Globalization and free trade leading to development of east Asian economy
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Transcript of Globalization and free trade leading to development of east Asian economy
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Asian Success and Global Economy Individual Assignment TP018321
University College of technology and Innovation Page 1
Name: Syed Muhammad Asim
Student No: TP018321Assignment title: Individual Assignment
Module code: BM036-3.5-3-Asian Success and Global Economy
Hand in Date: 18 th April 2011
Lecturers name: Jenny Pareira
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Contents
1.0 Introduction .......................................................................................................................... 2
2.0 Implications of Globalization and Free trade on the East Asian economy .............................. 4 2.1 Positive Impact of Globalization and Free trade on East Asian Economy ........................... 4
2.2 Drawbacks of Globalisation and Free trade on East Asian Economy.................................. 6
3.0 Conclusion ............................................................................................................................ 8
4.0 References .......................................................................................................................... 10
Electronic sources ................................................................................................................. 10
Journals................................................................................................................................. 11
Word count = 2530 words only
Question no 1: Managers need to be aware of the effects of globalisation and free trade on both
their country and the international economy. Some argued that these two events have
significantly help develop a countrys economy but there are oppositions that claimed that
globalisation and free trade do not necessarily lead to economic prosperity. Critically discuss
whether globalisation and free trade have been positive forces towards economic development in
East Asia.
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1.0 IntroductionIn their journal in the year 2003 The sources of East Asian Economic Growth Revisited lau
and park mentioned that East Asia has been the fastest growing region in the world for the past
several decades, the East Asian currency crisis of 1997-1998 notwithstanding. On average, theEast Asian developing economies as a group, including China, Hong Kong, Indonesia, South
Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand, has grown at almost eight
percent per annum since the 1960s. The notable exception is Philippines, which has only been
able to grow at less than half the average rate.
According to Rothenberg (2003) Globalization is the acceleration and intensification of
interaction and integration among the people, companies and governments of different nations.
Now a days going global has become a must for every organization due to the intensified
competition going on in the world, globalization philosophy has been adopted by many firms and
they have successfully implemented it. For example Toy R Us opening store in Shanghai
China (Alan Rose 2006) also Wal-Mart has targeted China, which has long been a major
supplier of its products, as a key region for its international store growth. It now has 56 stores in
China with about 30,000 employees and plans to open 20 more stores this year (chinadaily,
2006)
According to Griswold (2003) Free trade agreement by definition lower barriers to trade
between participants, and lowering or eliminating barriers altogether. For example ASEAN the
association of Southeast Asian Nations was created with the purpose of to accelerate the
economic growth, social progress and cultural development in the region (Asean 2011 )
The relationship between the Globalization and Free Trade Area is directly proportional to each
other, due to globalization where by businesses going from one country to another to carry out
their operations profitably which has been assist by the Free Trade Agreements between the
countries, for example Asean members like Malaysia and Singapore, Malaysia exporting water to Singapore (Segal 2004) , globalization and free trade agreement occurring at the same time in
this case.
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2.0 Implications of Globalization and Free trade on the East Asian
economyManagers should have the knowledge regarding what is Globalization and Free trade agreement,
if a firm wishes to expand and compete on a global level it must do in depth analysis of political,economical, social and technological factors before competing on a global level along with
having the right knowledge about if the country they want to expand into has any free trade
agreement with their respective country, for example a firm from Malaysia wants do to business
in Singapore will be benefit from the ASEAN agreement as both the countries are part of it.
Having the perfect yet effective insights on Globalization and Free trade agreement would enable
the managers to come up with strategies that best would serve the organization in achieving their
Vision, and successfully operate outside their country and even within their country.More over in East Asia according to J ung sik kim and Yonghyup (2007) the rise of regional
economic trade blocs has reduced trade barriers which has lead to attraction of Foreign
investment in recent years to East Asia, China going in agreement with the World Trade
Organization and from close economy going for Open Economy which has brought many
American companies investing in China and entering the huge target market. Yamin, Mo ad
Pervez N.Ghauri (2004) in their articles on Rethinking MNE-Emerging Market Relationships:
Some Insights from East Asia said that Malaysia, Singapore, Indonesia, Korea and other East
Asian countries all having favourable foreign direct investment policies which has led to fast
economic growth of these countries in recent years. As the government policies encourage the
foreign direct investment.
2.1 Positive Impact of Globalization and Free trade on East Asian Economy
Globalization and Free trade has contributed much to the development of East Asian economy
(Mo and Ghauri, 2004) as it has promote economic integration like reduction in transport and
communication costs, the lowering of trade barriers, and an increasing mobility of capital and
labour, along with the free trade agreements of East Asian countries with world trade
organizations WTO or forming the association of Southeast Asian Nations ASEAN , due to
this progress of economic integration an increasing number of consumer goods are being
imported and exported from all over the world especially East Asia (Fujita et al, 2008), moreover
it has led to the investment from huge Multinational Companies to come to East Asia and operate
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their business, companies like Intel, Shell, Google, DuPont and many more have been able to
create more job opportunities within the countries, pay taxes to the government, variety of goods
and services being experienced by the public in East Asian countries which has led them to high
standard of living and also have contributed an increase in Gross domestic Product of these
countries relatively, also Anisha Sabhlok (2001) in her pilot micro study on some companies
based in Singapore, noted that MNCs in Singapore contributed to the society by adopting the
best practices, driving innovation, developing green products and attaining eco-efficiency
targets, enlightens MNCs contribute to the countrys economic and social development.
According to the researcher Thomas Sowell (2005 ) all the people of the world can contribute
and those who keep themselves isolated from others will be left behind. This is due to the
problem of not being in any kind of trade agreements with other countries or not having to be
involved in globalization.Globalization has also made the domestic producers produce more efficiently due to their
international specialization and the pressure that comes from foreign competition, which benefits
both the economy of the country and the customers as they are able to consume a wide variety of
domestic and imported goods at lower prices, taking an example of Malaysia fast food industry
where by people can enjoy KFC or McDonalds and at the same time enjoy their local fast foods
as well. More over globalization Increases in environmental protection for example in China
MNCs have pledged to Government to bring about more environmental friendly policies in
response shown by Xinhua, (2011) in an news report on chinadaily the Chinese President Hu
Jintao said that China hopes to balance economic and social development with population,
resources and the environment, and embark on a path of sustainable development also China will
play a constructive role in resolving regional hotspot issues and take an active part in various
forms of regional security dialogue and cooperation in order to preserve a regional environment
conducive to peace and development in Asia.
Abhay Burande in his articles on Advantages of globalization said it is claimed that
globalization increases the economic prosperity and opportunity in the developing world. The
civil liberties are enhanced and there is a more efficient use of resources. All the countries
involved in the free trade are at a profit. Resulting in lower prices, more employment and a better
standard of life in East Asian region, it is feared that some developing regions progress at the
expense of other developed regions. However, such doubts are futile as globalization is a
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positive-sum chance in which the skills and technologies enable to increase the living standards
throughout the world. Liberals look at globalization as an efficient tool to eliminate penury and
allow the poor people a firm foothold in the global economy. In two decades from 1981 to 2001,
the number of people surviving on $1 or less per day decreased from 1.5 billion to 1.1 billion.
Simultaneously, the world population also increased. Thus, the percentage of such people
decreased from 40% to 20% in such developing countries like East Asia.
Most of the East Asian economies have also benefited from outsourcing done by mostly
American companies hence more job opportunity is created. For example Malaysia is one of the
hosts of Call centres for American and other European companies, leading to a development of
Malaysian service sector, as they learn how to communicate, tackle situation, and handle
customers also their skill level is developed and polished by foreign companies
Globalization advocates such as J effrey Sachs point to the above average drop in poverty ratesin countries, such as China, where globalization has taken a strong foothold, compared to areas
less affected by globalization, such as Sub-Saharan Africa, where poverty rates have remained
stagnant.
Supporters of free trade claims it increases economic prosperity as well as opportunity,
especially among developing nations of East Asia, enhances civil liberties and leads to a more
efficient allocation of resources.
Economic theories of comparative advantage suggest that free trade leads to a more efficient
allocation of resources, with all countries involved in the trade benefiting. In general, this leads
to lower prices, more employment, higher output and a higher standard of living for those in
developing countries.
2.2 Drawbacks of Globalisation and Free trade on East Asian Economy
The critique against globalization such as Marxist analysis, Sheikh Baten, lim and paul in
comman argued that:With globalization poorer countries are mostly at disadvantage, countries like Vietnam in East
Asia try to save their national markets. The main export of poorer countries is usually
agricultural this creates difficulty for them to compete with stronger countries. As the balance of
trade is unfavourable due to import is mostly greater than export even the value of goods
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imported is much higher than that of exported, thus they are not really in a win-win situation.
More over exploitation of resources is another issue, where by the stronger industrialized powers
has resulted in the exploitation of the people in those nations to become cheap labour, for
example Foreign businesses going to China or Vietnam, they benefit from Cheap labour, but
the host countries labour suffer as they are paid lower and work overtime. Globalization has also
led to spread of a materialistic lifestyle and attitude that sees consumption as the path to
prosperity in the East Asian countries.
Asia has not been able to decouple from developed economies. According to the Andy yee
(2010) , during 2000-2007, exports as a proportion of Asias GDP increased from 35 per cent to
47 per cent, with three-fifths going to Europe and the US. With most intraregional trade in
intermediate goods used to manufacture export products. As Stephen Roach (2010) , economistand Chairman of Morgan Stanley Asia, pointed out in his latest book, Asias explosive growth
has been based on a bet upon deep integration with the global economy, which proved
unsustainable in face of the global recession. Asia needs to focus on promoting more
intraregional trade in final goods by encouraging local demand, East Asias stellar growth
performance has led to the decline of absolute poverty since the 1990s. However, inequality of
income and consumption has increased significantly since then. About three-quarters of
inequality in the region are attributed to inequality within countries. The export-led growth has
integrated littoral regions, special economic zones and cities with the global supply chains. In the
process, many fault lines, such as the urban-rural divide, regional-ethnic divide and skilled-
unskilled labor wage gaps developed which may threaten social stability. The phenomenon of
migrant workers in China, and the associated debate of hukou reform, is an example. The
Bangkok-rural divide in Thailand, which has paralyzed Thailands political system, is another.
Globalization has widen the gap of inequality in recent years as unrestricted free trade benefits
those with more financial leverage, and has also promote depending on other country to supply
for necessary needs for example Singapore depends on Malaysia to supply Water if in futurethe two countries go on war Singapore will be heavily affected with no water supply even though
Malaysia has signed up contract of providing Singapore water for 100 years, but war is indeed a
war
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According to Poushali Ganguly , there is immense pressure on the employed workers in the
MNCs who are uncertain as to business might close and go back to parent country or a third
country due to uncertainty in the environment of most of the East Asian countries, for example
Indonesia and Thailand unstable political system, high corruption rate in Malaysia.
Alassane Ouattara (1998) says that globalization and free trade along with inconsistent
macroeconomic policies were the reason for Asian financial crisis in 1997-1998 as in Thailand,
where the East Asian crisis was ignited was due to the international investors losing confidence
when domestic financial management failed to address the increasingly obvious problems of an
overheated economy and a consequently weakening external current account. Had the economy
not depended too much on foreign direct investment due to globalization and free trade such
crisis would not have triggered.
3.0 ConclusionThe world has seen the polarization of developing countries in the last half-century: one group
which succeeded in poverty reduction through sustained growth, and another group which did
not. The majority of East Asian countries belong to the first group. Viewed from a long
perspective and as a regional phenomenon, there is no denying that East Asia has made
impressive strides in income levels, economic equity and social indicators despite frequent wars,crises and stagnation. On the balance, for nearly all the countries of East Asia, globalization has
meant faster growth and more prosperity for a larger share of its population than at any other
time in their histories. The gross national product (GNP) of APEC economies over the past
decade has increased by a third, the number of people living in poverty has fallen by a third, and
literacy rates are among the highest in the world, thanks to education expenditures that have risen
faster than GNP. The citizens of the emerging economies of the Asia-Pacific region are among
the most literate, healthy and prosperous in the developing world. Also Radelet et al. (1997)
mentioned that Asias episode of rapid economic growth since the 1960s, as remarkable as it was
by historical standards, can be explained in an international comparative context. Special
theories of Asian growth are not necessary. East Asian countries grew faster than the rest of the
world for four key reasons: they had substantial potential for catching up (since the entered the
1960s with relatively low incomes), their geography and structural characteristics were by-and-
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large favourable, demographic changes following World War II worked in favour of more rapid
growth, and their economic policies and strategy were conducive to sustained growth. Most
importantly, the high performing East Asian countries recognized the imperative of joining the
world economy through the promotion of labor-intensive manufactured exports. These
economies promoted exports through a combination of policies, relatively free trade, convertible
currencies, and macroeconomic stability and through a set of innovative institutions -- such as
export processing zones, duty exemption schemes, and incentive packages for foreign direct
investment. Credit has to be given to the effective policies of East Asian policy makers to have
such a substantial growth in recent years, and the globalization has done much more good to
economic growth of East Asian countries than hurt it, so it can be said that Globalization and
Free trade has contributed much to the development of East Asian countries survival before and
after financial crisis in 1997 and 1998 and thus should be looked as blessing.
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4.0 References
Electronic sources
Abhay Burande., N.D, Advantages of Globalization [online], Available from
http://www.buzzle.com/articles/advantages-of-globalization.html [Accessed on 8th April 2011]
Alan Rose., 2006, Toys "R" Us to open store in China [online], Available from
http://www.joystiq.com/2006/09/21/toys-r-us-to-open-store-in-china/ [Accessed on 6 th April
2011]
Alassane Ouattara., 1998, Globalization, Lessons from the Asian Crisis and Central Bank
Policies [online], Available From http://www.imf.org/external/np/speeches/1998/062398a.htm
[Accessed on 17th April 2011]
Andy Yee., 2010, Asian economic integration? Address domestic inequalities [online], London,
University of London, Available from http://www.eastasiaforum.org/2010/08/13/asian-
economic-integration-address-domestic-inequalities/ [Accessed on 4 th April 2011]
Asean., 2011 , Overview [online], Available from http://www.aseansec.org/64.htm [Accessed on
1st April 2011]
China Daily., 2006, Wal-Mart plans 20 stores in China [online], Available from
http://www.chinadaily.com.cn/bizchina/2006-03/21/content_548509.htm [Accessed on 12th
April 2011]
Daniel T. Griswold., 2003, Free -Trade Agreements Steppingstones to a More Open World
[online], Washington D.C, Cato Institute, Available from http://www.cato.org/pubs/tbp/tbp-
018.pdf [Accessed on 15th April 2011]
Diane Segal., 2004, Singapores Water Trade with Malaysia and Alternatives [online], England,
Harvard University, Available from
http://www.transboundarywaters.orst.edu/publications/abst_docs/related_research/Segal-
Singapore-Malaysia%2004.pdf [Accessed on 2nd
April 2011]Jeffery Sachs., N.D, The Huffing Ton Post [online], Available from
http://www.huffingtonpost.com/jeffrey-sachs [Accessed on 16th April 2011]
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Laurence E. Rotenberg., 2003, Globalization 101 the Three Tensions of Globalization [online],
America, The America Forum for Global Education, Available from
http://www.globaled.org/issues/176.pdf [Accessed on 1st April 2011]
Lawrence J. Lau and Jungsoo Park., 2003, The Sources of East Asian Economic Growth
Revisited [online], America, Stanford University, Available from
http://www.stanford.edu/~ljlau/RecentWork/RecentWork/030921.pdf [Accessed on 2nd April
2011]
Poushali Ganguly., N.D, Pros and Cons of Globalization [online], Available from
http://www.buzzle.com/articles/pros-and-cons-of-globalization.html [Accessed on 17th April
2011]
Shiekh Baten., N.D, Globalization and the Resistance against It [online], Available from
http://www.mukto-mona.com/new_site/mukto-mona/current_affiars/globalization_impact.htm [Accessed on 14th April 2011]
Stepehn Roach., 2010, Asian economic integration? Address domestic inequalities [online],
London, University of London, Available from http://www.eastasiaforum.org/2010/08/13/asian-
economic-integration-address-domestic-inequalities/ [Accessed on 4 th April 2011]
Steven Radelet, Jeffrey Sachs and Jong-Wha Lee., 1997, Economic Growth in Asia [online]
Available from http://www.cid.harvard.edu/archive/hiid/papers/ecgasia.pdf [Accessed on17th
April 2011]
Thomas Sowell., 2005, in defense of globalization, free-trade and free-market [online],
Available from http://www.globalenvision.org/library/15/723 [Accessed on 3rd April 2011]
Xinhua., 2011, Full text of Chinese President Hu Jintao's speech at opening ceremony of Boao
Forum (Part 2) [online], Available from http://www.chinadaily.com.cn/xinhua/2011-04-
15/content_2323056.html [Accessed on 6th April 2011]
Journals
A Dictionary of Marxist Thought., Oxford: Oxford University Press. Lim, Paul J 2001. "Stay Home, Investor, If You Want to Keep Your Money" , U.S. News &
World Report, 130:20
Jung Sik Kim and Yonghyup Oh., 2007, Determinants of Intra-FDI Inflows in
East Asia: Does Regional Economic Integration Affect Intra-FDI?, 1 (02) pp 25-35
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Sabhlok, Anisha., (2001), The Evolution of Singapore Business: A Case Study Approach. IPS
Working Paper No. 10 (Volume 1 and 2).
Yamin, Mo and Pervez N. Ghauri (2004), Rethinking MNE-Emerging Market Relationships:
Some Insights from East Asia, in Global Firms and Emerging Markets in the Age of Anxiety.
Westport, CT. Praegar Publishers, 251-266