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Impact of Globalization and Liberalization

Globalization
Globalization refers to an advance stage of development where capital, technology, labor, raw materials, information and transportation, distribution and marketing are integrated or interdependent on a global scale.
Economic liberalization and globalization are closely linked. It is important to take these terms interchangeably. Basically it is liberalization policy which enables the growing globalization process. Thus economic liberalization generally refers to policy be defined as the process of increasing economic integration between or among countries leading to the emergence of a global market place or a single world market in every aspect of economic activities: production, consumption, exchange and distribution. Thus globalization may be seen as a major driving force of global economic integration and has the following main features:
§  Internationalization of production with very fast changes in the structure of production.
§  Liberalization and expansion of world trade in goods and services.
§  Unprecedented expansion of international financial flows supported by the latest technological advances.

Types of Economic Globalization
§  Industrial globalization
§  Financial globalization
§  Globalization in consumption and production

Impacts of economic globalization
Globalization enhances the share of international exchanges in the world economy.
§  Increased standard of living
§  Access to new markets
§  Widening disparity in incomes
§  Decreased employment

The main positive impacts of globalization are:
§  Industrial trans-nationalization
§  Financial
§  Economic
§  Political
§  Informational
§  Cultural
§  Ecological
§  Social
§  Transportation

Challenges and potential opportunities of financial globalization can be explained through following diagram
§  Financial globalization
§  Challenges
§  Competition
§  Capital flights
§  Money laundering
§  Financial voltality
§  Opportunities
§  Foreign investment
§  Growth
§  Market

Effects of globalization in the world economy
The volume of world trade has grown at a faster rate than the volume of world output
§  FDI has been playing an important role in the global economy
§  Emergence of multilateral trading systems
§  Domestic firms are required to enhance the production and distribution capabilities
§  Internationalization of production: multinational origin of product components, services and capital
§  Increased movement of workers across national boundries
§  Transfer of technology and other intellectual property internationally
§  Substantial interdependence of the various dimensions such as trade, direct investment, technology transfer, capital movements, migration, etc.
§  International competition in global market (service, labor, financial and product markets)
§  Increased role of international organizations such as WTO, WIPO and IMF etc.

Faster growth, reduced poverty and inequality through factor and product price equalization, and risk diversification are some positive aspects of globalization. However, LDCs economies have been more dependent. They face the problem of external shocks and they lost benefits of market integration.

Conclusion
Globalization underscores the need for state co-ordination. In order to foster the well-being of its citizens amidst the globally competitive activities of private corporations, the state should provide economic infrastructure, develop globally-competitive human capital and protect the environment. The states in developing countries should also design and implement policies suitable for their development needs, for example, (limited) protection of domestic industries under WTO rules.

Liberalization
Liberalization means freeing the prices, trade and entry to markets from state control while establishing the economy. It is a program of changes in the directions of moving towards free-market economy. This normally includes the reduction of direct controls on both internal and international transactions, and a shift towards relying on the price mechanism to co-ordinate economic activities. Less use is made of licenses, permits, quotas and price controls, and there is more reliance on price to clear the market.
The beginning of liberalization was elimination of quantitative restrictions and massive reduction in tariffs. We find liberalization in different policies and programs now a day.
§  Macro-stabilization policies
§  Trade liberalization
§  Liberalization in foreign investment
§  Financial sector reform
Economic liberalization has been a policy issue in developing countries for various reasons such as,
§  Macroeconomic stability
§  Poverty reduction
§  Efficiency and expansion of market
§  Comparative cost advantage and specialization
The positive effects of liberalization are
§  Massive poverty reduction
§  Macroeconomic stability increasing growth rate
§  Increase in competitiveness
§  Specialization
§  Enhances efficiency
Liberalized markets are supposed to increase specialization. Financial liberalization improves functioning of financial sectors like increasing funds, risk diversification and investment.
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