Literature review

Discuss about the Fostered Globalization of Critics and Criticism.

This paper focuses on critical evaluation of globalisation in the present context. The effect of globalisation has changed the economic status, trade relations, and business environment condition significantly. Globalisation has integrated developed and developing economies in terms of culture, business, and resource mobilisation. Business environment has become competitive and dynamic across different nations. Mostly seen effect of globalisation is increasing scope of foreign direct investment (Wijen et al., 2012). The concept of transitional economise has grown up due to effect of globalisation. Although globalisation has several positive effects on the countries, many critics argue against the globalisation. The rationale behind the criticism is that globalisation increases interdependence among the nations (Giulianotti, 2015). Global financial crisis, global recessions are evidence of negative effect of globalisation.

The research report analyses various theories related to globalisation and their effect on the economies. The case study is Hong Kong that is chosen for the analysis. The effect of globalisation is shown in different sectors of Hong Kong and in the business environment. Social and economic aspects are considered in this study to show the effects clearly. The Discussion part analyses the integration of Hong Kong with global economy and consequences of globalisation on this economy. The discussion part is followed by the literature review section.

A Doiz, Lasagabaster & Sierra (2013) depicted that globalisation is the process through which an economy is integrated with other economy through business relation, exchange of culture, resource mobilisation and free transfer of capital and labour. Workers of one country can move easily to other nations for better career opportunity. A multinational company can use local labour in order to reduce production cost. London & Schneider (2012) has stated that globalisation integrates financial and commodity markets across different economies. As cited by Bowen, Baker & Powell (2015), technological progress facilitate the globalisation. In the view Cetorelli & Goldberg (2012), globalisation has made the nature of financial market complex than before. Development of different financial products such as futures and options derivatives has reduced the exchange rate risk in the international trade. However, as opined by Bowen, Baker & Powell (2015), complexity of financial market has led to the global financial crisis during 2007-08. US mortgage crisis, collapse of banking institutions in the major European countries are the consequences of global financial crisis.

Business outsourcing is the result of globalisation in dynamic business world. Several countries have taken policies of trade liberalisation and resource mobilisation (Davidson et al., 2014). Therefore, a business organisation in a country can outsource its resources in term of labour and capital in another country for the reduction of cost in the business (Zajda, 2015).  Globalisation has shown its effect on wider section of the society such as business, transportation, telecommunication and other service sector, industrial sector, banking institution, educational sector and agricultural sector. It also disrupts the cultural traits of countries. This can be both positive and negative point for the countries like Hong Kong.

Discussion

Developing countries which join in economic globalization can take the benefits of their comparative advantage. As stated by Chin (2012), it will help them to earn more foreign currency. It will also provide those countries a bigger market than the domestic one. This trait ensures efficient allocation of resources in the developing countries. Economic globalization also helps the developing countries to acquire new and better technologies, which help the countries in their developing. The foreign domestic investments that come through the channels of economic globalization also help the developing countries in improving and it triggers the developing process. The investments create employment in the receiving countries.

Economic globalization opens the domestic market to the international market, where the number of sellers is more. It helps the governments in strengthening the market competition, which in turn helps the consumers. According to the critics of economic globalization, though this process was supposed to improve the economic conditions of the countries, in reality, this is not prominent (Hay and Marsh, 2016). According to the studies done by the United Nations, economic globalization has increased the gap between the developed and developing countries more than it was supposed to reduce (Gwynne & Cristobal, 2014). The income gap also increased among the developing countries. Some of the developing countries could avail the benefits of economic development while the other countries could not. This situation advocated inequality in income. Those countries which could not avail the benefits of economic globalization lost certain percentages of per capita income in the country.

According to Zhibiao (2013), economic globalization puts a country in front of several unpleasant economic situations. The open economy reduces the power of the domestic government. The domestic economy is controlled by the government with the help of the macroeconomic variables. As a country participates in economic globalization, it becomes vulnerable to other macroeconomic variables which were not present in its economy before. It reduces the responsiveness of the economy to the policy measures by the government authorities. Also, each country has own uniqueness. Following the views of Scott (2013), the native cultures can lose their uniqueness due to the openness which follows economic globalization. Every culture has its own values and attributes, music, language, and many other traits. The economy of a country evolves with these changes.

As stated by Sturgeon (2013), many economists who have advocated for the economic globalization have also pointed out the negative traits of it. Hong Kong’s export industry being focused after globalization required resources, which were provided by the authorities by neglecting the domestic market. Along with the FDIs came terms and condition which weakened the country’s policies. It will help them to avoid the unfavourable traits of economic globalization. The countries can use fiscal and monetary tools to reduce the negative effects of the economic globalization. By changing the domestic interest rates and tax structures, the government can control the foreign involvements in the domestic country.

According to various economists, the economic globalization gives many opportunities to the domestic economy at the beginning (Dreher, Gassebner and Siemers 2012). The new and enlarged market helps the domestic sellers to exhaust their accumulated inventory. It also helps the domestic job seekers to find new jobs which are related to international markets. Hong Kong took its benefits to reduce unemployment in the country. The macro economic variables which shape an economy will become more efficient due to the openness. It will reduce the over exhaustion of domestic resources. But due to achieving a bigger market, the domestic sellers will try to supply more using the domestic resources. It will increase the exhaustion process. Economic globalization also increases the dependency of one economy on another. This trait was used while the formation of the European Union was started. It was assumed that two countries engaged in trade will be depending on one another. It will reduce the chance of occurrence of a war. With less war, economies will improve at a faster rate.

According to Knox and Marston (2013), the economic openness presented by economic globalization often carries the economic crises of one country to another. Hong Kong’s export market faced the downturn because of the Global Financial Crisis (GFC) in the post GFC period. It also creates significant power imbalance between the developed and developing countries. This imbalance often leads to inequality in income. It makes the rich countries richer and poor countries poorer. It also puts the less powerful countries in more pressured situations. The openness also creates mixed cultures. The economic globalization creates various channels between two countries which often lead to a mixed culture. If the mixture is of the good traits of the cultures, then both of the countries will benefit from the trade. If the negative traits become highlighted during the mixing, it will be harmful for both of the countries and their economies.

As stated by Pan (2013), the positive side of the economic globalization states that it will make easier for the transportation of commodities, services, people, capital, machineries, resources, and others from one country to another. It will also increase the speed of the transportation and reduce the cost regarding the process, from which Hong Kong benefited largely. It also advocates that free trade will be possible due to economic globalization. The free trade will reduce the cost of transportation and keep the level of price of the goods being sold, low. It will be beneficial for the consumers. The consumer surplus will rise because of this. The total welfare will also increase in both countries as the dead weight loss will reduce. It also increases diversity in economies as the connectivity increases over the borders, which is the case in Hong Kong. The works gets intensified due to globalization, which can result in reduction in job security for the employees of the country like Hong Kong, which possess high wage. According to Baylis, Smith and Owens (2013), it also hampers the work-life balance of the common people. Hence, it can be concluded that, economic globalization is not always about positive traits there are some negative impacts on the economy as well.

The economic globalization increases the market demand and supply for the domestic market for countries like Hong Kong. The situation can be depicted in the figure below:

As shown in the figure above, the GDP growth rate of the country shows high rate in most of the parts after the year 2000. There are fluctuations in the economy of Hong Kong which otherwise shows high growth. The fluctuations have been caused by global crises or shortage in those economies with which Hong Kong is engaged in trade. It also affects the inflation rate of the country. Hence, it can be said that economic crises in other countries can affect the domestic economy during globalization. According to Beeson (2014), the rates show that the after effects of the Global Financial crisis of 2007 have decreased the growth rate of GDP of Hong Kong to negative in 2009. The Asian Financial Crisis of 1999 has also affected the country’s growth. It came below one percent during 2001 as an aftershock. The inflation rate which works as a backbone of an economy also followed the same trend during these periods of turmoil. The FDIs which the country received increased its cash recession periods. flow which helped the economy to come out of these

This is how economic globalization helps economies grow. According to the ideas of Hirst, Thompson and Bromley (2015), it helps the producers to get to the point where they can make efficient use of the available resources. This can be possible when capital, factors of production and technology move across borders freely or with fewer barriers. This also demands more research and demand regarding the production process. It also ensures that comparative advantage regarding a product or service is achieved by economy of Hong Kong. The comparative advantages will help the countries in earning more profit in the open market. If the channels of economic globalization get corrupted, it can hamper the economic growth of both the countries. According to Rahimi and D’Costa (2014), it will also increase the cost of transferring the factors of production. This will result in an increased price for the goods. Hence, efficiency will not be achieved. The negative traits can also transfer easily due to the openness of the economies.

Conclusion:

In conclusion it can be said that the economic globalization can help an economy in growing at a faster rate and come out of the economic stagnations. The foreign domestic investments, which comes through the economic globalization channels helps a country with the investments in various domestic economic sectors. There are negative effects of globalization as well. Economic globalization can increase the income inequality between two countries’ income levels. It can also increase the income gap in the country as well. One of the positive traits of economic globalization is efficient allocation of the available resources within the borders of the country. But it can also hamper the allocation process if there are any mistakes or corruption in the allocation process.

As the research shows there are many negative impacts of economic globalization in the economy, the positive impacts stops the governments from ceasing it as it was in the case of Hong Kong. The critics of globalization sometimes suggests that it will be better for an economy like Hong Kong to look after its industries in autarky situation as it will help the country to operate in a globalized market.

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