CU-MBA-SEM-III-Globalization and Trade Agreements

MASTER OF BUSINESS ADMINISTRATION GLOBALIZATION AND TRADEAGREEMENTS

First Published in 2021 All rights reserved. No Part of this book may be reproduced or transmitted, in any form or by any means, without permission in writing from Chandigarh University. Any person who does any unauthorized act in relation to this book may be liable to criminal prosecution and civil claims for damages. This book is meant for educational and learning purpose. The authors of the book has/have taken all reasonable care to ensure that the contents of the book do not violate any existing copyright or other intellectual property rights of any person in any manner whatsoever. In the event the Authors has/ have been unable to track any source and if any copyright has been inadvertently infringed, please notify the publisher in writing for corrective action. 2 CU IDOL SELF LEARNING MATERIAL (SLM)

CONTENTS Unit - 1: Globalization........................................................................................................... 4 Unit - 2: Globalization And The New Global Economy...................................................... 28 Unit - 3: Globalization And The New Global Economy...................................................... 46 Unit - 4: Transnational Corporations And The Globalization Process ................................. 68 Unit - 5: Transnational Corporations And The Globalization Process .................................. 94 Unit - 6: Transnational Corporations And The Globalization Process ............................... 115 Unit - 7: Major Regional Trade Agreements..................................................................... 130 Unit - 8: Regional And Multilateral Agreements ............................................................... 169 Unit - 9: Regional And Multilateral Agreements ............................................................... 195 Unit - 10: Global Institutions ............................................................................................. 211 Unit - 11: Financial Globalization .................................................................................... 232 Unit - 12: Indian Multinational Corporations .................................................................... 244 Unit - 13: Indian Multinational Corporations .................................................................... 258 Unit - 14: Globalization And Developing Countries ........................................................ 275 3 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT - 1: GLOBALIZATION STRUCTURE 1.0 Learning Objectives 1.1 Introduction 1.2 History of Globalization 1.3 Elements of Globalization 1.4 Trends in Globalization 1.5 Features of Globalization 1.6 Nature of Globalization 1.7 Impact of Globalization 1.8 Summary 1.9 Keywords 1.10 Learning Activity 1.11 Unit End Questions 1.12 References 1.0LEARNING OBJECTIVES After studying this unit, you will be able to:  Describe the History of Globalization  State the Nature of Globalization  List the Features of Globalization  Find the Impact of Globalization 1.1 INTRODUCTION Globalization, defined as the process of continuing global integration of countries, is well underway in every corner of the universe. While cross-border movement of products, services, ideas, capital, and technology is not a new occurrence, its evolution over the last decade has been qualitatively different. Globalization has exposed national economies to considerably more intense competition than ever before, due to fast pace of technical change, price and trade liberalization, and the growing role of supranational laws. Definition of Globalization

Globalization broadly refers to the expansion of global ties, the organization of social life on a global scale and the growth of global consciousness, and thus to the consolidation of a global community. “A social process in which the constraints of geography and social cultural arrangements recede and in which people become increasingly aware that they are receding “. “The inexorable integration of markets, nation – states, and technologies to a degree never witnessed before in a way that is enabling individuals, corporations and nation states to reach around the world farther, faster, deeper and cheaper than ever before”. 1.2HISTORICAL BACKGROUND OF GLOBALIZATION While globalization is sometimes referred to as a recent or modern phenomena, it can also be studied from a historical perspective by examining the historical record over centuries or millennia. A historical examination of globalization, including its beginnings, expansion, and consequences, can provide a more thorough examination and better understanding of the notion and debate surrounding globalization. Given the growing body of literature on globalization and its various interpretations, many scholars agree that understanding the historical background of Globalization is now more crucial than ever. Much of the literature presented explains how the global economy of the twenty-first century is based on the foundation and expansion of global business and trade that began several centuries ago. A brief history of Globalization When Alibaba announced in 2018 that the ancient city of Xi'an would be the site of its new regional headquarters, the symbolic value was not lost on the company: it had taken globalization to its ancient origins, the commencement of the old Silk Road. It appropriately dubbed its new offices \"Silk Road Headquarters.\" Globalization began more than 2,000 years ago in this metropolis. Alibaba isn't the only one who is looking back. As we enter a new, digitally driven era of globalization, dubbed \"Globalization 4.0,\" it's important that we follow suit. When did the globalization process begin? What were the primary stages of its development? And where do you think it'll go tomorrow? This article concludes our globalization series. The series was prepared in advance of the World Economic Forum's 2019 Annual Meeting in Davos, which will focus on \"Globalization 4.0.\" Now we'll take a look back at its past. So, when did international trade begin, and how did it become a catalyst for globalization? 5 CU IDOL SELF LEARNING MATERIAL (SLM)

Fig 1.1 Globalization Era Silk roads (1st century BC-5th century AD, and 13th-14th centuries AD) People have been exchanging products for nearly as long as they have existed. However, in the first century BC, a surprising occurrence occurred. For the first time in history, Chinese luxury goods began to appear on the other side of the Eurasian continent — in Rome. They arrived after a ten-thousand-mile journey along the Silk Road. Trade had ceased to be a local or regional affair and had become a global phenomenon. Trade had ceased to be a local or regional affair and had begun to become a worldwide phenomenon. That isn't to suggest that globalization had truly begun. Silk, like the spices that were added to the transcontinental trade between Asia and Europe, was primarily a luxury item. The value of these exports as a percentage of the whole economy was insignificant, and many middlemen were engaged in getting the commodities to their final destination. However, worldwide commerce relations were developed, and it was a win-win situation for all parties concerned. However, global commerce linkages were formed, and it was a goldmine for those engaged. The multiple ranged from the purchasing price to the final sales price in the dozens. Because two large empires dominated much of the Silk Road, it was able to thrive. If trade was disrupted, it was usually due to blockades by Rome's or China's local adversaries.If the Silk Road did eventually stop, as it did after several centuries, it was due entirely to the demise of empires. The development of a new hegemonic empire, the Mongols, caused it to 6 CU IDOL SELF LEARNING MATERIAL (SLM)

reopen in Marco Polo's late mediaeval time. It's a pattern we'll see throughout the history of trade: when nations defend it, it thrives; when they don't, it suffers. Spice routes (7th-15th centuries) The Islamic trader is the subject of the following chapter in the trade story. Trade expanded in all ways as the new religion spread from its Arabian origins in the 7th century. Spices were the main focus of Islamic trade during the Middle Ages. Spices, unlike silk, have been traded mostly by water from ancient times. However, by that point in history, they had established themselves as the genuine center of international trade. Cloves, nutmeg, and mace from the famous Spice Islands - Indonesia's Maluku islands – were among the most popular. They were exceedingly valuable and in high demand around the world, including Europe. However, they remained a luxury item, similar to silk, with a modest volume of trade. The original Belt (sea route) and Road (Silk Road) of trade between East and West did not take off, but globalization did. Age of Discovery (15th-18th centuries) In the Age of Discovery, true global trade began. European explorers connected East and West throughout this period, from the end of the 15th century forward, and unintentionally discovered the Americas. The Portuguese, Spanish, and later the Dutch and English, aided by the findings of the so-called \"Scientific Revolution\" in the fields of astronomy, mechanics, physics, and shipping, first \"found,\" then subdued, and finally integrated new lands into their economies. The Age of Discovery shook the planet to its core. The most famous (in) famous \"finding\" is Christopher Columbus' discovery of America, which effectively eliminated pre-Colombian civilizations. The most important exploration, however, was Magellan's circumnavigation: it opened the door to the Spice Islands, bypassing Arab and Italian middlemen.While trade remained minor in comparison to total GDP, it had a significant impact on people's lives. In Europe, potatoes, tomatoes, coffee, and chocolate were introduced, and spice prices plummeted. Waves of globalization In the past two decades, there has been unprecedented global economic integration. Economic integration occurs through trade, labour migration, and capital (investment) flows such as corporation stocks and government securities. First wave of Globalization (1870 – 1914) The first wave of global integration occurred from 1870 – 1914. It was sparked by decreases in tariff barriers and new technologies that resulted in declining transportation costs such as the shift from sail to steamships and the advent of railways. Therefore, exports as a share of world income nearly doubles to about 8% while per capita incomes, which had risen by 0.5% 7 CU IDOL SELF LEARNING MATERIAL (SLM)

per year in the previous 50 years, rose by an annual average of 1.3%. The countries that actively participated in Globalization, such as the United States, became the richest countries in the world. However, the first wave of Globalization was brought to an end by World War I. Also, during the Great Depression of the 1930’s, Governments responded by protectionism; a futile attempt to enact tariffs on imports to shift demand into their domestic markets, thus promoting sales for domestic companies and jobs for domestic workers. For the world economy, increasing protectionism caused exports as a share of national income to fall to about 5%, therefore undoing 80 years of technological progress in transportation. Second wave of Globalization 1945 – 1980 The horrors of the retreat into nationalism provided renewed incentive for internationalism following World War II. The result was a second wave of Globalization that took place from 1945 to 1980. Falling transportation costs continued to foster increased trade. Also, nations persuaded governments to cooperate to decrease trade barriers they had previously established. However, trade liberalization discriminated both in terms of which countries participated and which products were included. By 1980, trade between developed countries in manufactured goods had been largely freed of barriers. However; barriers facing developing countries had been eliminated for only those agricultural products that did not compete with agriculture in developed countries. For manufactured goods, developing countries faced sizable barriers. For developed countries, however, the slashing of trade barriers between them greatly increased the exchange of manufactured goods, thus helping to raise the incomes of developed countries relative to the rest. The second wave of Globalizationintroduced a new kind of trade; rich country specialization in manufacturing niches that gained productivity through agglomeration economies. Increasingly, firms clustered together, some producing the same product and others connected by vertical linkages. Japanese auto companies, for example, became famous for insisting that their parts manufacturers locate within a short distance of the main assembly plant. For companies such as Toyota and Honda, this decreases the costs of transport, of coordination, of monitoring, and of contracting. Although agglomeration economies benefit those in the clusters, they are bad news for those left out. A region may be uncompetitive simply because not enough firms have chosen to locate there. Thus, a dividend world may emerge, un which a network of manufacturing firms is clustered in some high-wage region, while wages in the remaining regions stay low. Firms will not shift to a new location until the discrepancy in production costs becomes sufficiently large to compensate for the loss of agglomeration economies. During the second wave of Globalization, most developing countries did not participate in the growth of global manufacturing and services trade. The combination of continuing trade 8 CU IDOL SELF LEARNING MATERIAL (SLM)

barriers in developed countries, and unfavourable investment climates and antitrade policies in developing countries, confined them to dependence on agricultural and natural-resource products. Although the second Globalization wave succeeded in increasing per capita incomes within the developed countries, developing countries as a group were being left behind. World inequality fueled the developing countries distrust of the existing international trading system, which seemed to favour developed countries. Therefore, developing countries became increasingly vocal in their desire to be granted better access to developed country markets for manufactured goods and services, thus fostering additional jobs and rising incomes for their people. New wave of Globalization The latest wave of Globalization, which began in about 1980,is distinctive. First, a large number of developing countries broke into world markets for manufacturers. Second, otherdeveloping countries became increasingly marginalized in the world economy and realized decreasing incomes and increasing poverty. Third, international capital movements, which were modest during the second wave of Globalization, again became significant. Of major significance for third wave Globalizationis that some developing countries succeeded for the first time in harnessing their labour abundance to provide them a competitive advantage in labor-intensive manufacturers. Examples of developing countries that have shifted into manufacturer’s trade include China, Bangladesh, Malaysia, Turkey, Mexico, Hungary, Indonesia, Sri Lanka, Thailand, and the Philippines. This shift is partly due to tariff cuts that developed countries have made on imports of manufactured goods. Also, many developing countries liberalized barriers to foreign investment, which encouraged firms such as Ford Motor Company to locate assembly plants within their borders. Moreover, technological progress in transportation and communications permitted developing countries to participate in international production networks. However, the dramatic increase in e4xports of manufacturers from developing countries has contributed to protectionist policies in developed countries. With so many developing countries emerging as important trading countries, reaching further agreements on multilateral trade liberalization has become more complicated. Capital flows to developing countries have increased notably during the third wave of Globalization. These flows, however, have shifted from government aid to private investment flows. In spite of the income gains realized by many rich countries, the amount of foreign aid granted to developing countries has declined to historically low levels. Many marginalized countries, such as Kenya and Togo, have difficulty attracting investment and thus are dependent on foreign aid to fight health problems such as AIDS and improve their infrastructure. Also, marginalized countries have become burdened with heavy external debts. This has resulted in pleas for the rich countries to forgive their debts. 9 CU IDOL SELF LEARNING MATERIAL (SLM)

Although the world has become more globalized in terms of international trade and capital flows compared to 100 years ago, the world is less globalized when it comes to labour flows. The United States, for example, had a very liberal immigration policy in the late 1800s and early 1900s, and large flows of people entered the country, primarily from Europe. As a large country with a lot of room to absorb newcomers, the United States also attracted foreign investments throughout much of this period, which meant that high levels of migration went hand in hand with high and rising wages. Since World War I, however, immigration has been a disputed topic in the United States, and restrictions on immigration have rightened, incontrast to the largely European immigration in the 1870 to 1910 Globalization wave, contemporary immigration into the United States comes largely from Asia and Latin America. 1.3 ELEMENTS OF GLOBALIZATION The growth in cross-border economic activities takes five principal forms: a. International Trade. b. Foreign Direct Investment. c. Capital Market Flows. d. Migration (Movement of Labor); and e. Diffusion of Technology 1.4TRENDS IN GLOBALIZATION In terms of social Globalization, the world remains more connected than ever due to the widespread use of digital technologies. However, since the Great Recession of 2008-2010 a downward trend in economic integration has been observed. The slowdown of global wide trade that resulted from the monetary crisis become exacerbated through protectionist guidelines and nationalist movements in current years. The COVID-19 health crisis that brought economic collapse has prompted policymakers to take deliberate steps toward deglobalization. While the present-day trend isn't always possibly to give up Globalization, a few argue that “Globalization may be reversed, as a minimum partially.”In addition, the United Nations identified three mega-trends related to Globalization: shifts in production and labor markets, rapid advances in technology, and climate change. 1.5 FEATURES OF GLOBALIZATION Globalization is not a new phenomenon, but rather a continuation of trends that have been ongoing for some time. However, the contemporary trend of economic activity 10 CU IDOL SELF LEARNING MATERIAL (SLM)

liberalizationis qualitatively different, as the world has clearly moved away from being a collection of relatively autonomous economic agents that are only marginally connected and are more or less immune to events in their immediate surroundings. Globalization was primarily driven by fast increase in foreign trade in the early post-World War II period, but in the 1950s and 1960s, direct foreign investment (FDI) began to play an increasingly crucial part in this process. The international economy has evolved into a highly linked system during the previous two decades, owing to a global trend of trade and investment liberalization. Today, globalization encompasses a variety of characteristics, but the three listed below appear to be the primary drivers of global economic integration: a. Internationalization of production, which is accompanied by changes in the structure of production, b. International trade in goods and services, which is expanding; and c. International capital flows that are widening and deepening. 1.6 NATURE OF GLOBALIZATION It is vital to consider some of the primary components of globalization in order to properly comprehend its effects: 1. A Global Reallocation of Industries Over the last two decades, manufacturing industries have shifted from traditional industrial nations to countries with low labour costs, primarily China, Southeast Asia, and Latin America.This is significant in labor-intensive industries such as textiles and apparels, light metals, and basic engineering, among others. Even more modern businesses, such as automobile and aircraft manufacturers, frequently outsource large aspects of their operations to LDC subcontractors. One of the most significant consequences of this trend is the loss of good professional jobs in industrialized countries, as well as the rise in unemployment. The industrial reallocation, on the other hand, raises the demand for trained personnel in LDCs and adds to the country's economic growth. In this regard, the end result of globalization is that it allows LDCs to drastically raise their share of global manufactured goods production. T. Friedman (2005), a notable New York Times writer, discusses this topic, particularly the impact of globalization on US-China and India ties. 2. A Massive Expansion of World Trade Volumes. More commodities, materials, goods, and products are exchanged in the global market as a result of \"industrial reallocation,\" the new division of labour, and the relocation of production and manufacturing facilities eastward. Improved communication and transportation facilities reduce delivery times, allowing more countries to engage in global trade. The prior national autocratic reputation is fading, and more countries are becoming increasingly involved in and reliant on the global economy. Similar items or products are readily available in other 11 CU IDOL SELF LEARNING MATERIAL (SLM)

nations, and the globe is rapidly becoming a one-village society. All of these advances have resulted in rapid growth of international trade, which has become a significant factor in global and national economies. 3. A Rapid Growth of Merging and Acquisitions Trends The shift of industries to LDCs and the development of global firms into new regions sparked a wave of mergers and acquisitions. Although the majority of the companies in charge of these processes were from the United States and Europe, there are also examples of the opposite. Consider the Chinese Lenovo computer company, which purchased IBM's personal computer sector, or the Indian Mittal Group, which rose to the top of the global steel industry. However, many indigenous businesses are being bought by or forced to merge with international firms and multi-national corporations as a result of the expanding scope of commercial activity. In many situations, small local businesses are unable to fulfill the demands of the global market or to compete in a cutthroat environment. The desire to leverage the worldwide capital market drives the corporation's size and volume of operations to grow. As a result, local requirements and preferences are routinely postponed or ignored in favour of global concerns. 4. A Significant Moves of Capital from one country to another The growth of global operations and the increasing importance of transnational operations were accompanied by a large increase in capital movements. Direct and indirect investments in LDCs, operations in the capital and stock exchange markets in developed countries, and the generation of massive amounts of free capital migrating from one country to another in search of greater revenue are all long-term investments operations. These moves can be extremely damaging to the host country and can result in a catastrophic financial crisis in local capital markets, as happened in South-East Asia in the late 1990s and Russia a few years later. The potential dangers lurking in international capital flows present a fundamental question about the types of connections that should be developed and maintained between local financial institutions, commercial banks, and the Central Bank, as well as the international monetary system.This question also pertains to the ideological debate between proponents of total free market activity and proponents of more government intervention in market failures. In his book \"The Crisis of Global Capitalism,\" George Soros (1998), an American financial guru, proposes for some government intervention because the prospects are otherwise bleak. 5. An Increased Power of Global and Regional Trade Organizations Conflicts between the domestic economy and its outer trade organizations are becoming more common as a result of globalization. Many national economies are dominated by regional and international accords, which dictate the activity of governments and companies. Despite the good intentions of all parties involved, conflicts of interest do arise in real life. The typical 12 CU IDOL SELF LEARNING MATERIAL (SLM)

debate concerns farmers in EU countries, which has remained unresolved after many years of disagreement. Although the European open common market provides many benefits to its members, it is unable to resolve all divergent interests. The recent addition of ten new members from East and Central Europe to the original 15 complicates the situation even more. However, the EU unification process is simply one of many comparable Inter-regional Trade Agreements, such as NAFTA or the Asia-Pacific Trade Agreement. The situation at the World Trade Organization (WTO) is much more problematic because it involves large multinational firms and emerging economies such as China and India. 6. A growth of Lifestyles and Consumption Patterns Similarity the globe has become a \"global village\" due to the superior technology of global media channels, the rapid spread of the Internet, and satellite communication networks. Many countries receive real-time transmissions of Western styles, fashion, and habits, which people, particularly young people, seek to mimic and copy. As a result, China produces nearly all American and European symbols, against trademark regulations and in violation of most intellectual property (IP) laws. The accumulated worldwide demand is stronger and overcomes most of the 20th Century's bureaucratic limits. To summarize, the globalization process contributes greatly to the production of new wealth and affluence in most developed countries, as well as an increase in income in LDCs. It also helps to and accelerates the change of the “Western” economy from a manufacturing-based to a primarily “service”-based economy. Although this influence creates new vistas for poor countries, it poses significant challenges for the majority of countries in West and East Europe. The fact that the EU likes to ignore this issue for its own purposes does not address the situation. 1.7 IMPACT OF GLOBALIZATION Impacts: Chief Concerns Globalization should benefit all countries and improve people's well-being. This implies that it should boost impoverished countries' economic growth and reduce global poverty. It should not exacerbate inequality or jeopardize countries' socioeconomic security. The litmus test for globalization is commonly acknowledged to be if it considerably accelerates development and reduces absolute poverty in the world, as well as whether it secures economic, social, and environmental sustainability. Globalization's societal influence is not limited to poor countries that have been left out of the process. Significant societal costs are associated with reasonably successful countries. For example, China faces problems of transitional unemployment that are likely to intensify with the reform of State-owned enterprises. The Asian financial crisis showed that even 13 CU IDOL SELF LEARNING MATERIAL (SLM)

countries with exemplary past records of economic performance can suffer heavy social costs. Impacts: Growth Since 1990, when Globalization was at its peak, global GDP growth has been slower than in previous decades (figure 10). This is in contrast to assumptions that Globalization will boost growth. Growth is unevenly distributed among both industrialized and developing countries. In terms of per capita income growth, only 16 developing countries grew at more than 3 per cent per annum between 1985 and 2000. Some 55 developing countries grew at less than 2 per cent per annum, including 23 that suffered negative growth. The income gap between the richest and poorest countries increased significantly (Figure 1.2). This uneven pattern of growth is shaping a new global economic geography. The most striking change is the rapid economic growth in China over the last two decades, together with a more gradual but significant improvement in the economic growth performance of India. These two countries together account for more than one- third of the world’s population. Fig 1.2: World GDP per capita growth, 1961-2003 (annual change in per cent) 14 CU IDOL SELF LEARNING MATERIAL (SLM)

Fig 1.3: GDP per capita in the poorest and the richest countries, 1960-62 and 2000-02 (in constant 1995 US$, simple averages) Impacts: Uneven Benefits Globalization's bigger picture indicates a highly unequal distribution of benefits among countries. Industrialized countries are well positioned to benefit significantly from global production systems and investment rules that have been liberalized. Multinational Enterprises (MNEs) now have new potential to gain market share and make higher-yielding investments in emerging markets Some benefits are somewhat outweighed by internal adjustment issues, which may result in job losses for some employees. A few number of developing countries have had great success boosting exports and obtaining big FDI inflows. The original East Asian NIEs, which are approaching industrialized country income levels, are first and foremost. Mexico and Chile, two other middle-income countries in Asia, the EU, and Latin America, may also be on pace. For the most part, these countries had relatively favourable initial conditions such as prior industrialization, human resource development, transport and communications infrastructure, and the quality of economic and social institutions. But all have not pursued the same development strategies. China, India and Vietnam have not followed orthodox liberalization strategies, while the Republic of Korea relied on strong government intervention. At the other extreme, the exclusion of LDCs, including most of sub-Saharan Africa, from the benefits of Globalization remains a reality. LDCs are trapped in a vicious circle of interlocking handicaps including poverty and illiteracy, civil strife, geographical disadvantages, poor governance and inflexible economies largely dependent on a single 15 CU IDOL SELF LEARNING MATERIAL (SLM)

commodity. Many are also burdened by high external debt and hard hit by the continuing decline in the price of primary commodities. These problems have been compounded by continuing agricultural protectionism in the industrialized countries. This restricts market access while subsidized imports undermine local agricultural production. Impacts: Trade & FDI There is no one-size-fits-all prescription for the most effective strategy to trade liberalization. ILO studies reveal a wide range of affects across countries. In three Asian rising nations, trade expansion had a typically positive impact on manufacturing employment and salaries. Industrial output has either remained flat or declined in Latin American countries such as Brazil and Mexico. Regarding FDI, a critical precondition for success is the presence of local firms able to absorb the new technologies and respond to new demands. Also vital are policies to develop local education, training and technology systems and to build supplier networks and support institutions. The evidence suggests that FDI does increase growth. That should have a positive effect on employment but may be negated by strong crowding-out effects on local firms unable to compete and by the introduction of capital-intensive technology by foreign firms. Empirical evidence on the employment impact of FDI is sparse and does not permit simple generalization. Cross-border investments can also raise the rate of growth if there are spillover benefits from the transfer of technology and skills to the local economy. The empirical evidence reveals mixed outcomes. While countries such as Singapore and Ireland have experienced strong spillover effects, this has not been true of all countries. A full evaluation of the net benefits from FDI will have to include factors such as the impact of FDI on small and medium sized enterprises and on poor producers; the potential conflicts of interest between foreign firms and host countries; and the impact of FDI on the pattern of trade and the balance of payments. Impacts: Finance On capital account liberalization, there is a growing consensus that the gains to growth are minor. In countries with poorly regulated financial systems, the potential benefits of access to financial markets are sometimes decreased or offset by instability. The prominence of short-term speculative capital flows is a basic structural flaw in the system. Such flows do not contribute to productive investment and place constraints to development policy. 16 CU IDOL SELF LEARNING MATERIAL (SLM)

In some cases, financial openness has led to misallocation of resources and increased the real cost of capital. The misallocation arises when information failures lead foreign lenders to finance unsound investments. The real cost of capital increases when governments raise interest rates to maintain exchange rate stability. Fig 1.4: Average company tax rates in the EU and OECD, 1996-2003 Financial openness limits countercyclical macroeconomic policy because countries have to surrender autonomy over either exchange rate or monetary policy. Maintaining a fixed exchange rate implies forgoing the freedom to fix domestic interest rates, while control over the latter can only be regained by allowing the exchange rate to float. Globalization has an impact on government finances as well. The average corporate tax rate in the world's 30 richest countries declined from 37.6% in 1996 to 30.8 percent in 2003. (Figure1.4) he top marginal tax rate on personal income fell in the vast majority of countries, both high- and low-income, between 1986 and 1998, frequently significantly. Changes in tax rates do not necessarily reduce tax revenues since lower tax rates can also help to reduce tax evasion and increase production incentives. But tax systems may become less progressive and place more burden on labour, which is not mobile like companies and rich individuals. Impacts: Employment According to the International Labour Organization, global unemployment grew by roughly 188 million people in 2003. The results differed by region (Figure 1.4). In Latin America, the Caribbean, and Southeast Asia, unemployment rates have risen since 1990, and in East Asia since 1995. Causes include the financial crisis at the end of the 1990s. In some major countries, unemployment rates declined after the crisis but not to pre-crisis levels (Figure 1.5). Self- 17 CU IDOL SELF LEARNING MATERIAL (SLM)

employment, which indicates the informal economy, increased in all developing regions, except for East and South-East Asia (Figure 1.6). Employment performance was mixed in industrialized countries. Over the last decade unemployment increased in Japan but sharply declined in some European economies and UK. Unemployment fell in the US despite job losses in some manufacturing industries. Income inequality increased in some industrialized countries (Figure 1.7). Earnings increased sharply of the top 1 per cent of income earners in the US, UK and Canada (Figure 1.8). In the United States, the share of this group reached 17 per cent of gross income in 2000, a level last seen in the 1920s. Causes include high compensation paid by MNEs, the development of new businesses with a global reach and global “superstardom”. Fig 1.5: Pre and Post Crisis Unemployment in selected Latin America and Asian Countries (in percent) 18 CU IDOL SELF LEARNING MATERIAL (SLM)

Fig 1.6: Non-agricultural self-employment 1980/85 and 1990/2000 (in percent of total non-agricultural employment) Fig 1.7: Open unemployment rates for various regions of the world, 1990-2002 (in per cent) 19 CU IDOL SELF LEARNING MATERIAL (SLM)

Fig 1.8: Ratio of the 10 per cent highest paid over the 10 per cent lowest paid workers, mid-1980s and mid-1990s Impacts: Poverty It is a mistake to blame Globalization for all positive and negative outcomes. Domestic structural issues, such as income distribution inequality and governance quality, are also important. It's difficult to gauge the influence of globalization on poverty. Most emerging countries have seen a rise in economic disparity, although how much of this can be attributed to globalization is still up for debate. (Figure 1.9). Fig 1.9: Income Inequality changes in 73 countries, 1960’s to 1990 The number of people living in absolute poverty worldwide has declined significantly from 1,237 million in 1990 to 1,100 million in 2000 but most of the improvement was in China 20 CU IDOL SELF LEARNING MATERIAL (SLM)

and India, which house 38 per cent of the world’s population. In China alone the number of people living in poverty declined from 361 million to 204 million. In sub-Saharan Africa, Europe and Central Asia, and Latin America and the Caribbean, poverty has increased by 82, 14, and 8 million, respectively (Figure 1.10). Regional and country-specific factors unrelated to Globalization were key factors. Fig 1.10: People living on less than 1 US$/day, 1990 and 2000 (millions) While reduction is world poverty deserves celebration, it is of little consolation to those outside the few beneficiary countries. Real social costs may occur even if aggregate indicators of unemployment and poverty do not deteriorate. Those indicators may mask the increased “churning” in labour markets and movements in and out of poverty. Perceptions of the social impacts of Globalization are coloured by direct experience of job or income losses, regardless of the overall picture. The mixed pictures of economic performance, employment, inequality and poverty make it extremely difficult to generalize about the impacts of Globalization. Observed outcomes reflect the combined results of a complex of factors of which Globalization, however broadly defined, is but one. Impacts: People Globalization's economic and social benefits are not fairly distributed. Shareholders, managers, workers, and subcontractors of successful MNEs and competitive national firms profited the most. Those with money and other possessions, as well as entrepreneurial potential, education, and skills, have profited the most. People in uncompetitive enterprises are adversely affected, including firms protected by trade barriers, subsidized State enterprises, and less flexible small and medium sized enterprises. Many could not seize new opportunities because they lacked access to capital, credit and information. 21 CU IDOL SELF LEARNING MATERIAL (SLM)

Increased capital mobility and high unemployment have weakened the bargaining position of workers. Pressures have increased for labour market flexibility, eroding labour protection and causing concern about the quality of the employment. That highlights the importance of international action to protect fundamental worker rights in all countries. Unskilled and indigenous peoples are particularly vulnerable. Investments in extractive industries, mega-hydroelectric dams, and plantations have led to massive dislocations, disruption of livelihoods, ecological degradation and violation of basic human rights. Fig 1.11: Public expenditure on education, 1992-2000 (in per cent of GDP) Increasing tax competition and a reduced role for the State have led to cuts in government expenditures vital for the poor, including health, education, social safety nets, agricultural extension services and poverty reduction (Figure 1.11). For example, of the 680 million children of primary school age in developing countries, 115 million are not in school, 65 million of them girls. Of the children who start primary school, only one in two complete it. Impacts: Women Women have borne a disproportionate share of the social cost of globalization in many developing countries. Many people have been negatively affected, both in general and in respect to men. For example, trade liberalization has permitted the introduction of heavily subsidized agricultural and consumer goods, putting women's livelihoods at risk. The increased entry of foreign firms often displaces farming women from their land or out- competes them for raw materials essential to their productive activities. Women producers also face formidable barriers to entry into new economic activities generated by Globalization. This is often because of biases, either against women directly or against the micro- and small enterprise sector in which they predominate. 22 CU IDOL SELF LEARNING MATERIAL (SLM)

For instance, women own less than 2 per cent of land worldwide and receive less than 10 per cent of credit. Women have also been more adversely affected than men during the increasing number of financial crises generated by Globalization and more disadvantaged by cuts in social protection. For many other women with some education and skills, Globalization has resulted in an improvement in their economic and social status. They include the millions of women workers absorbed into the global production system. This wage employment gave them higher incomes than in their previous situations, which were either intra-family servitude or a penurious and precarious existence in the informal economy. Wage employment also gave these women greater potential economic independence and often raised their social status within oppressively patriarchal societies. Impacts: Wider Effects There are two key wider effects of Globalization: increased global awareness and the growth of illicit cross-border activities. Global awareness enhances people's expectations and reduces their tolerance for their current status in impoverished areas of the world. This is most likely a factor in the expansion of democracy and the growing demand for political liberties in countries where they are still prohibited. The electorate is more informed, which is beneficial to democracy's quality. For people in richer countries, the information revolution is helping to forge a sense of global community and transnational solidarity. That is visible in the growth of global coalitions of non-State actors around issues of universal concern such as Globalization itself, the environment, human rights, humanitarian aid and labour exploitation. The global information revolution has also clearly affected cultures and social values. The fear is that constant exposure to the images of Western lifestyles and role models could lead to tensions which would be both culturally and socially divisive. The global interconnectivity which facilitates legitimate cross-border economic transactions also provides the means for illicit cross-border transactions. It has helped to increase tax evasion, money laundering, trafficking in people, and the sex and drug trades. The growth in economic benefits from more profitable chances for arbitraging across markets, such as through off-shore financial centres and tax havens, reinforces this accidental facilitation of cross-border crime. The sluggish establishment of global agreements for the detection and control of illicit cross-border operations also helps. 1.8SUMMARY  Globalization is the process of continuing integration of the countries in the world is strongly underway in all parts of the globe. 23 CU IDOL SELF LEARNING MATERIAL (SLM)

 The growth in cross-border economic activities takes five principal forms: (1) international trade; (2) foreign direct investment; (3) capital market flows; (4) migration (movement of labour); and (5) diffusion of technology.  Globalization forces the introduction of some social-economic reforms that affects and forces to reconstruct the retirement and welfare systems of many countries.  Globalization should benefit all countries and should raise the welfare of all people.  The social impact of Globalization is not confined to poor countries that have been marginalized from the process. In relatively successful countries, significant social costs are involved.  The economic benefits and social costs of Globalization are not evenly distributed. People who benefited most were shareholders, managers, workers or sub-contractors of successful MNEs and competitive national enterprises.  Investments in extractive industries, mega-hydroelectric dams, and plantations have led to massive dislocations, disruption of livelihoods, ecological degradation and violation of basic human rights.  In many developing countries, the social cost of Globalization has fallen disproportionately on women. Many have been adversely affected both absolutely and in relation to men.  There are two key wider effects of Globalization: increased global awareness and the growth of illicit cross-border activities. 1.9 KEYWORDS  Globalization broadly refers to the expansion of global linkages, the organisation of social life on a global scale and the growth of a global consciousness, hence to the consolidation of world society.  FDI – Foreign Direct Investment means any investment from an individual or firm that is located in a foreign country into a country is called Foreign Direct Investment. 1.10LEARNING ACTIVITY 1. Define Globalization ___________________________________________________________________________ ___________________________________________________________________________ 2. State the features of Globalization ___________________________________________________________________________ ___________________________________________________________________________ 24 CU IDOL SELF LEARNING MATERIAL (SLM)

1.11 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. Define Globalization? 2. State the features of Globalization? 3. List the elements of Globalization? 4. State the benefits of Globalization? 5. State the impact of Globalization? 6. Identify the impact of women in Globalization? Long Questions 1. What are the chief concerns about the impacts of Globalization? 2. Why are the benefits of Globalization distributed unevenly among countries? 3. Are there are any critical preconditions for success in benefiting from FDI? 4. What are the main findings about financial openness and Globalization? 5. Why are there mixed impacts of Globalization on employment? 6. Which people have benefited the most from Globalization and why? 7. Do the adverse social impacts of Globalizationfall disproportionately on women in development countries? 8. How does Globalization encourage global awareness and community? B. Multiple Choice Questions 1. The amalgamation and rapid unification between countries identified as a. Globalization b. Liberalization c. Socialisation d. Privatisation 2. Globalization has improved the living structure of which of the following? 25 a. All the People b. People living in developing countries c. People living in developed countries CU IDOL SELF LEARNING MATERIAL (SLM)

d. None of these 3. Removing barriers or restrictions set by the government is called: a. Liberalization b. Investment c. Favourable trade d. Free trade 4. Rapid integration or interconnection between countries is known as: a. Privatisation b. Globalization c. Liberalization d. Socialisation 5. Opening up the economy to the economies of the world so that Indian economy can compute at international level is called ______: a. Liberalization b. Globalization c. Privatization d. None of these Answers 1-a, 2-b, 3-a. 4-b, 5-b 1.12REFERENCES References books  Robert J. Carbaugh, International Economics, Thomson – Southwestern, 9th Edition, 2004  B O Sodersten and Geoffrey Reed, International Economics, Macmillan Press, 3rd Edition,1994 Textbook references 26 CU IDOL SELF LEARNING MATERIAL (SLM)

 Allsopp, Christopher and Kierzkowski, Henryk. The Assessment: Economics of Transition in Eastern and Central Europe. Oxford Review of Economic Policy, Vol. 13, No. 2 1997, pp. 1-22.  Emmerij, Louis. Major Development in Globalizing and Regionalizing World. Paper presented at the international conference on Globalization, Ljubljana, December 1999, 14p (mimeo). Website  https://www.unido.org/Globalization-trends-challenges-and-opportunities-countries- transition  https://www.ilo.org/legacy/english/fairGlobalization /download/toolkit/module4.pdf  https://www.coursehero.com/file/pkgi6f2/Has-the-rapid-growth-in-developing- countries-hurt-developed-countries-Note-that/ 27 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT - 2: GLOBALIZATION AND THE NEW GLOBAL ECONOMY STRUCTURE 2.0 Learning Objectives 2.1 Introduction 2.2 Effects of Economic Globalization 2.3 Working of Global Economy 2.4 Effects of Global Economy 2.5 The Triumph of Capitalism 2.6 Structural Adjustment Program 2.7 Economic Policy Changes in India 2.8 Information and Communication Technologies and Globalization 2.9 Summary 2.10 Keywords 2.11 Learning Activity 2.12 Unit End Questions 2.13 References 2.0 LEARNING OBJECTIVES After studying this unit, you will be able to:  State the Effects of Economic Globalization  Explain how the Global Economy Works  Find the Impact if Structural Adjustment Programme  State the Recent Changes in Economic Policy in India  Discuss the Effects of Globalization and Information and Communication Technologies 2.1 INTRODUCTION Meaning of Global Economy in Globalization

Economic Globalization refers to the increasing interdependence of world economies as a result of the growing scale of cross-border trade of commodities and services, flow of international capital and wide and rapid spread of technologies. 2.2 EFFECTS OF ECONOMIC GLOBALIZATION Globalization has led to increases in standards of living around the world, but not all of its effects are positive for everyone. Put simply, Globalization is the connection of different parts of the world. In economics, Globalization can be defined as the process in which businesses, organizations, and countries begin operating on an international scale. Globalization is most often used in an economic context, but it also affects and is affected by politics and culture. In general, Globalization has been shown to increase the standard of living in developing countries, but some analysts warn that Globalization can have a negative effect on local or emerging economies and individual workers. A Historical View Globalization isn't a new concept. People have traded products with their neighbors since the dawn of civilization. As societies progressed, they were able to go further away in order to sell their own things for more valuable items found elsewhere. Early Globalization can be seen in the Silk Road, a historic network of trade routes connecting Europe, North Africa, East Africa, Central Asia, South Asia, and the Far East. Europeans traded glass and manufactured products for Chinese silk and spices for more than 1,500 years, contributing to a global economy in which both Europe and Asia were used to items from far away. Globalization exploded after the European colonization of the New World; the Columbian Exchange became recognized for the massive movement of plants, animals, foods, civilizations, and ideas. Another example of Globalization is the Triangular Trade network, in which ships transported manufactured goods from Europe to Africa, enslaved Africans to the Americas, and returned raw materials to Europe. Slavery has spread as a result of globalization, demonstrating that it can harm people just as easily as it can link them. As a result of fast developments in communication and transportation, the rate of globalisation has accelerated in recent years. Businesses can now find investment opportunities because to advancements in communication. Simultaneously, advances in information technology allow for instant communication and the transfer of financial assets across national borders. Globalization is also aided by improved fiscal policies inside countries and international trade agreements between them. Globalization is aided by political and economic stability. Experts point to the relative instability of many African countries as one of the reasons why Africa has not profited as much from globalization as Asia and Latin America. Benefits of Globalization 29 CU IDOL SELF LEARNING MATERIAL (SLM)

Globalization gives firms a competitive advantage by allowing them to acquire low-cost raw materials from throughout the world. Organizations can also take advantage of cheaper labour costs in poorer countries while using the technical skills and experience of more developed economies thanks to globalization. Different pieces of a product may be manufactured in different parts of the world as a result of globalization. The automotive industry, for example, has long embraced globalization to manufacture distinct elements of a car in different nations. Even seemingly simple things like cotton T-shirts may include businesses from multiple different nations. Globalization has an impact on services as well. Many organizations in the United States have outsourced their call centers or information technology services to Indian enterprises. Automobile manufacturers in the United States have shifted their operations to Mexico, where labour costs are lower, as part of the North American Free Trade Agreement (NAFTA). As a result, more employment are created in nations where they are required, which can benefit the national economy and lead to a greater standard of living. China is an excellent example of a country that has reaped significant benefits from globalization. Another prime example is Vietnam, where globalization has resulted in a rise in rice prices, allowing many impoverished rice farmers to escape poverty. As the standard of living rose, more children from low-income households went to school instead of working. Consumers gain as well. Globalization reduces production costs in general. This allows businesses to sell goods to customers at a lesser cost. The average cost of items is an important factor that leads to rising living standards. Consumers can also choose from a greater range of products. This may contribute to better health by allowing for a more diversified and healthier diet in some circumstances, but it is also blamed for increases in bad food intake and diabetes in others. 2.3 WORKING OF GLOBAL ECONOMY The way the global economy is organized and managed by cooperating nations has changed dramatically during the last few decades. These changes have ramifications that influence not only the flow of products and services, but also the movement of people across countries. Too much variation in the international economic system can lead to a global economic crisis, as we've witnessed several times during the last century. Characteristics global economy The global economy comprises several characteristics, such as: Globalization:Through the global network of trade, communication, immigration, and transportation, national and regional economies, civilizations, and cultures have grown increasingly intertwined. The global economy arose as a result of these changes. Domestic 30 CU IDOL SELF LEARNING MATERIAL (SLM)

economies have become more coherent as a result of the global economy and globalisation, resulting in improved performance. International Trade:Globalization is thought to have influenced international trade. It refers to the interchange of commodities and services between countries, as well as how it has aided countries in specializing in products where they have a competitive advantage. This is a concept in economics that refers to a country's ability to create goods and services at a lower opportunity cost than its trading rivals. International Finance:Money can be exchanged between countries at a quicker rate than products, services, or people, making international finance one of the most important aspects of a global economy. Currency exchange rates and monetary policy are examples of themes in international finance. Global Investment:This is a technique for investing that is not limited by geographical limits. Foreign direct investment is the most common kind of global investment (FDI). 2.4 EFFECTS OF GLOBAL ECONOMY Nearly every country in the world is in some way affected by things that happen in what may seem at times, like unrelated countries - due to the influence of the global economy. A good example of this is the economic impact that the Brexit vote will have other countries, not only in Europe, but across the globe. Brexit was referendum decision for the United Kingdom to withdraw from the European Union (EU). The main cause of these effects is economics based on the production and exchange of goods and services. Restrictions on the import and export of goods and services can potentially hamper the economic stability of countries who choose to impose too many. The purpose of international trade is similar to that of trading within a country. However, international trade differs from domestic trade in two aspects: 1. The currencies of at least two countries are involved in international trade, so they must be exchanged before goods and services can be exported or imported. 2. Occasionally, countries enforce barriers on the international trade of certain goods or services which can disrupt the relations between two countries. Countries usually specialize in those products that they can produce efficiently, which helps in reducing overall manufacturing costs. Then, countries trade these products with other countries, whose product specialization is something else altogether. Having greater specialization helps countries take advantage of economies of scale. Economies of scale refer to the proportionate saving in costs gained by an increased level of production. Manufacturers in these countries can focus all their efforts on building factories for specialized production, instead of spending additional money on the production of various types of goods. 31 CU IDOL SELF LEARNING MATERIAL (SLM)

Occasionally countries add barriers to international trade. Some of these barriers include trade tariffs (taxes on imports) and trade quotas (limitation on the number of products that can be imported into a country). Trade barriers often affect the economies of the trading countries, and in the long run, it becomes difficult to keep employing such barriers. Benefits of global economy There are numerous benefits of a global economy, which include: 1. Free trade:For countries to exchange products and services, free trade is an attractive option. It also enables countries to focus on the manufacturing of items where they have a competitive advantage. 2. Movement of labour:Increased migration of the labour force is beneficial to both the recipient country and the employees. Workers can hunt for work in other nations if a country is experiencing excessive unemployment. This also aids in the reduction of geographical disparities. 3. Increased Economies of Scale:In most nations, specialisation in products manufacturing has resulted in beneficial economic variables such as lower average costs and cheaper prices for customers. 4. Increased investment:Because of the global economy, countries have found it simpler to attract both short- and long-term investment. In developing countries, investments go a long way toward improving their economies. Factors affecting global economy Here are some of the important aspects that influence and effect how well the global economy operates, according to the most recent economic news: 1. Natural resources. 2. Infrastructure. 3. Population. 4. Labour. 5. Human capital. 6. Technology. 7. Law. 2.5 THE TRUIMPH OF CAPITALISM Globalization is the success of capitalism in the sense that as the accumulation regime becomes global and the resistance stays national, the necessity to accommodate counter- demands diminishes. This victory and failure are played out in practice all across the planet. 32 CU IDOL SELF LEARNING MATERIAL (SLM)

Globalization is setting the stage for a big labor comeback According to economist Richard Freeman, China is \"probably the strongest case for trickledown economics in the world\" because poverty has dropped dramatically while inequality has risen rapidly over the last 25 years. Freeman is having a good time. He's not a supply-sider in the Reagan sense. He's a Harvard labour economist who's written extensively about how international labour standards must coexist with globalisation. And he's just released a great new paper on globalisation and employees called \"Labor Market Imbalances: Shortages, Surpluses, or Fish Stories?\" that's being discussed at a Federal Reserve Bank conference on \"Global Imbalances.\" meeting today. This is an excellent introduction to one of the crucial questions of Globalization: whither the world's workers? Freeman's basic observation is undeniable: the addition of Chinese, Indian and ex-Soviet Union workers to the global economy (which Freeman dubs \"the Great Doubling\") has \"changed the balance between labor and capital.\" And it's done so in a fashion contrary to what was predicted by free trade theorists, who assumed that the comparative advantage of the North and South would remain essentially the same as it has historically been: i.e., developing nations would take advantage of low wages to gain an edge, while the developed nations would maintain their hold on the commanding heights of technology innovation and highly skilled workers.That's not what's happening. India and China, to take just the most obvious examples, are simultaneously competing in low-wage industries and making huge inroads into the domain of high-wage, high-technology sectors. The Northern advantage is crumbling. \"In 1970 approximately 30 percent of university enrollments worldwide were in the U.S.,\" observes Freeman. \"In 2000, the U.S. proportion of university enrollments worldwide was 14 percent. Similarly, at the Ph.D. level, the U.S. share of doctorates produced around the world has fallen from about 50 percent in the early 1970s to a projected level of 15 percent in 2010.\" The developed world still has huge advantages, and the U.S. is not going to plummet to third- world status anytime soon. Still, the squeeze is on. But Freeman isn't opposed to Globalization. In the long run, the emergence of a global economy is a healthy thing. \"The triumph of global capitalism has brought modern technology and business practices to most of humanity. Barring disaster, the world is on an historic transition to a truly global economy and labor market that should produce rough income parity among nations and 'make poverty history.'\" Making poverty history is a good thing, provided that \"income parity\" doesn't mean that 99 percent of the world's workers earn barely enough to survive, while 1 percent live like kings. 33 CU IDOL SELF LEARNING MATERIAL (SLM)

But it may well take 50 years for a country such as China to reach parity with the West. In the meantime, unless policymakers proceed wisely, the road ahead will be bumpy. Freeman's summation is to the point: \"The way the transition proceeds will have immense consequences for workers throughout the world. Workers in the new entrants to the global economy should do better since capital will flow to them, raising wages and modern sector employment. Developing countries where wages exceed those in China and India face a big problem as these countries will have to find their place in the global economy without engaging in head on competition with the giants in low wage industries. Workers in the U.S. and other advanced countries will benefit from the low prices of goods from China and India but will suffer from enhanced labor market competition.\" The question, as always, is what is to be done? Freeman believes the time has come for government to tip in favor of labor. \"Capital,\" he notes drily, \"ought to be able to take care of itself in a global economy with twice as many workers, many available at low wages.\" The \"tip\" could take the form of international pressure to improve global labor standards, or bolstering the safety net that supports workers -- National Health Plan, anyone? But the bottom line is that some kind of redistributive mechanism is going to be necessary. Globalization has resulted in tremendous growth: \"a key policy issue should be to find ways to distribute that growth beyond the super wealthy who have benefited most from the past two or so decades of growth.\" After at least 25 years of government tipping away from labor in the United States, Freeman's prescription may seem a bit unrealistic. But pendulums do swing. The remaking of the global economy has been so vast and has so fundamentally changed the global terms of trade, that new choices will have to be made, and new directions will become possible. 2.6 STRUCTURAL ADJUSTMENT PROGRAM Meaning of Structural Adjustment A structural adjustment is a set of economic reforms that a country must adhere to in order to secure a loan from the International Monetary Fund and/or the World Bank. Structural adjustments are often a set of economic policies, including reducing government spending, opening to free trade, and so on. \"Structural adjustment\" is the name given to a set of \"free market\" economic policy reforms imposed on developing countries by the Bretton Woods institutions [the World Bank and International Monetary Fund (IMF)] as a condition for receipt of loans.  Developed in the early 1980s  Initiated in Turkey 34 CU IDOL SELF LEARNING MATERIAL (SLM)

 Gaining stronger influence over the economies of debt-strapped governments in the South  187 SAPs negotiated for 64 developing countries Structural Adjustment Programmes (SAPs) Structural Adjustment Programmers Structural Adjustment Programmes (SAPs) are economic policies for developing countries that have been promoted by the World Bank and International Monetary Fund (IMF) since the early 1980s by the provision of loans conditional on the adoption of such policies. Structural adjustment loans are loans made by the World Bank. As part of the Bank's neoliberal goal, they are aimed to support structural adjustment of an economy by, for example, reducing \"excess\" government regulations and increasing market competition. The Enhanced Structural Adjustment Facility is an IMF financing vehicle that provides loans or low-interest subsidies to low-income countries to help them implement macroeconomic policies and SAPs. SAPs are designed  To improve a country's foreign investment climate by eliminating trade and investment regulations,  To boost foreign exchange earnings by promoting exports, and  To reduce government deficits through cuts in spending. Objective of Structural Adjustment Programs (SAPS) The basic goal of structural adjustment programmes (SAPS) is to help developing countries undertake economic adjustments, but only under certain conditions. The IMF and World Bank provide loans to developing countries to help them make these changes in their economies. SAPs have 4 fundamental objectives according to which they are shaped: 1. Liberalization: promoting the free movement of capital; opening of national markets to international competition. 2. Privatisation of public services and companies. 3. De-regulations of labour relations and cutting social safety nets. 4. Improving competitiveness (Toissant and Comanne 1995:14) Measures Imposed Under SAPs Although SAPs differ somewhat from country to country, they typically include: 35 CU IDOL SELF LEARNING MATERIAL (SLM)

 A shift away from farming a variety of food crops for household consumption and toward specialised in cash crops or other commodities (like rubber, cotton, coffee, copper, tin etc.) To be exported.  Eliminating food and agricultural subsidies to slash government spending  Massive layoffs in the civil sector and substantial cuts to social programmes, usually in the fields of health, education, and housing.  Currency devaluation policies that raise import costs while lowering the value of domestically produced commodities.  Liberalization of trade and investment, as well as high interest rates, to attract foreign investment.  Privatization of state-owned businesses. Conditions of SAPs Typical stabilization policies comprise:  Balance of payments deficits reduction through currency devaluation  Budget deficit reduction through higher taxes and lower government spending  Restructuring foreign debts  Monetary policy to finance government deficits  Raising food prices to cut the burden of subsidies  Raising the price of public services  Cutting wages  Decrementing domestic credit. Long-term adjustment policies usually include:  Liberalization of markets to guarantee a price mechanism  Privatization, of all or part of state- owned enterprises  Creating new financial institutions  Improving governance and fighting corruption  Enhancing the rights of foreign investors vis-à-vis national laws  Focusing economic output on direct export and resource extraction  Increasing the stability of investment. Impact of SAPs 36 CU IDOL SELF LEARNING MATERIAL (SLM)

 Benefits of Structural Adjustment in Ghana:  Economic growth increased (becoming slightly positive, 1-2% annual per capita growth).  Agricultural production began growing again  Imports and exports (including in agriculture) grew  Inflation fell to low levels  Budget deficits reduced  Growth in “civil society”, civic organizations  Countries like Zambia & Ivory Coast received dozens of loans without actually implementing any reforms  Lenders (like the World Bank) have incentives to make large loans, but few incentives to carry out evaluations of their programs  There is basically no cross-country empirical evidence that increased foreign aid improves economic performance in less developed countries (despite claims by Jeff Sachs) Effect of SAPs  End of the Structuralist model of development  Competitive insertion into the world market  Removal of trade and financial barriers Criticisms of SAPs Sovereignty - Because an outside group is dictating a nation's economic policy, SAPs pose a danger to national economies' sovereignty. Privatization - The goal of public prosperity is supplanted by the goal of private accumulation when resources are moved to foreign firms and/or national elites. Austerity - SAPs place a premium on keeping a balanced budget, which necessitates austerity measures. Social programmes are frequently the casualties of budget balance. 2.7 ECONOMIC POLICY CHANGES IN INDIA Economic Policies: Top 10 Economic Policies Followed in India The 10 most important economic policies in India, each of which has contributed significantly to the country's economic growth are as follows: 37 CU IDOL SELF LEARNING MATERIAL (SLM)

(1) Industrial Policy (2) Trade Policy (3) Monetary Policy (4) Fiscal Policy (5) Indian Agricultural Policy (6) National Agricultural Policy (7) Industrial Policies (8) International Trade Policy (9) Exchange Rate Management Policy and (10) EXIM Policy. Recent Economic Policy changes in India 2021 With its robust democracy and strong relationships, India has emerged as the world's fastest growing major economy and is anticipated to be one of the top three economic powers in the next 10-15 years. Market size According to the second advance estimates (SAE) for 2020-21, India's real gross domestic product (GDP) at current prices was Rs. 195.86 lakh crore (US$ 2.71 trillion) in FY21. India has the world's fourth-largest unicorn population, according to the Hurun Global Unicorn List, with over 21 unicorns valued a total of $73.2 billion. India will have 100 unicorns by 2025, according to the Nasscom-Zinnov report \"Indian Tech Start-up,\" and will generate 1.1 million direct jobs. According to the McKinsey Global Institute, India needs to raise its rate of employment growth and create 90 million non-farm jobs between 2023 and 2030 to boost productivity and economic growth. To attain 8-8.5 percent GDP growth between 2023 and 2030, the net employment rate must increase by 1.5 percent per year. According to RBI data, India's foreign exchange reserves were $582.04 billion on March 12, 2021. Recent Developments Investments have been made in many sectors of the economy as the economic situation has improved. In 2020, India's overall deal value was US$ 80 billion, spread across 1,268 transactions. M&A activity accounted for about half of the entire transaction value. In 2020, the Private Equity - Venture Capital (PE-VC) sector saw 921 acquisitions worth a total of US$ 47.6 billion. The following are some of the most significant recent economic developments in India: India's total exports were predicted to be US$ 439.64 billion from April 2020 to February 2021. (a 10.14 percent decrease over the same period last year). Overall imports were predicted to be $447.44 billion from April 2020 to February 2021.(a 20.83% decrease over the same period last year).  According to IHS Markit, Purchasing Managers' Index (PMI) for manufacturing stood at 57.5 in February 2021.  Gross tax revenue stood at Rs. 113,143 crore (US$ 15.58 billion) in February 2021, up from Rs. 105,361 crore (US$ 14.51 billion). 38 CU IDOL SELF LEARNING MATERIAL (SLM)

 Cumulative FDI equity inflows in India stood at US$ 749.39 billion between April 2000 and December 2020.  India’s Index of Industrial Production (IIP) for January 2021 stood at 135.2, against 136.6 for December 2020.  Consumer Food Price Index (CFPI) – combined inflation was 3.87% in February 2021, against 1.96% in January 2021.  Consumer Price Index (CPI) – combined inflation was 5.03% in February 2021, against 4.06% in January 2021. Government Initiatives Some of the recent initiatives and developments undertaken by the Government are listed below:  Flipkart announced intentions to expand its grocery services to over 70 cities in the next six months in March 2021. Customers in seven main cities and 40 neighbouring cities will be able to obtain high-quality grocery items, offers, speedy deliveries, and a seamless shopping experience as a result of this planned growth.  In February 2021, Amazon India announced that it would begin manufacturing electronics in the country. The company intends to start production in 2021 with its contract manufacturer, Cloud Network Technology, a Foxconn subsidiary in Chennai.  In March 2021, India and Kuwait agreed to form a joint ministerial committee to improve connections in areas like energy, trade, investment, human resources, and information technology. The commission will focus on building the best platform to strengthen alliances in areas such as energy, trade, economy, investment, human resources, manpower and labour, finance, information technology, health, education, defence and security and culture, according to a joint statement.  A bill to enhance foreign direct investments (FDIs) in the insurance sector from 49 percent to 74 percent was adopted by the parliament in March 2021. Ms. Nirmala Sitharaman, the union minister for Finance and Corporate Affairs, who is spearheading the Bill, remarked that raising the FDI ceiling in the insurance sector will assist insurers in raising more funds and overcoming financial difficulties.  The ‘National Commission for Allied, Healthcare Professions Bill, 2021' was passed by parliament in March 2021. Mr. Harsh Vardhan, Union Minister for Health and Family Welfare, Science and Technology, and Earth Sciences, remarked that the bill aims to satisfy long-standing requests in the field and expand professional employment prospects.  In March 2020, the Union Cabinet approved the revised cost estimate (RCE) of the comprehensive scheme for transmission and distribution strengthening in Arunachal Pradesh and Sikkim, at a cost of Rs. 9,129.32 crore (US$ 1.26 billion), to support 39 CU IDOL SELF LEARNING MATERIAL (SLM)

economic growth in those states by strengthening intrastate transmission and distribution systems.  The Union Cabinet authorised a memorandum of understanding (MoU) signed by the Ministry of Agriculture and Farmers' Welfare and the Ministry of Agriculture of the Republic of Fiji in March 2020 to improve bilateral ties and collaborate in the agricultural and related sectors.  Between 2019 and 2023, India is likely to attract roughly $100 billion in investment to improve its oil and gas infrastructure.  By 2025, India's government plans to expand public health spending to 2.5 percent of GDP.  The government has allocated an outlay of Rs. 2.068 billion (US$ 29.59 million) for 2019 to implement the Agriculture Export Policy, with the goal of doubling farmers' income by 2022. According to the NSO's (National Statistical Office) second advance estimates, India's real GDP (gross domestic product) increased by 0.4 percent in the third quarter of FY21. This increase reflects a V-shaped recovery that began in the second quarter of FY21. India's real GDP growth for FY22 is expected to be 11%, according to the Economic Survey 2020-21. The January 2021 WEO report predicted a gain of 11.5 percent in FY22 and 6.8 percent in FY23. India is also anticipated to become the fastest-growing economy in the next two years, according to the IMF. In order to generate energy, India is relying on renewable sources. It aims to get 40% of its energy from non-fossil sources by 2030, up from 30% now, and expects to raise renewable energy capacity to 175 gigawatts (GW) by 2022. According to a Boston Consulting Group (BCG) estimate, India will be the world's third largest consumer economy by 2025, with consumption anticipated to triple to US$ 4 trillion due to changes in consumer behaviour and spending patterns. According to a forecast by PricewaterhouseCoopers, it is expected to surpass the United States as the world's second largest economy in terms of purchasing power parity (PPP) by 2040. 2.8 INFORMATION AND COMMUNICATION TECHNOLOGIES AND GLOBALIZATION Information Communication Technology (ICT) is a computer-based system for transmitting, receiving, processing, and retrieving data that has transformed the way we think, live, and interact with our surroundings. It's important to remember that globalisation isn't only about financial markets; it also includes a wide spectrum of social, political, economic, and cultural aspects. Globalization's primary and driving force is the information and communication 40 CU IDOL SELF LEARNING MATERIAL (SLM)

technology revolution, and the dynamic change in all facets of human existence is a key by- product of the current ICT revolution's Globalization period. The global telecommunications system, which includes the convergence of computer and telecommunications technology into Information Technology, as well as all of its components and operations, is unique in its scope and complexity, and it is experiencing rapid and fundamental change. As a result, the borders between countries and continents are blurring, and the capacity to move and process information is increasing at an unprecedented rate. The global information communication system has been dubbed \"the world's largest machine,\" and its various hardware and software subsystems are extremely complicated and difficult to envision and comprehend. \"The Internet holds the greatest promise humanity has known for long-distance learning and universal access to quality education... It offers the best chance yet for developing countries to take their rightful place in the global economy... And so our mission must be to ensure access as widely as possible. If we do not, the gulf between the haves and the have-nots will widen.\" As Kofi Annan (1999) put it, \"the Internet holds the greatest promise humanity has known for long-distance learning and universal access ICTs are becoming increasingly significant in the ability of companies and society to produce, acquire, adapt, and apply information. Because of their potential to promote the transfer and acquisition of knowledge, they are being hailed as tools for the post-industrial age and the foundations for a knowledge economy Morale-Gomez and Melesse, 1998. These viewpoints appear to be universal, regardless of geographical location or differences in national income and prosperity. Although ICT is not the sole cause of the changes, we are seeing in today's business environment, rapid advancements in ICT have fueled the current wave of globalisation. While transnational firms earn handsomely from the flexibility and opportunity provided by Globalization, global poverty continues to rise. At least 2.8 billion people, or 45 percent of the world's population, live on less than $2 per day, according to Stigliz 2002. Africa, in particular, is experiencing an increase in poverty and economic turmoil. ICT use and production play a critical role in a country's ability to engage in global economic activity. ICT could provide developing countries with unparalleled chances to reform educational systems, better policy formation and implementation, and expand the range of prospects for business and the poor, in addition to facilitating knowledge acquisition and absorption. Learning, knowledge networking, knowledge codification, teleworking, and science systems could all benefit from it. ICT can be utilised to gain access to global knowledge and to communicate with others. However, ICT is only available on a limited scale in many sections of poor nations, raising concerns about developing countries' ability to participate in the current ICT-induced global knowledge economy. There has also been worry that this unequal distribution of ICT may contribute to impoverished countries' marginalization in comparison to developed countries, as well as societal upheavals. As a result, one might argue that, in terms of ICT, the concept of \"digital slavery\" is unavoidable for developing countries. The 41 CU IDOL SELF LEARNING MATERIAL (SLM)

huge disparity in ICT availability and use around the world, as well as the influences ICT has on Globalization, raises questions about whether Globalization entails uniformity for developing country organisations and cultures. It also raises questions about the feasibility and desirability of efforts to implement ICT development through the transfer of best practises from developed to developing countries, as well as whether organisations can use ICT in accordance with the socio-cultural requirements of the contexts (Walshan, 2001). The advancement of information and communication technology is a worldwide revolution. It has become a topic of considerable importance and worry to the entire human race. According to relevant studies, the 'Digital Divide' equation will have the greatest influence of the ICT revolution. The need to plan, construct, and execute a National Information Infrastructure (NII) as the engine of economic growth and development is the most crucial part of the ICT problem. 2.9 SUMMARY  Economic Globalization refers to the increasing interdependence of world economies as a result of the growing scale of cross-border trade of commodities and services, flow of international capital and wide and rapid spread of technologies.  Globalization is the triumph of capitalism in the sense that the need to accommodate counter demands declines as the regime of accumulation becomes global and the opposition remains national.  The main objective of structural adjustment programs (SAPS) is to make economic changes to Governments of developing countries but with conditions the IMF and World Bank grants loans to developing countries to make these economic changes in their Economies.  SAPs threaten the sovereignty of national economies because an outside organization is dictating a nation's economic policy.  Information and communication technology revolution is the central and driving force for Globalization and the dynamic change in all aspects of human existence is the key by-product of the present Globalization period of ICT revolution.  The developing countries are faced with the problems of poor telecoms infrastructure, poor computer and general literacy, lack of awareness of the Internet and regulatory inadequacy that also hinder other applications of the Internet there. 2.10 KEYWORDS • Globalization is the triumph of capitalism in the sense that the need to accommodate counter demands declines as the regime of accumulation becomes global and the opposition remains national. 42 CU IDOL SELF LEARNING MATERIAL (SLM)

• A Structural Adjustment is a set of economic reforms that a country must adhere to in order to secure a loan from the International Monetary Fund and/or the World Bank. • Structural Adjustment Programmes (SAPs) are economic policies for developing countries that have been promoted by the World Bank and International Monetary Fund 2.11 LEARNING ACTIVITY 1. What is meant by Economic Globalization? ___________________________________________________________________________ ___________________________________________________________________________ 2. State the characteristics of Global Economy? ___________________________________________________________________________ ___________________________________________________________________________ 3. List the objectives of Structural Adjustment Program? __________________________________________________________________________ ___________________________________________________________________________ 2.12 UNIT END QUESTIONS A. Descriptive Questions Short Questions: 1. Define Economic Globalization? 2. List the features of Global of Economy? 3. What is meant by Structural Adjustment Program? 4. State the Objectives of Structural Adjustment Program? 5. List the conditions of Structural Adjustment Program. 6. What are the different types of Economic Policy? Long Questions: 1. How does the global economy work? 2. What are the Advantages of Globalization and Disadvantages of Globalization? 3. What are the challenges of Structural Adjustment Programme? 4. What are the effects of Structural Adjustment Programmes? 43 CU IDOL SELF LEARNING MATERIAL (SLM)

5. What is the purpose of Structural Adjustment programmes? 6. Explain the pros and cons of Structural Adjustment programmes? 7. Discuss the recent changes of Economic Policy changes in India? 8. Discuss the effects of Globalization in Information and Communication Technologies? B. Multiple Choice Questions 1. Structural Adjustment Involve a. Measures to reduce inflation b. Measures to curb government expenditure c. Deregulation d. All of these 2. Structural Adjustment Programmes are promoted by a. UNCTAD b. NAFTA c. World Bank and IMF d. BRICS and APEC 3. Global Investment mainly takes place via a. Index Funds b. Foreign Direct Investment (FDI) c. Cryptocurrencies d. Mutual Funds 4. Globalization of Indian Economy means a. Increasing External borrowing b. Larger FDI c. Import Substitution d. Minimum possible restrictions on economic relation with other countries. 44 CU IDOL SELF LEARNING MATERIAL (SLM)

5. Production of service across countries has been facilitated by a. Money b. Machine c. Labour d. Information and Communication Technology Answers 1-d, 2-c, 3-b. 4-d, 5-d 2.13 REFERENCES References books  Robert A Degen,The Triumph of Capitalism, Transaction Publishers, First Paperback Edition 2010.  Harold Wells, A Future for Socialism, Political Theology and the “Triumph of Capitalism”, Trinity Pr Intl; First Edition, First Printing (December 1, 1995)  Edward D. Mansfield and Helen V. Milner, Votes, Vetoes, and the Political Economy of International Trade Agreements, 2012 Textbook references  Zinkina Julia. A Big History of Globalization, Springer Nature Switzerland AG  Jessie Poon and David L Rigby, International Trade: The Basics, Routledge, 2017 Website  https://www.scribd.com/presentation/486198896/Chapter13-Warf-ed5-1  https://www.un.org/ecosoc/sites/www.un.org.ecosoc/files/files/en/2017doc/DDG- Agah-HLPD-July-2017  https://aede.osu.edu/sites/aede/files/imce/images/RecentPatterns%20of%20Trade_0.p df 45 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT - 3: GLOBALIZATION AND THE NEW GLOBAL ECONOMY STRUCTURE 3.0 Learning Objectives 3.1 Introduction 3.2 Features of International Trade 3.3 Basis of International Trade 3.4 Importance of International Trade 3.5 Patterns of Trade 3.6 Foreign Direct Investment 3.7 Foreign Direct Investment and Capital Flows 3.8 Summary 3.9 Keywords 3.10 Learning Activity 3.11 Unit End Questions 3.12 References 3.0 LEARNING OBJECTIVES After studying this unit, you will be able to:  State the features of International Trade  Explain the basis of internationaltrade  Discuss the advantages and disadvantages of International Trade  State the patterns of International Trade  DescribeForeign Direct Investment and Capital flows 3.1 INTRODUCTION Meaning of International Trade The term trade in its common usage refers to the exchange of goods, wares, merchandise and services among people. In a wider sense, it covers every type of exchange or dealing in goods and services.

International trade is referred to as the exchange or trade of goods and services between different nations. International trade is the exchange of capital, goods, and services across international borders or territories. It is the exchange of goods and services among nations of the world. In most countries, such trade represents a significant share of gross domestic product (GDP). While international trade has existed throughout history, it’s economic, social, and political importance has been on the rise in recent centuries. Definition of International Trade According to Wassermann and Haltman, “International Trade consists of transactions between residents of different Countries”. According to Anatol Marad, “International Trade is a trade between nations”. 3.2 FEATURES OF INTERNATIONAL TRADE The most salient features of international trade are as follows: 1. Immobility of Resources: The main feature of international trade was the international immobility of Resources. Various factors of production such as labour, capital, etc are not easily movable from one country to another. Further, the degree of mobility of these factors also varies greatly between different countries. Hence there are automatic influence equalising price and cost. 2. Heterogeneous Markets: InternationalTrade involvesheterogeneous markets because there is difference in languages, preference, customs, currency, weight, measures, etc. Hence the buyer’s behaviour also would be different in international trade. This is the peculiar feature of international trade. 3. Trade among different nations: It is a trade between different nations. Under this trade, the socio-economic environment varies greatly among different nations. 4. Different types of currencies: International trade involves the exchange of different types of currencies. It creates problem in exchange rates, foreign exchange policies, etc. 5. Different political groups: Another important feature of international trade is that different countries have different political unit. However, in internal trade all regions within a country belong to one particular unit. Further, internal trade is carried on between people belonging to the same country. They may differ on the basis of caste, creeds, religions, tastes or customs. However, they have a sense of belonging to one nation and their loyalty to the region is secondary. The government is also interested more in the welfare of its nationals belonging to different regions. But in international trade there is no cohesion among nations. 47 CU IDOL SELF LEARNING MATERIAL (SLM)

6. Geographical and climate differences: Each country cannot produce all the commodities on account of geographical and climatic conditions. For instance, India has favourable climatic and geographical conditions for the production of coffee, Bangladesh for jute, Brazil for coffee, Cuba for Wheat, sugar, etc. So countries having climatic and geographical advantages, specialise in the production of particular commodities and trade then with others. 7. Problems of balance of payments: The problem of balance of payment is another important point, which distinguishes international trade from internal trade. The problem of balance of payments is continuous in international trade. On the other hand, regions within a country have, no such problem. This is because there is greater mobility of capital within regions than between countries. Further, the policies, which a country chooses to correct its disequilibrium in the balance of payment, may give rise to a number of other problems. If it adopts deflation or devaluation or restrictions on imports or the movement of currency, they create further problems. But such problems do not arise in the case of internal trade. 8. High transport costs: Tradebetween countries involves high transport costs as against trade within a country. This is because geographical distance between different countries is too great. 9. Different economic environment: Countriesdiffer in their economic environment, which affects their trade relations. The legal framework, institutional setup monitoring fiscal and commercial policies, factors endowments, production techniques, nature of products etc. differ between countries. But there is not much difference in the economic environment within a country. Besides, international trade suffers from certain specific problems such as international liquidity, monetary cooperation, establishment of international organisation, etc. 3.3 BASIS OF INTERNATIONAL TRADE Adam Smith describes trade taking place as a result of countries having absolute advantage in production of particular goods, relative to each other. Within Adam Smith's framework, absolute advantage refers to the instance where one country can produce a unit of a good with less labor than another country. The basis of International Tradelies in the diversity of economic resources in different countries. All countries are endowed by nature with the same production facilities. There are differences in climatic conditions and geological deposits as also in the supply of labor and capital. 1. Variations in Spatial distribution of natural resources 2. Difference in economic development 48 CU IDOL SELF LEARNING MATERIAL (SLM)

3. Uneven distribution of population in the world. 4. Transportation facilities. 5. Nature, choice and fashion 6. Scientific progress 7. War and peace 8. Trade policy 9. Political contacts and trade alliance 3.4 IMPORTANCE OF INTERNATIONAL TRADE International trade between various nations is an essential factor that is responsible for the increase in the standard of living, creating employment, and empowering consumers to enjoy different kinds of goods. Few other important factors that are influenced by international trade are: 1. Utilisation of Raw Materials: Some countries are naturally blessed with an abundance of raw materials, like Qatar is for oil, Iceland for metals and fish, etc. Without international trade, these countries would never benefit from their natural resources or raw materials. 2. Greater Choice for Consumers: More international trade results in more choices of products. 3. Specialisation and Economies of Scale – Greater Efficiency: This means that it does not matter what a country is specialised in, and the essential thing is to pursue a specialisation that allows companies to make a profit that outweighs most of the other factors. 4. Global Growth and Economic Development: International trade influences the economic growth of a country. This increase also leads to the reduction of poverty levels. Reasons for going International Trade No matter how attractive and ‘must have’ your product or service seems to be, a strictly limiting yourself to your domestic market will have a finite capacity. And once you have reached saturation point, what then? Because of these limitations wise business owners are looking to go global and exploit the many international trade opportunities – after all, in the global economy; practically every country is a potential customer. The following are the reasons for international trade: 1. Pull Factors 1. Growth 2. Profitability 49 CU IDOL SELF LEARNING MATERIAL (SLM)

3. Achieving Economics of Scale 4. Risk Spread 5. Access to imported inputs 6. Economic integration and free market 7. Emergence of WTO 8. Unifying effect and peace 2. Push Factors 1. Uniqueness of product or service 2. Marketing opportunities due to life cycles 3. Spreading R & D costs 4. Resource utilisation 5. Competition and cost 6. Quality improvement 7. Government policies and regulations Advantages of International Trade Advantages of Specialization and Division of Labour It is beneficial in several respects. Important advantage is the division of labour and the consequent specialization. Different regions are endowed with different types of productive agents. It is to the advantage of each nation or region to specialize in the production of those goods for which their factor equipment is most suited. For example: Britain — rich in iron ores and coal. Middle East Countries — oil resources, Southeast countries — Tin and rubber, India and Sri Lanka – Tea. So, countries which have a special advantage of one article can specialize in the production of that article and exchange it for another from another country which is eminently suited. Import which is cheaper than producing that. Availability and Cheapness of Commodities Because of international trade the consumers can get access to foreign goods at lower prices. Normally foreign goods are imported because of their relative cheapness in comparison with the prices of domestic goods. Large Scale Production Due to specialization, factors of production are put to the best use. Specialization followed by large scale production and introduction of machinery will result in greater output. It also 50 CU IDOL SELF LEARNING MATERIAL (SLM)