, for example, the initial output of a narrow range of goods enabled sufficient trade for increased industrialization to take place, and subsequently the production of a wider range of goods, and of improved quality.  Adding to potential benefits for developing nations is trade specialization, as many such countries offer goods based, not unexpectedly, on their greatest capacities: “Middle-income countries have had strong export growth in agriculture, led by Argentina and Brazil; metals, led by Russia, Korea, South Africa, and Chile; electronics, led by Korea, Malaysia, Thailand, and the Philippines; and transportation equipment, led by Korea, Mexico, Poland, and Turkey” (Hanson).  In short, it appears that the sheer dynamics of trade, in which a nation is able to advance it commercial presence internationally through initially limited interactions, go to distinct advantages as arising from this aspect of global integration.  These are as well processes increasing dramatically in scope since the 1990s, and the vastly expanded and complex forms of commerce invariably offer development opportunities for the nations increasingly engaged in them.

In more specific terms of finance, this element of trade goes to how developing nations are altering their statuses as borrowers of capital. That is, as productivity increases, the nation is enabled to generate loans and financing based on investment foundations, rather than on the older model of political/governmental calls for assistance. Through the 1970s and 1980s, developing nations called for aid primarily through state-owned enterprises and central governments themselves; by the 1990s and through today, financing increasingly occurred between international banks, representing high-income countries, and private-sector firms within the developing (Stallings). The effect on the developing countries seen here is then multifaceted; the commercial identity of the nation becomes more dominant, and leads the way in the global integration. More to the point, extensive evidence indicates that, in strictly fiscal terms, integration has generally positive effects on developing nations, and enables the domestic expansions that may only occur through economic stability.

Nonetheless, issues remain.  It is widely noted that, for the least developed nations, integration is an elusive concept at best, and varieties of political and cultural factors render the initial impetus necessary for such integration difficult at best.  In Africa, for example, nations are typically slow to engage in international participation, chiefly due to lacks of basic domestic resources (WDR 261).  This is then an extension of the reality noted earlier, in that any successful global integration concerning all nations must take into account the specific interests of each nation involved.  As African countries present immense obstacles to integration, motives beyond commerce must be expressed by developing nations seeking to assist them. More to the point, the African nations can experience no positive effects from an international process from which they are excluded.  It is then arguable that global integration comprehend first the necessity of regional cooperation; weaker countries may reach agreements with neighbors going to improving domestic conditions for all, and thus be better enabled to engage in more expansive and international participation (WDR 261).  In plain terms, financial realities, global or domestic, are determined by social, cultural, and political realities within the domestic arena.  Global integration of developing nations provides important benefits to all countries, but the economic effects as advantageous may exist only when the entirety of each nation’s circumstances, potentials, and limitations are acknowledged and addressed.

Conclusion

The modern era of globalization tends to bring with it a corollary perception; national development is inherently desirable and facilitated by global integration, and low-income nations are then enabled to prosper through the participation. Vast research affirms this as reasonable, certainly, and recent decades have witnessed immense economic strides taken by developing nations. The process as a whole, however, is both complex and by no means an inevitability. On one level, the emigration of talent generated by globalization itself may weaken a developing nation’s human capital significantly.  Then, a solution based on gradation, in that regional integration must be promoted for the least developed nations, seems necessary if true financial globalization is to be both valid and true to the term itself.  Without doubt, global integration is seen to yield considerable benefits to the developing countries involved.  Nonetheless, the evidence and logic suggest that, given the individual natures of those countries least developed, positive effects are by no means assured, and all due consideration must be given to a specific nation’s actual state of economic being if the integration is to be beneficial for all concerned.

Works Cited

Hanson, Gordon H. The rise of middle kingdoms: Emerging economies in global trade. No. w17961. National Bureau of Economic Research, 2012.

Lopez-Calva, Luis Felipe, and Lustig, Nora.  Declining Inequality in Latin America: A Decade of  Progress?  Baltimore, MD: Brookings Institution Press, 2010. Print.

Mishra, Prachi, and Petia Topalova. “How Does Globalization Affect Developing Countries?” IMF Research Bulletin 8.3 (2007).

Presad, Eswar, Rogoff, Kenneth, Shang-Jin Wei, and M. Ayhan Kose. “Effects of financial globalization on developing countries: some empirical evidence.”  Vol. 17.  Washington, DC: International Monetary Fund, 2003. 2-73.

Solimano, Andres.  The International Mobility of Talent : Types, Causes, and Development Impact.  New York, NY: Oxford University Press, 2008.  Print.

Stallings, Barbara. “Globalization and liberalization: The impact on developing countries.” Vol. 4. United Nations Publications, 2001.

United Nations Industrial Development Organization (UNIDO). “Industrial Development Report 2009: Breaking in and Moving Up – New Industrial Challenges for the Bottom Billion and the Middle-Income Countries.”  New York, NY: United Nations Publications, 2009.  Print.

World Development Report (WDR).  Reshaping Economic Geography. Washington, D.C.: World Bank Publications, 2009.  Print.