POLI 211 Introduction to Development Studies

Reading List Todaro, Michael. 2000. Economic Development. England: Pearson Education Limited.
Michael Todaro and Stephen Smith. 2012. Economic Development. (11th edition). England: Pearson Education Limited.
http://digitalmedia.worldbank.org/projectsandops/strategy.htm; Ritzer, George. ed. 2007. The Blackwell Companion to Globalization. Slide 4<br>

Globalization and international financial reform Topic One Slide 5<br>

Globalization and International Financial Reform For the first time in recent history, developing countries’ economic development or progress has both a direct and an indirect impact on the economic performance of industrialized nations. Research suggests that this “reverse economic dependence” will increase in the coming decades.
This is because we live in an increasingly interdependent world, where developing countries are used to economic dependence on the advanced countries.
The developed advanced world, in an age of increasingly scarce natural and mineral resources, global environmental threats, accelerated international illegal migration, and burgeoning world trade, is becoming more economically dependent on the developing world than ever before. For example, developing countries are expected to absorb almost 70% of the growth in world imports over the next 25 years (Todaro 2000: 699). Slide 6<br>

Globalization of the World Economy Since the 1960s, a remarkable globalization of the world economy has taken place. This means that there has been an increasing integration of the economies of many nations into global markets, and this promises to dramatically change the volume and character of international resource flows. Slide 7<br>

Globalization and International Financial Markets Globalization and International Financial Markets  
The expansion of global trade is limited by the domestic and international banking sector (includes the IMF and World Bank), which provides financing for international transactions. The increasing competitiveness, size, and spread of international financial markets have the potential to bring low-income countries/economies into the economic mainstream.
 It is important to note that developing countries that experience severe liquidity or cash problems that hinder investment, limit their importation of inputs and replacement parts, and raise the risk level in drawing trade contracts will benefit from increased integration into expanding international financial markets. This could greatly enhance their prospects for economic growth and flexibility. Slide 8<br>

Globalization and International Financial Markets (IFMs) It is, however, unclear whether or not low- and middle-income LDCs will actually benefit from the globalization of financial markets. This is because there are many LDCs that are yet to fully participate in the global economy for one reason or the other.
You should note that at a time when national markets are opening up, unfortunately some global financial markets remain restricted.
The important point to remember is that the globalization of international financial markets reduces the transaction costs of trade for participants (countries) with access to international credit while increasing the relative transaction costs for those participants that are excluded from financial globalization’s benefits. Slide 9<br>

IFMs and Implications for Long-Term Development of Developing Countries The implications for long-term development of many LDCs are still uncertain, despite the fact that they may be involved directly in the physical, technological, and financial globalization process. Part of the reason is that a small group of East Asian newly industrializing countries have captured the lion’s share of international flows of goods and services from LDCs.
Multinational corporations (MNCs) have also created global factories that are spread out over many countries (Todaro 2000). Slide 10<br>

Conclusion to Topic One We have introduced you to the meaning of globalization (of the world economy) and how this is related to LDCs and international financial markets.
It is now time to find out what the effects of this globalization have been on developing countries.
Note: Make sure to attempt the assignment below. Slide 11<br>

Sample Questions Briefly define economic globalization.
Mention two ways in which globalization is related to international financial markets. Slide 12<br>

Some effects of globalization on developing countries Topic Two Slide 13<br>

Some Effects of Globalization on Developing Countries Three major effects of globalization on the LDCs have been identified. These are:
1. Todaro (2000) argues that the power and influence of individual countries, especially the LDCs, is weakened. Usually, these are LDCs that are not in some way linked to the new dollar-, yen-, or euro-dominated regional trading blocs in North America, the Pacific Rim, or Europe respectively.  
2. Instability of financial markets is an increased risk for LDCs (for example, the Mexican crisis of 1995 and the Asian crisis of 1997), while it may become more difficult for low-technology producers to access global markets.
The effects of economic growth in the advanced countries may no longer automatically benefit the poorest nations of the developing world. Slide 14<br>

Some Effects of Globalization on Developing Countries 3. Finally, the huge increase in international illegal migration from the developing world to the developed is a striking manifestation of the growing inequality of nations in an era of rapid global information technology. Labor has become more internationally mobile, similar to capital.
Let us note, however, that unlike the movement of capital, the movement of unskilled labor from developing countries to the advanced countries of the world is not always a welcome event. Some citizens of the advanced countries actually view this phenomenon as a threat to their economy, culture and ‘way of life’.  
Thus, it has been argued that “if the dawn of the twenty-first century is to hold greater promise for the many LDCs that have been unable to share in the fruits of global progress, effective management of new global challenges – in money and finance, in environmental matters, and in resources, labor, and technology flows – will require reforms to the international system” (Todaro 2000: 715). Slide 15<br>

Reforms to the International System Reforms to the International System 
Among the reforms to the international system suggested are: 
1. There needs to be a reduction in LDCs’ debt-service burdens, especially LDCs in sub-Saharan Africa that are least able to afford continued austerity measures. 
2. New LDC-funding sources need to be created, such as a tax on international currency transactions to curb the speculative inflow and outflow of foreign capital. 
3. New international institutions can be created, such as a world central bank, to aid in the stabilization of global economic activity, promote global financial stability, and assist the economic development of poorer countries. Such a bank could act as a lender of last resort to financial institutions and create new forms of liquidity. Slide 16<br>

Reforms to the International System 4. Finally, there needs to be a reform of the two major international financial institutions that aid global economic growth and stability – the IMF and World Bank. Here, the IMF needs to function more as a development institution and less as an international policeman for the developed world and its international banks.
The IMF should be more flexible in its conditionality requirements and pay more attention to reviving growth in debtor countries and less attention to imposing some fixed list of stabilization measures.
Developing countries also need to be given greater voice in the IMF’s policymaking bodies and voting structure and greater access to special drawing rights. Slide 17<br>

Reforms to the International System continued After a decade of insisting on market-oriented and structural adjustment reforms in the LDCs, both the IMF and World Bank are now focused on poverty alleviation by adopting more flexibility in their programs and activities.
What they have to do in the future is to increase their flow of resources from the developed to the developing world and adapt their lending to the real development needs of recipient countries.
These reforms can help to ensure that the LDCs become integrated into global markets and that they benefit from expanding global trade (Todaro 2000). Slide 18<br>

Questions to Consider Questions to consider:
Mention and briefly explain two major effects of globalization on the LDCs.
Discuss briefly at least two reforms to the international system that will be of benefit to less developed countries. Slide 19<br>

Conclusion of Session 11 In this session, we have examined the effects of globalization of the international economy on the less developed countries of the world. We have also made some suggestions as to the reforms necessary to aid the full integration of LDCs into the global economy.
In the next session, we will turn our focus to the UN Millennium Development Goals. Slide 20<br>

References Todaro, Michael. 2000. Economic Development. England: Pearson Education Limited.
Michael Todaro and Stephen Smith .2012. Economic Development. (11th edition). England: Pearson Education Limited.
http://digitalmedia.worldbank.org/projectsandops/strategy.htm; Ritzer, George. ed. 2007. The Blackwell Companion to Globalization. Slide 21<br>