Globalization Essay Example

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Inequality of Globalization, Economic Transition, and Regional Trade Agreements

Globalization Essay Introduction

The world never stops changing, and globalization gains more speed every day, gathering all countries and people closer. While some countries succeed in keeping up with this speed, some fail to progress. The countries that are considered to fail are called underdeveloped countries. In this section, the main focus will be on the developing and developed countries, the gap between them, and how reducing the barriers of trade and investment can affect this gap.

Globalization Essay Body Paragraphs

Inequality and Reduced Trade Barriers

Before analyzing the gap between developed and developing countries, it is essential to understand the factors which decide whether a country is developed. While the unemployment rate and per capita income can be shown as two of the most critical elements in determining this criterion, there are still many influential factors. In developed countries, the income distribution is more balanced; the population growth rate is lower, their medical and education systems are developed, and so forth. So, in general, developed countries are more industrialized than in developing countries. Now let us take a look at how a country develops and take South Korea as an example. Starting from the 1960s, South Korea, a developing country, took steps towards being developed with its export-oriented investments and adopted a laissez-faire democracy (Schneidewind, 2016). Today the country is considered one of the fastest-growing developed countries. It is fair to conclude that the history of a nation and its actions are important for a country to be developed today.

Globalization has created new opportunities for economic growth, development, and poverty reduction (“The Role of Trade,” WTO, 2015). And since 1985, the total trade as a share of GDP has doubled in developing countries. The force behind these developments can be shown as trades, and the global value chains (GVCs) play an essential role. GVCs simply means carrying out the production activities and tasks in multiple countries, and developing countries to be involved in the GVCs is important in shrinking the gap between the developed and developing countries. According to statistics, participation in GVCs increases the per capita income. Moreover, GVCs are seen as a fast way to industrialize, and it is advantageous for developing countries as it is easier to join a supply chain than build one (Raei, Ignatenko, & Mircheva, 2019).

Reducing the trade barriers and global value chains have a positive impact on the gap between developed and developing countries. In addition to these, Foreign Direct Investment (FDI) also plays a vital role both in GVCs and economic growth. FDI is an investment made to another country, and it offers advantages for both parties. For instance, while it means lower labor costs for one party, it means more job opportunities for the other party. FDIs may promote competition within the host countries' domestic input market, giving rise to the development of other companies.

Beyond any doubt, to reduce the gap between developed and developing countries through trade with maximum efficiency and to contribute most productively, trade policy must complement other policy areas.

Economic Transition and Russia

The economic transition can be defined as the transition from a centrally planned economy to a market economy, and it brought many social, political, and cultural changes along with it (Nove, 1993). In former socialist states, the transitions from centrally planned to market economy emerged after the Cold War. In a sense, the economic transition is the search for a solution for the economic problems of the Eastern Bloc countries, which collapsed after the war through a new system. In addition to this, it is also perceived as the transition from a socialist system to a capitalist system. This transition has two models in the world. The first model is the East European model, which is perceived as the "revolutionary" one, is defined as the transition to a West European model with well-defined private property rights within an appropriate monetary and fiscal structure.

Developing the institutions of capitalism with a corresponding legal system is the focal point in this system. The second one is the Chinese model, which can be justifiably defined as that since China is the most prominent example. This model is called more "evolutionary." While in the East European model, the transition appears to aim a quicker development, the Chinese model has a more gradualist approach leading its market-oriented competitive enterprises to develop (Weitzman, 1993). The Chinese model’s driving force is the township village enterprise.

There are various factors forcing a country to change its economic system. Let us consider Russia as an example. USSR failed to emphasize the development of the living standards and wealth and well-being of the society for a long time during the war years as its focus was on the defense industry. As the living conditions became more difficult and unbearable, USSR was obliged to transition to a free-market economy. This transition helped Russia to catch up with the developed countries; however, it is not right to claim this statement is still valid today. The gap between Russia and the developed countries seems to have widened in the past few years. Unfortunately, the social inequality of the country did not decrease even after its economic growth, which caused it to fall behind the CEE countries. Russian’s current situation is not unconnected from its history.

One of the biggest downfalls of the Soviet economy is oil prices. With a considerable decrease in the past, many difficulties arose during the reforms of transition to a market economy, and the situation is not very different today. Moreover, it is expected to last longer for the next few years, according to international agencies. Another reason is that the Soviet's dismantling process gained speed with political liberalization, and this political integration led to the disintegration of the common Soviet Market (Akindinova, Kuzminov, & Yasin, 2016). This frustrated Soviet to implement necessary reforms.

Regional Trade Agreements

Regional trade agreements (RTAs) play an important role in reducing trade barriers. The treaties are signed between two or more countries allowing free movement of goods within the members. The main goal of these treaties is to enhance trade relationships while protecting the interests of the members. RTAs have five different types depending on their integration: preferential trade agreements, free trade area, customs union, common market, and economic union.

Preferential trade agreements (PTAs) liberalize trade between the members, but this liberalization does not cover all the countries. It is done through lower tariffs, and it forms regional economic cooperation bringing economic growth along with it, which is an important matter for raising the standards of living and creating a common market allowing the free movement of the goods. PTA actions cover trade liberalization and cooperation.

Along with carrying the same aims with preferential trade agreements, free trade agreements (FTAs) condition free trade between the members rather than only lower tariffs. In practice, this includes agreements on the movement of capital, goods, and people. FTA members mostly aim for the import and export of the goods and are beneficial for the producers in terms of the tariff costs.

The third type (stage) of economic integration is the customs union. Unlike the free trade agreements, customs unions implements a common external tariff for the countries until they are inside the union. It aims to form economic cooperation while making it easy for members to trade with each other. Today the European Union is the largest customs union. Customs union boosts foreign direct investments as well as allocating the scarce resources. This is accomplished when productive members of the union sell to less productive members, and this accomplishment is called trade creation. The other side of this allocation is called the trade diversion, and it occurs when less productive countries sell to other member countries, and it gives an opportunity of a contribution to less productive countries' industrial activities and economic growth. Members of the customs union apply the same tariffs to goods from non-members.

Conclusion

A common market may be limited to a free trade area with free movement of capital, but that does not include eliminating all the remaining trade barriers. Still, it is usually built upon free trade areas. It offers members full freedom of movement between member countries, and since it is a competitive environment, the existence of monopolies is not easy. The common market also plays a key role in improving society's living standards. Once again, the European Single Market can be shown as an example of this type of trade bloc. The last type of economic integration is the economic union, which is composed of a common market with a customs union. It allows members to move over freely and coordinate social and financial policies to support the common market while members of the union use a common currency. That is to say, the integration of economic policies is required.

References

Akindinova, N., Kuzminov, Y., & Yasin, E. (2016). Russia’s economy: before the long transition. Voprosy Ekonomiki, (6), 5–35. doi: 10.32609/0042-8736-2016-6-5-35

Nove, A. (1993). Transition to the Market and Economic Theory. Problems of Economic Transition, 35(9), 20–33. doi: 10.2753/pet1061-1991350920

Raei, F., Ignatenko, A., & Mircheva, B. (2019). Global Value Chains. IMF Working Papers, 19(18), 1. doi: 10.5089/9781484392928.001

Schneidewind, D. K. (2016). The Historical Development of Korea. Economic Miracle Market South Korea, 15–52. doi: 10.1007/978-981-10-0615-9_2,

The Role of Trade in Ending Poverty. (2015). doi: 10.30875/6aef2887-en

Weitzman, M. L. (1993). Economic Transition: Can Theory Help? Economic Transition: Can Theory Help?

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