Monday, 9 June 2014

How Economies are Shaped by Wider Global Trends

Introduction 
While some scholars have attempted to depict globalization as a modern process, others have traced its history to the New World voyages and the Discovery Age in Europe. Some of them trace it to the third Millennium BCE. In the turn of the nineteenth century as well as early twentieth century, the interconnectedness of global cultures and economies grew very rapidly. The use of the term globalization has been on the increase since the mid-1980s and mid-1990s. The International Monetary Fund (IMF) in 2000 identified about four globalization aspects: transactions and trade, investment and capital movements, knowledge dissemination, and movement and migration of people. Further, some environmental challenges like climate change, oceanic overfishing, cross-boundary air and water pollution are interlinked with globalization.
             
The arts, cultural spread aspects, philosophy, religion, and language mixed because of nations exchanging ideas and products. In oceanic exploration, Europeans discovered the Americas ‘New World.’ Global transfer of goods, ideas, and people expanded significantly. New-fangled transportation forms such as railroads and steamship as well as telecommunications helped in bridging the space and time gap amongst people. With the advent of intermodal transport, airlines, and road vehicles, global interchange was enhanced greatly. Moreover, the emergence of the internet, mobile phones, and other forms of electronic communication enabled the connection of many people in the world. Anthony Giddens argues that globalization is the intensification of global social relations that interlink distant localities so that local events are wrought by activities occurring far away and conversely, far away events are shaped by local happenings.

 Outsourcing, supply chaining, outsourcing, political forces, and globalized trade has change our world. Globalization pace is quickening and its effects on business practice and organization continues to grow. Through economic globalization, deregulation and opening of labor, capital, and commodity markets has culminated to neo-liberal globalization. The nation-state continues to be faced with phasing-out threats through the emergence of transnational elites. Cultural homogenization has prompted businesses such as Multinational Corporations (MNCs) to adopt an intercultural approach in doing business. According to Martin Albrow,  globalization has intensified global consciousness through incorporation of peoples into a single world community.

International Trade
 This is exchange of goods, capital, and services across the international territories or borders. In many countries, this kind of trade represents an important Gross Domestic Product (GDP) share. Outsourcing, Multinational Corporations (MNCs), advanced transportation, off shoring, and industrialization have major effects on global trade and most importantly in African and other Third World countries. Towards this end, the growth of this kind of trade has been a fundamental element of globalization. The establishment of absolutely free trade zones is an essential function of any modern government today. The establishment of free trade zones has enabled modern governments to handle any preferential trade arrangements with multinational and foreign entities. 

Absolute trade advantages exist where countries produce commodities with little cost/unit produced than what it would cost its trade partner. Conversely, such a country should thus import commodities to which it has absolute advantage. Where possible gains accruing from trade due to absolute advantage exist, a country is bound to benefit from a comparative advantage. Such a country is able to offer products to other countries at a lower opportunity and marginal cost. This extends the possibilities of mutually beneficial exchange. In such globalized trade environment, comparative advantages resulting from international trade remains essential as far as market competition is concerned. Economic globalization is today’s international trade engine. It fuels trade largely in the international arena. 

Where free-trade agreements exist, the elimination of import quotas, preferential trade, and tariffs is given a lot of premium. People are free to move among countries that have signed such trade agreements. Moreover, tax havens play a vital role in international trade. In tax havens, there are low tax rates or none at all. Tax havens are used by most businesses for tax evasion and tax avoidance. Corporate entities and/or individuals consider such tax havens attractive for the establishment of shell subsidiaries. This culminates to tax competition within governments. Sovereign states recognized by international law have the autonomy to enact their own tax laws. Unfortunately, international trade experiences transnational organized crime and black markets that reduce efficiency of global commerce.



Transactions and trade is one of the four primary aspects that the IMF listed as a globalization aspect in 2000. The global trade share for developing countries rose from 19% to 29% from 1971 to 1999.  However, there have been major variations depending on regions. For example, because of globalization, the Asian Newly Industrialized Economies (NIEs) prospered while their counterparts in Africa performed poorly. How a country makes up for its exports indicates how successful it is. The export of manufactured goods soared. This was dominated by Newly Industrialized Economies (NIEs) and developed countries. According to Immanuel Wallerstein’s World System Theory (WST), the developing countries often produce commodity exports, like raw materials and food (Wallerstein, 2004). The total export share declined in the same period.

 International trade facilitates cross-border transfer of goods and services, capital, and technology. Eventually, this facilitates economic nations amongst nations. Business globalization revolves around international commerce regulations diminution, taxes, and tariffs. Economic integration thus occurs among countries culminating to emergence of a single or global market. Globalization of markets, competition, technology, industries, corporations, and production enhances international trade. It is upon this background that forty-four countries attended Bretton Woods Conference. The dual purpose of this conference was to establish credit for global trade and stabilize the global currencies after the Second World War. It is in this conference where organizations deemed essential for the establishment of a closely-knit economy as well as a world financial system like the IMF, the World Bank, as well as the International Trade Organization (ITO).

Foreign Direct Investment (FDI)
 FDI entails a direct investment in business or production in a given company or country by individual(s) of a different country. This is done through buying companies in the targeted place or through expansion of operations in an existing business. Portfolio investment is the contrast for FDI. While portfolio is some passive investment particularly such as bonds and stocks in a different country, FDI involves the construction of new-fangled business facilities, acquisitions and mergers, as well as reinvestment of profits realized from intra-company loans and overseas operations. New business facilities a thus built in case of FDI as opposed to portfolio investments.  Horizontal FDI will decrease international trade since the products is taken to the host country. Vertical and platform FDI are just a stimulus for horizontal FDI. 

The summation of long-term and short-term capital and equity capital constitute FDI. There are basically three forms of FDI: Horizontal, vertical, and platform FDI. Horizontal FDI occurs when a particular firm only duplicates its activities in a given country. Vertical FDI takes place where firms move downstream or upstream in dissimilar value chains. Platform FDI arises where investment from a given country is taken to another country for the purposes of exporting it into another country. Investment and capital movements are a basic globalization aspect. Private capital outflows and inflows soared in the 1980s. These capital flows sought to replace development assistance and foreign aid that fell significantly in the 1980s. From this period, FDI became an important globalization aspect in this important category. Both bank credit and portfolio investment rose significantly. However, bank credit and portfolio investments have become a little bit volatile. This was occasioned by the 1990s financial crisis that affected most economies in the world.

 Through global business arrangements, private investments through Multinational Enterprises (MNE) continue to use a global approach to production and markets. This has improved capital injections to many countries. A Multinational Enterprises (MNE) may be a Transnational Corporation (TNC) or a Multinational Corporation (MNC). The argument by business is that if they are to survive in new-fangled global markets, then they ought to source labor, services and goods, as well as raw materials in the overseas markets if they are to upgrade continuously technology and products to survive the imminent increased competition in the world today.
             
Through Multinational Corporations (MNCs) and other forms of international businesses, SEZs enable private investors to inject capital into a local economy through FDIs. Such zones are designated such that the taxation for companies is slightly lower or not there at all. Foreign direct investors get Investment Deductions (IDs) and tax holidays as incentives to invest locally. Historically, free ports have been endowed with immense favorable andore profitable customs regulations. The Trieste Free Port’s customs regulations favor FDI. Free ports normally constitute economic zones in most countries. A country like Singapore is ranked the topmost nation with the highest Enabling Trade Index (ETI) has embraced globalization to emerge what Immanuel Wallenstein would call a semi-periphery country.
             
Chinese economic reforms opened China for globalization during the 1980s. The unprecedented level of openness in the economy attracted FDIs. China is a populous and a large nation created ready market for products and services. This way, domestic goods faced competition from the foreign goods. This was experienced in each economic sector in China. Foreign investment enabled China to increase the quality, knowledge, and product standards. This was especially so in the expansive heavy industry. Such an experience is a proof that economic globalization stands to improve the wealth to be found in poor countries. During 2005-2007, Shanghai Port was the busiest port in the world. Equally, India’s economic liberalization as well as the economic reforms ongoing now were instituted in 1991. By 2009, over 300 million people were beyond poverty. Business Process Outsourcing (BPO) in India is the development engine. This contributes to GDP growth, poverty alleviation, and employment growth.
           
 FDI is disadvantageous over domestic products since third grade goods are sold to a host country. Foreign direct investors acquire voting powers in enterprises within economies through various methods. They incorporate wholly owned subsidiaries or companies anywhere. They may also acquire shares in associated enterprises, through acquisitions and mergers of unrelated enterprises, and finally through equity where they participate in a joint venture. It is important to encourage FDI through low corporate taxes, preferential tariffs, tax holidays and concessions, EPZs, bonded warehouses, loan guarantees and soft loans, Research and Development (R&D), derogation especially from regulations, infrastructure subsidies, land subsidies or free land, expatriation and relocation. Governments utilize many marketing strategies through Diaspora marketing to encourage foreign investments.

 Since 1950, the world population has grown tremendously particularly in LDCs.GDP increases were rapid in these countries and so was the per capita income. Increased FDI culminate to bolstered economic growth especially due to increased capital influx as well as improved tax revenues from the host country. FDI in host countries is often channeled to infrastructure and other social overhead capital with a view of enhancing development. The new companies compete more giving rise to greater efficiency and improved productivity. This improves the standards of corporate governance in the host country. Transfer of technical skills occurs through job creation and on-job training is also enhanced through FDI. Local populations equally benefit from employment opportunities.

 A meta-analysis conducted in 2010 demonstrates the impacts of FDI on domestic firms in transition and developing countries show that FDI increase local productivity robustly. In China, Renminbi FDI has improved considerably over the past decade totaling to about $59.1 billion during January to June in 2012. This made China the single-largest FDI recipient in the world toppling U.S. that had about $57.4 billion. During the 2007-2009 Financial Crisis, FDI fell by about one-third. However, it rebounded back in 2010. On the other hand, foreign investment in India was introduced back in 1991. Foreign corporate bodies were however disallowed investment in India. A cap is imposed on equity holding for foreign investors. Lastly, in the U.S., the economic system is an open economy and thus FDI is faced with low barriers. In 2010, FDI summed to $194billion. However, it is interesting to note that about 84% of the FDI was from a mere eight countries in the world: Luxembourg, Canada, the Netherlands, United Kingdom, Switzerland, Japan, France, and Germany. Countries with greater trade and fewer equity controls with the U.S. invest more in America’s bond and equity markets.

Technological Advances
The advent of technology has culminated to improvements in communication and transportation sectors of the economy. This has intensified the growth of international business especially in the early 20th Century. International business, which include commercial transactions such as transportation, logistics, investments and private sales between and amongst nations, regions, and countries have been facilitated by globalization. This kind of international diversification has been unprecedented and has been coupled with innovation and firm performance.
             
Private investments in the world today are done purely for commercial reasons with the intent of maximizing profit. Technology has fostered efficiency and effectiveness in business transactions especially those involving economic resources such as human and natural resources, as well as capital. The improvement of production techniques has bolstered production of such physical products as banking, insurance, warehousing, transport, construction, advertising, communication, and finance. By the 19th Century, it was evident that Great Britain was first becoming a world economic superpower. This is attributed singlehandedly to improved manufacturing technology as well as superior global communications like railroads and steamships. During this century, imperialism in Asia and Africa shaped globalization. Shipping containers were invented in 1956. This bolstered the globalization of trade. It is such technological advances that helped improve trade relations among nations.

 Even with the advent of technology, it is important to design new-fangled strategies as far as renewable energy domain is concerned. When designing such strategies, public authorities intend to attain maximum efficiency through the attraction of foreign and local investors. This should equally be done with the intention of minimizing energy infrastructural costs. The alternate renewable should be socially, economically, and technically feasible. Pioneer countries in development of renewable sources of energies have endeavored to produce effective and realistic strategies. Biofuels, biomass, wind and solar power, and hydropower are forms of renewable energy that can be used to negative impacts of globalization and conserve the ecosystem in the end. This should be done in tandem with public policies and investors’ strategies. There is need to re-orient and re-organize the energy sector through considerable efforts. However, this should be done within an well-established legal, financial, and technological framework. There are multitudes of many financial mechanisms that may be used such a Feed-In-Tariff that is combined with some green certificates. Guaranteed access for the grid is also one of those attractive measures.

Clean Technology
Clean-tech is short for clean technology. Clean technology involves renewable energy (biofuels, biomass, wind and solar power, and hydropower), green transportation, lighting, Greywater, electric motors, information technology, and green chemistry as well as other many appliances considered energy efficient. It involves the creation of fuels and electricity using smaller environmental footprints in order to minimize pollution. To construct green buildings, infrastructure, and transport both more environmentally benign and energy efficient is an integral function of clean-tech. Clean technology obtains financing from environmental finance in order to produce carbon credits. Such carbon projects as the Kyoto Clean Development Mechanism concerns climate change. 

The United Nations Environmental Program (UNEP) encourages people to invest in renewable energy through energy-efficiency and clean-energy sectors. There are three major clean-tech sectors: solar photovoltaic, bio-fuels, and wind power. Thus, clean-tech refers to any service or product that bolsters productivity, operational performance, and efficiency by reducing environmental pollution, energy consumption, waste, and reduce inputs and costs. In the wake of technological advances, clean-tech should be embraced to mitigate global warming effects and climate change on natural environment. It is anchored on sustainability for posterity. Moreover, clean technology has become a critical competitive advantage for some countries.

 Products enhanced or based upon information technology are utilized in all sectors of today’s industrial societies. The advent of technology has turned out to be extraordinarily rapid. Some few years ago, only a few people in few cities in the U.S. used bulky and large mobile telephones. Today, the number has increased tremendously. According International Telecoms Union (ITU) report carried in 2013, there were about 6.8 billion mobile phones in the world by the turn of 2012 (International Telecoms Union, 2013). The penetration of mobile cellular s reached a high of 96% by 2012. Again, the web and the Internet have dramatically transformed commerce by creating new-fangled ways where customers and retailers can make transactions. Globalization accelerates technological change. New technological innovations are created every day.

Conclusion
The driving factors of the globalization process are Information Technology (IT), Foreign Direct Investment (FDI), and International Trade among other trends. According to World Trade Organization (WTO) then Director-General Renato Ruggiero, FDI has joined international trade and IT as the primary globalization motor. In an address in the UNCTAD Seminar in 1996, he reiterated that these trends were the most important elements for globalization. They have become increasingly complementary. There were deliberate attempts to improve telecommunications, hardware and software in the 1990s. This significantly bolstered the ability of people to access information as well as economic potential. The advancements evident in the internet-based tools like social networking sites, twitter, as well as other many Web 2.0 computer applications have considerably changed how people share and use information for commercial, political, and personal purposes. Modern-day developments have enhanced efficiency gains virtually in all economic sectors.
             
It is evident from the discussion that the relationship between investment and trade has become increasingly integrated and symbiotic. It is important that governments encourage public support for FDI. While governments may be deluded that this support is automatic, it is important that international trade is not perceived as North-South relations but of mutual interests. This is because the tremendous growth in international trade has be the cause as well as effect of globalization. With the innumerable technological advances today, organizations and governments are announcing strategic plans aimed at shrinking carbon footprints. Rapid technological innovation continues to create a mobile and a smart world for the furtherance of globalization with the intent of expanding consumer choice.

 

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