Globalization and free trade leading to development of east Asian economy

8/6/2019 Globalization and free trade leading to development of east Asian economy

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Asian Success and Global Economy Individual Assignment TP018321

University College of technology and Innovation Page 1

Name: Syed Muhammad Asim

Student No: TP018321Assignment title: Individual Assignment

Module code: BM036-3.5-3-Asian Success and Global Economy

Hand in Date: 18 th April 2011

Lecturers name: Jenny Pareira


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Contents

1.0 Introduction .......................................................................................................................... 2

2.0 Implications of Globalization and Free trade on the East Asian economy .............................. 4 2.1 Positive Impact of Globalization and Free trade on East Asian Economy ........................... 4

2.2 Drawbacks of Globalisation and Free trade on East Asian Economy.................................. 6

3.0 Conclusion ............................................................................................................................ 8

4.0 References .......................................................................................................................... 10

Electronic sources ................................................................................................................. 10

Journals................................................................................................................................. 11

Word count = 2530 words only

Question no 1: Managers need to be aware of the effects of globalisation and free trade on both

their country and the international economy. Some argued that these two events have

significantly help develop a countrys economy but there are oppositions that claimed that

globalisation and free trade do not necessarily lead to economic prosperity. Critically discuss

whether globalisation and free trade have been positive forces towards economic development in

East Asia.


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1.0 IntroductionIn their journal in the year 2003 The sources of East Asian Economic Growth Revisited lau

and park mentioned that East Asia has been the fastest growing region in the world for the past

several decades, the East Asian currency crisis of 1997-1998 notwithstanding. On average, theEast Asian developing economies as a group, including China, Hong Kong, Indonesia, South

Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand, has grown at almost eight

percent per annum since the 1960s. The notable exception is Philippines, which has only been

able to grow at less than half the average rate.

According to Rothenberg (2003) Globalization is the acceleration and intensification of

interaction and integration among the people, companies and governments of different nations.

Now a days going global has become a must for every organization due to the intensified

competition going on in the world, globalization philosophy has been adopted by many firms and

they have successfully implemented it. For example Toy R Us opening store in Shanghai

China (Alan Rose 2006) also Wal-Mart has targeted China, which has long been a major

supplier of its products, as a key region for its international store growth. It now has 56 stores in

China with about 30,000 employees and plans to open 20 more stores this year (chinadaily,

2006)

According to Griswold (2003) Free trade agreement by definition lower barriers to trade

between participants, and lowering or eliminating barriers altogether. For example ASEAN the

association of Southeast Asian Nations was created with the purpose of to accelerate the

economic growth, social progress and cultural development in the region (Asean 2011 )

The relationship between the Globalization and Free Trade Area is directly proportional to each

other, due to globalization where by businesses going from one country to another to carry out

their operations profitably which has been assist by the Free Trade Agreements between the

countries, for example Asean members like Malaysia and Singapore, Malaysia exporting water to Singapore (Segal 2004) , globalization and free trade agreement occurring at the same time in

this case.


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2.0 Implications of Globalization and Free trade on the East Asian

economyManagers should have the knowledge regarding what is Globalization and Free trade agreement,

if a firm wishes to expand and compete on a global level it must do in depth analysis of political,economical, social and technological factors before competing on a global level along with

having the right knowledge about if the country they want to expand into has any free trade

agreement with their respective country, for example a firm from Malaysia wants do to business

in Singapore will be benefit from the ASEAN agreement as both the countries are part of it.

Having the perfect yet effective insights on Globalization and Free trade agreement would enable

the managers to come up with strategies that best would serve the organization in achieving their

Vision, and successfully operate outside their country and even within their country.More over in East Asia according to J ung sik kim and Yonghyup (2007) the rise of regional

economic trade blocs has reduced trade barriers which has lead to attraction of Foreign

investment in recent years to East Asia, China going in agreement with the World Trade

Organization and from close economy going for Open Economy which has brought many

American companies investing in China and entering the huge target market. Yamin, Mo ad

Pervez N.Ghauri (2004) in their articles on Rethinking MNE-Emerging Market Relationships:

Some Insights from East Asia said that Malaysia, Singapore, Indonesia, Korea and other East

Asian countries all having favourable foreign direct investment policies which has led to fast

economic growth of these countries in recent years. As the government policies encourage the

foreign direct investment.

2.1 Positive Impact of Globalization and Free trade on East Asian Economy

Globalization and Free trade has contributed much to the development of East Asian economy

(Mo and Ghauri, 2004) as it has promote economic integration like reduction in transport and

communication costs, the lowering of trade barriers, and an increasing mobility of capital and

labour, along with the free trade agreements of East Asian countries with world trade

organizations WTO or forming the association of Southeast Asian Nations ASEAN , due to

this progress of economic integration an increasing number of consumer goods are being

imported and exported from all over the world especially East Asia (Fujita et al, 2008), moreover

it has led to the investment from huge Multinational Companies to come to East Asia and operate


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their business, companies like Intel, Shell, Google, DuPont and many more have been able to

create more job opportunities within the countries, pay taxes to the government, variety of goods

and services being experienced by the public in East Asian countries which has led them to high

standard of living and also have contributed an increase in Gross domestic Product of these

countries relatively, also Anisha Sabhlok (2001) in her pilot micro study on some companies

based in Singapore, noted that MNCs in Singapore contributed to the society by adopting the

best practices, driving innovation, developing green products and attaining eco-efficiency

targets, enlightens MNCs contribute to the countrys economic and social development.

According to the researcher Thomas Sowell (2005 ) all the people of the world can contribute

and those who keep themselves isolated from others will be left behind. This is due to the

problem of not being in any kind of trade agreements with other countries or not having to be

involved in globalization.Globalization has also made the domestic producers produce more efficiently due to their

international specialization and the pressure that comes from foreign competition, which benefits

both the economy of the country and the customers as they are able to consume a wide variety of

domestic and imported goods at lower prices, taking an example of Malaysia fast food industry

where by people can enjoy KFC or McDonalds and at the same time enjoy their local fast foods

as well. More over globalization Increases in environmental protection for example in China

MNCs have pledged to Government to bring about more environmental friendly policies in

response shown by Xinhua, (2011) in an news report on chinadaily the Chinese President Hu

Jintao said that China hopes to balance economic and social development with population,

resources and the environment, and embark on a path of sustainable development also China will

play a constructive role in resolving regional hotspot issues and take an active part in various

forms of regional security dialogue and cooperation in order to preserve a regional environment

conducive to peace and development in Asia.

Abhay Burande in his articles on Advantages of globalization said it is claimed that

globalization increases the economic prosperity and opportunity in the developing world. The

civil liberties are enhanced and there is a more efficient use of resources. All the countries

involved in the free trade are at a profit. Resulting in lower prices, more employment and a better

standard of life in East Asian region, it is feared that some developing regions progress at the

expense of other developed regions. However, such doubts are futile as globalization is a


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positive-sum chance in which the skills and technologies enable to increase the living standards

throughout the world. Liberals look at globalization as an efficient tool to eliminate penury and

allow the poor people a firm foothold in the global economy. In two decades from 1981 to 2001,

the number of people surviving on $1 or less per day decreased from 1.5 billion to 1.1 billion.

Simultaneously, the world population also increased. Thus, the percentage of such people

decreased from 40% to 20% in such developing countries like East Asia.

Most of the East Asian economies have also benefited from outsourcing done by mostly

American companies hence more job opportunity is created. For example Malaysia is one of the

hosts of Call centres for American and other European companies, leading to a development of

Malaysian service sector, as they learn how to communicate, tackle situation, and handle

customers also their skill level is developed and polished by foreign companies

Globalization advocates such as J effrey Sachs point to the above average drop in poverty ratesin countries, such as China, where globalization has taken a strong foothold, compared to areas

less affected by globalization, such as Sub-Saharan Africa, where poverty rates have remained

stagnant.

Supporters of free trade claims it increases economic prosperity as well as opportunity,

especially among developing nations of East Asia, enhances civil liberties and leads to a more

efficient allocation of resources.

Economic theories of comparative advantage suggest that free trade leads to a more efficient

allocation of resources, with all countries involved in the trade benefiting. In general, this leads

to lower prices, more employment, higher output and a higher standard of living for those in

developing countries.

2.2 Drawbacks of Globalisation and Free trade on East Asian Economy

The critique against globalization such as Marxist analysis, Sheikh Baten, lim and paul in

comman argued that:With globalization poorer countries are mostly at disadvantage, countries like Vietnam in East

Asia try to save their national markets. The main export of poorer countries is usually

agricultural this creates difficulty for them to compete with stronger countries. As the balance of

trade is unfavourable due to import is mostly greater than export even the value of goods


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imported is much higher than that of exported, thus they are not really in a win-win situation.

More over exploitation of resources is another issue, where by the stronger industrialized powers

has resulted in the exploitation of the people in those nations to become cheap labour, for

example Foreign businesses going to China or Vietnam, they benefit from Cheap labour, but

the host countries labour suffer as they are paid lower and work overtime. Globalization has also

led to spread of a materialistic lifestyle and attitude that sees consumption as the path to

prosperity in the East Asian countries.

Asia has not been able to decouple from developed economies. According to the Andy yee

(2010) , during 2000-2007, exports as a proportion of Asias GDP increased from 35 per cent to

47 per cent, with three-fifths going to Europe and the US. With most intraregional trade in

intermediate goods used to manufacture export products. As Stephen Roach (2010) , economistand Chairman of Morgan Stanley Asia, pointed out in his latest book, Asias explosive growth

has been based on a bet upon deep integration with the global economy, which proved

unsustainable in face of the global recession. Asia needs to focus on promoting more

intraregional trade in final goods by encouraging local demand, East Asias stellar growth

performance has led to the decline of absolute poverty since the 1990s. However, inequality of

income and consumption has increased significantly since then. About three-quarters of

inequality in the region are attributed to inequality within countries. The export-led growth has

integrated littoral regions, special economic zones and cities with the global supply chains. In the

process, many fault lines, such as the urban-rural divide, regional-ethnic divide and skilled-

unskilled labor wage gaps developed which may threaten social stability. The phenomenon of

migrant workers in China, and the associated debate of hukou reform, is an example. The

Bangkok-rural divide in Thailand, which has paralyzed Thailands political system, is another.

Globalization has widen the gap of inequality in recent years as unrestricted free trade benefits

those with more financial leverage, and has also promote depending on other country to supply

for necessary needs for example Singapore depends on Malaysia to supply Water if in futurethe two countries go on war Singapore will be heavily affected with no water supply even though

Malaysia has signed up contract of providing Singapore water for 100 years, but war is indeed a

war


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According to Poushali Ganguly , there is immense pressure on the employed workers in the

MNCs who are uncertain as to business might close and go back to parent country or a third

country due to uncertainty in the environment of most of the East Asian countries, for example

Indonesia and Thailand unstable political system, high corruption rate in Malaysia.

Alassane Ouattara (1998) says that globalization and free trade along with inconsistent

macroeconomic policies were the reason for Asian financial crisis in 1997-1998 as in Thailand,

where the East Asian crisis was ignited was due to the international investors losing confidence

when domestic financial management failed to address the increasingly obvious problems of an

overheated economy and a consequently weakening external current account. Had the economy

not depended too much on foreign direct investment due to globalization and free trade such

crisis would not have triggered.

3.0 ConclusionThe world has seen the polarization of developing countries in the last half-century: one group

which succeeded in poverty reduction through sustained growth, and another group which did

not. The majority of East Asian countries belong to the first group. Viewed from a long

perspective and as a regional phenomenon, there is no denying that East Asia has made

impressive strides in income levels, economic equity and social indicators despite frequent wars,crises and stagnation. On the balance, for nearly all the countries of East Asia, globalization has

meant faster growth and more prosperity for a larger share of its population than at any other

time in their histories. The gross national product (GNP) of APEC economies over the past

decade has increased by a third, the number of people living in poverty has fallen by a third, and

literacy rates are among the highest in the world, thanks to education expenditures that have risen

faster than GNP. The citizens of the emerging economies of the Asia-Pacific region are among

the most literate, healthy and prosperous in the developing world. Also Radelet et al. (1997)

mentioned that Asias episode of rapid economic growth since the 1960s, as remarkable as it was

by historical standards, can be explained in an international comparative context. Special

theories of Asian growth are not necessary. East Asian countries grew faster than the rest of the

world for four key reasons: they had substantial potential for catching up (since the entered the

1960s with relatively low incomes), their geography and structural characteristics were by-and-


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large favourable, demographic changes following World War II worked in favour of more rapid

growth, and their economic policies and strategy were conducive to sustained growth. Most

importantly, the high performing East Asian countries recognized the imperative of joining the

world economy through the promotion of labor-intensive manufactured exports. These

economies promoted exports through a combination of policies, relatively free trade, convertible

currencies, and macroeconomic stability and through a set of innovative institutions -- such as

export processing zones, duty exemption schemes, and incentive packages for foreign direct

investment. Credit has to be given to the effective policies of East Asian policy makers to have

such a substantial growth in recent years, and the globalization has done much more good to

economic growth of East Asian countries than hurt it, so it can be said that Globalization and

Free trade has contributed much to the development of East Asian countries survival before and

after financial crisis in 1997 and 1998 and thus should be looked as blessing.


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4.0 References

Electronic sources

Abhay Burande., N.D, Advantages of Globalization [online], Available from

http://www.buzzle.com/articles/advantages-of-globalization.html [Accessed on 8th April 2011]

Alan Rose., 2006, Toys "R" Us to open store in China [online], Available from

http://www.joystiq.com/2006/09/21/toys-r-us-to-open-store-in-china/ [Accessed on 6 th April

2011]

Alassane Ouattara., 1998, Globalization, Lessons from the Asian Crisis and Central Bank

Policies [online], Available From http://www.imf.org/external/np/speeches/1998/062398a.htm

[Accessed on 17th April 2011]

Andy Yee., 2010, Asian economic integration? Address domestic inequalities [online], London,

University of London, Available from http://www.eastasiaforum.org/2010/08/13/asian-

economic-integration-address-domestic-inequalities/ [Accessed on 4 th April 2011]

Asean., 2011 , Overview [online], Available from http://www.aseansec.org/64.htm [Accessed on

1st April 2011]

China Daily., 2006, Wal-Mart plans 20 stores in China [online], Available from

http://www.chinadaily.com.cn/bizchina/2006-03/21/content_548509.htm [Accessed on 12th

April 2011]

Daniel T. Griswold., 2003, Free -Trade Agreements Steppingstones to a More Open World

[online], Washington D.C, Cato Institute, Available from http://www.cato.org/pubs/tbp/tbp-

018.pdf [Accessed on 15th April 2011]

Diane Segal., 2004, Singapores Water Trade with Malaysia and Alternatives [online], England,

Harvard University, Available from

http://www.transboundarywaters.orst.edu/publications/abst_docs/related_research/Segal-

Singapore-Malaysia%2004.pdf [Accessed on 2nd

April 2011]Jeffery Sachs., N.D, The Huffing Ton Post [online], Available from

http://www.huffingtonpost.com/jeffrey-sachs [Accessed on 16th April 2011]


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Laurence E. Rotenberg., 2003, Globalization 101 the Three Tensions of Globalization [online],

America, The America Forum for Global Education, Available from

http://www.globaled.org/issues/176.pdf [Accessed on 1st April 2011]

Lawrence J. Lau and Jungsoo Park., 2003, The Sources of East Asian Economic Growth

Revisited [online], America, Stanford University, Available from

http://www.stanford.edu/~ljlau/RecentWork/RecentWork/030921.pdf [Accessed on 2nd April

2011]

Poushali Ganguly., N.D, Pros and Cons of Globalization [online], Available from

http://www.buzzle.com/articles/pros-and-cons-of-globalization.html [Accessed on 17th April

2011]

Shiekh Baten., N.D, Globalization and the Resistance against It [online], Available from

http://www.mukto-mona.com/new_site/mukto-mona/current_affiars/globalization_impact.htm [Accessed on 14th April 2011]

Stepehn Roach., 2010, Asian economic integration? Address domestic inequalities [online],

London, University of London, Available from http://www.eastasiaforum.org/2010/08/13/asian-

economic-integration-address-domestic-inequalities/ [Accessed on 4 th April 2011]

Steven Radelet, Jeffrey Sachs and Jong-Wha Lee., 1997, Economic Growth in Asia [online]

Available from http://www.cid.harvard.edu/archive/hiid/papers/ecgasia.pdf [Accessed on17th

April 2011]

Thomas Sowell., 2005, in defense of globalization, free-trade and free-market [online],

Available from http://www.globalenvision.org/library/15/723 [Accessed on 3rd April 2011]

Xinhua., 2011, Full text of Chinese President Hu Jintao's speech at opening ceremony of Boao

Forum (Part 2) [online], Available from http://www.chinadaily.com.cn/xinhua/2011-04-

15/content_2323056.html [Accessed on 6th April 2011]

Journals

A Dictionary of Marxist Thought., Oxford: Oxford University Press. Lim, Paul J 2001. "Stay Home, Investor, If You Want to Keep Your Money" , U.S. News &

World Report, 130:20

Jung Sik Kim and Yonghyup Oh., 2007, Determinants of Intra-FDI Inflows in

East Asia: Does Regional Economic Integration Affect Intra-FDI?, 1 (02) pp 25-35


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Sabhlok, Anisha., (2001), The Evolution of Singapore Business: A Case Study Approach. IPS

Working Paper No. 10 (Volume 1 and 2).

Yamin, Mo and Pervez N. Ghauri (2004), Rethinking MNE-Emerging Market Relationships:

Some Insights from East Asia, in Global Firms and Emerging Markets in the Age of Anxiety.

Westport, CT. Praegar Publishers, 251-266

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