The Opportunities And Risks Of Globalization

1618 words - 6 pages

"Globalization, both as an ideology and process, has become the dominant political, economical and cultural force in the 21st century." Quote from "Globalism: The New Market Ideology" by Manfred D.Steger, Page 6 Globalization is one of the most charged issues of the day. It is everywhere in public discourse - in TV sound bites and slogans on placards, in web-sites and learned journals, in parliaments, corporate boardrooms and labor meeting halls. Extreme opponents charge it with impoverishing the world's poor, enriching the wealthy, and devastating the environment, while fervent supporters see it as a high-speed elevator to universal peace and prosperity.

Amazingly for so widely used a term, there does not appear to be any precise, widely-agreed definition. Indeed the breadth of meanings attached to it seems to be increasing rather than narrowing over time, taking on cultural, political and other connotations in addition to the economic. However, the most common or core sense of economic globalization – the aspect this paper concentrates on - surely refers to the observation that in recent years a quickly rising share of economic activity in the world seems to be taking place between people who live in different countries (rather than in the same country). This growth in cross-border economic activities takes various forms:

International Trade: A growing share of spending on goods and services is devoted to imports from other countries. And a growing share of what countries produce is sold to foreigners as exports. Among rich or developed countries the share of international trade in total output (exports plus imports of goods relative to GDP) rose from 27 to 39 percent between 1987 and 1997. For developing countries it rose from 10 to 17 percent. (The source for many of these data is the World Bank's World Development Indicators 2000.)

Foreign Direct Investment (FDI). Firms based in one country increasingly make investments to establish and run business operations in other countries. US firms invested US$133 billion abroad in 1998, while foreign firms invested US$193 billion in the US. Overall world FDI flows more than tripled between 1988 and 1998, from US$192 billion to US$610 billion, and the share of FDI to GDP is generally rising in both developed and developing countries. Developing countries received about a quarter of world FDI inflows in 1988-98 on average, though the share fluctuated quite a bit from year to year. This is now the largest form of private capital inflow to developing countries.

Capital Market Flows. In many countries (especially in the developed world) savers increasingly diversify their portfolios to include foreign financial assets (foreign bonds, equities, loans), while borrowers increasingly turn to foreign sources of funds, along with domestic ones. While flows of this kind to developing countries also rose sharply in the 1990s, they have been much more volatile than either trade or FDI...

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