When people hear about globalization, the first thing that comes to mind is the economic setup of nations, (Fischer, 2003, p.2). Though this is partially true, globalization will be observed to encompass very many and diverse aspects of a country. After its inception, the concept of globalization took the world by a storm. However, it could be stated without fear of contradiction that globalization still existed in the world before becoming officially recognised (Rothenberg, 2003.p.3). The embracement of this concept has been mainly fuelled by the formation of the WB and IMF after the second world war. Countries realised that they had more to gain than lose if they were untied under one global village. The reconstruction of many nations after the second world war was made possible by the application of the globalization strategies. Nations came together to help others raise the status of their economy.
So stated, many researchers and scholars paint the concept of globalization in a very saintly image while as a matter of fact, to some extent, its not. As will be found out here, the policies, grants and conditional different aid given to different nations by the IMF and WB leads to the loss of sovereignty of these nations. The cultural values are undermined in preference to the global outlook and failure to adhere to these pre-set conditions lead to very adverse consequences. Therefore the decision to join the global village for a country should be made after weighing all the pros and cons associated with this conglomeration.
The study carried out here will provide these gains as well as risks and give a recommendation for Guidia to join this network of nations as it will be observed that there is much to gain as opposed to lose. The recommendations given here will also encompass the best strategy that Guidia should employ to join this global village.
Many nations in the globe are unified together by this concept of globalization. And the concept spans over commerce, politics, economic, education, technology or even cultures of different nations. The popularity of this concept has led to many economists questioning the benefits accrued to these nations that are held together under this umbrella.
The aim of this report is to conduct a comprehensive investigation into this concept of globalization by analysing the gains and risks that Guidia country faces before the acceptance of the IMF/WB recommendations. This paper will cover a number of research areas, broken down in a systematic way as follows; the exploration and definition of the globalization concept, the identification of the various players in this concept such as IMF and World bank, the recommendations of these parties to growing economies like Guidia, the analysis of the implication if Guidia decides to either accept or decline these implications and lastly offer a professional opinion and recommendations that Guidia should employ towards being accepted into this globalization concept.
Guidia: brief history
Guidia is classified as a middle income economy country with an average per capita income of $4000 at market exchange rates. It has a total population of 60 million with 65% of this living in urban areas. The government hopes to diversify its export base which at the moment is primarily raw materials in form of natural gas and textiles.
The country stands independent and self sufficient economically, though lacking in power. There has been pressure from IMF and WB through their yearly reports urging the country to explore deeper globalization as a possible solution to the challenge of export base diversification. The IMF/WB report has based their reasoning in that globalization will help open up the market for Guidia’s natural resources, bring more FDI and foster faster economic growth in the country. The country is considering embracing these recommendations buy the IMF/WB but before doing so, it must ensure that all angles concerning the potential gains and risks involved are explored.
By definition, globalization may be termed as a process through which different countries comprising the globe integrate via the exchange of culture, ideas, technology, products, services, personnel and commerce (Reich, 1998, p.8; Kremer & Maskin, 2006. p.4). Though Fischer (2003, p.3-4) concurs with this definition of globalization presented by Reich, (1998) and Kremer & Maskin (2006), he believes that the definition of globalization should encompass the aspects of political and social structures as well. (Rothenberg, 2003.p.4) supports this opinion purported by Fischer (2003) when he defines globalization as a catalyst or process of acceleration and the intensification of the integration and interaction of people, governments and even companies all over the globe.
According to Weinstein & Broda (2006, p.1) globalization is a two way traffic. It gives and takes in equal measure. Countries which have been enveloped by this wave of globalization have had significant improvements in a number of diversified sectors. At the same time, they have had some losses. Some of the gains as well as the losses, classified here as risks are outlined in the ensuing discourse.
Gains of globalization as postulated by the IMF
The IMF is a global body formed after the crisis of the second world war with an aim of assisting nations of the world rebuild their economies. The body offers financial assistance in the form of grants, aids and loans to different nations in different capacities depending on the state of the economy of the nation, the endowment of the nation in form of resources and the political system present in a particular country. The gains from globalization have been evident not only in the social but even the economic and political aspect of nations.The nations which have been engulfed in the globalization through the IMF and World Bank assistance have experienced a number of gains as stipulated in the following paragraphs.
Expansion of commerce
Commerce and trading among nations in the global village is open and unrestricted. There are no sanctions between members of the global village and they can conduct business with each other freely. This is a very welcome gain as it means that countries would not have to worry about where to take the surplus produce. Commerce also offers the countries a chance to acquire the much needed foreign exchange by expansion of their export industry (Deardorff &Stern, 2001, p.3). From the Statistics Annex (2011, p. 147), the combined economies of the world in annual percentage change in real GDP for the last ten years is outlined below in the following table.
The graph that shows how this trend in the last ten years behaves is shown in Appendix I of this report.
Mostly, commerce benefits by the zero rating or reduction of tariffs. Prior to the globalization concept, it was practically impossible for international commerce to thrive because of the high tariffs and rates imposed by the different nations. Some of the examples of the reduction in tariffs is the GATT policies.
Another area of trade where the countries in global villages have an edge is the increment of FDI. Foreign domestic investment is one of the vital tools for the growth of economies of developing nations (Burthe & Milner, 2008, p.2; Peter, 2001, p.1). According to Unctad world investment report (2012, p.15), the FDI to developing nations grew by an approximated 21% to over $ 748 billion in the year 2011 as compared to the figure in year 2010.
Guidia, being a smaller nation that would be categorically placed under the developing or third world economies could really do with a boost of FDI and commerce. The market for the natural gas could be expanded to other boundaries. The country could now comfortably export these resources to other nations and in the process earn foreign exchange that is very vital for the growth of any country’s economy.
The FDI in Guidia would ensure that these raw materials are processed with the boundaries of the country. There is no limit to the benefits of such a scenario. These industries would automatically create employment for the locals, not to mention spillovers in form of technology and skills of various personnel. And above all, the growth of the country’s GDP. FDI is very instrumental for the growth and development of the economies of developing nations (Hussain & Kimuli, 2012, p.1; Meon & Sekkat, 2012). The foreign currency brought in by these foreign companies is very much welcomed in these countries and the GDP growth perpetuated by them is very instrumental for economic growth to occur
Another gain by the nations in the globalization blanket is the guarantee of the stabilization of the political climate in the world. After the induction of IMF after second world war, the countries which came together under a global village like the United Nations were given the guarantee that there would not be any other war on the continent. Policies, rules and regulations were made and every member of the global village had to observe this rule. Failure to adhere to these rules and regulations means that these countries are shunned and sanctioned. No member is allowed to conduct commerce with them and aid to such countries is cut off. This guarantee of political stabilization fosters peace among the different countries under this globalization blanket and this peace paves the way for stabilization of the economy.
The losses/ risks associated with globalization
Globalization has a number of negative aspects too. As much as the fact that these risks aren’t as diverse as the benefits, they are still not very much admirable. Some of these losses are discussed in the following paragraphs.
The major loss is the loss of sovereignty of a nation. This is more so if that nation falls under the developing nations category. Once a nation becomes an entity of the global body, the policies that are made in the nation in both political and economic concepts are very much screened by this body. If the heads of states and policy makers in a particular nation pass certain laws that are not approved by this body, they are asked to reverse them. This makes the country lose its political advantage by being scrutinized always.
Another risk is the disadvantage of being sanctioned. Even though these global organizations will offer aid to their members in form of grants, funding of projects as well as loans. If a country does not observe the conditions that are set before funding is released, then the funders will decline to release these funds. Sanctions come in a number of forms including the placement of barriers to trade with other nations in the globalization. The global organizations prevents countries that do not adhere to their policies from trading with them. These countries are deprived of the crucial foreign exchange that drives the economy of nations. The economies of such countries are bound to stagnate.
A number of recommendations will be made here concerning the idea of Guidia joining as deeper globalization organization. Some of these recommendations include;
Guidia, as a growing nation should join a global network of other nations as it has been oibserved that there are benefits accrued to that
The commerce sector of Guidia will be opened up and the export market expanded. This will bring in the much needed foreign exchange that is instrumental for the growth of any economy.
Guidia will benefit from the FDI that countries in its global network invest in. the FDI will be instrumental in the maximum exploitation of the natural resources of the country as well as the increment of the GDP of Guidia. Another level of gain will be on the creation of employment in the country. The FDI and industries attracted to the new country under the globalization concept will lead to creation of jobs and other advantages such as spill overs in form of personnel and technology. These qualified personnel would also be instrumental in the training of the locals on the new methods and ways of production leading to a raise in GDP.