As of 2014, the Gross World Product stood at US$ 107.5 trillion regarding Purchasing Power Parity and US$ 78.28 trillion in nominal terms. That is data according to CIAs World Factbook. Out of this, the global South countries contribute up to 40% of the world GDP. Up from 20% in the 1970s. That figure is projected to increase to 55% by the year 2025 according to the World Bank. As of 2012, the Global South contribution onto world trade stood at 51%. A significant increase of just 24% in the 1970s. The term Global South is a term that is being used to refer to developing nations. Even though the majority of these countries are located south of the Equator, this term has little reference to their location. Countries such as India and China are considered to belong to the Global South group mostly because of their relatively low per capita income. Development is being regarded as part of the North as opposed to being in the South (Moore, 2011).
Analysis of Global South's Economy
Global South comprises of Africa, Latin America and some parts of developing Asia. The Global North is made up of the United States, Canada, Western Europe and developed parts of Asia such as Japan. It should be noted that the North is home to all members of the G8.There have been problems with defining the divide because the countries that were affiliated with the Eastern bloc were considered second World countries (Arrighi, 2003). When the cold war ended these countries were categorized as developing nations, but in modern times the four countries have managed to cross over and be considered established. These countries include Hong Kong, Singapore, Taiwan, and South Korea. These countries were able to experience rapid growth starting from the 1950s that propelled them into the developed world status. The increase being attributed to their participation in international trade. Taiwan and South Korea are renowned for their technological advancements, while Singapore and Hong Kong are identified as financial hubs with many multinational companies offering financial services opting to set up there.
This rise in stature of the global South is majorly attributed to increasing in bilateral trade agreements that currently exists between Global South economies (Busch, 2003). Statistics show that the amount of South-South agreement that increases between these economies has grown from just 40% in the 1980 to 70% as of 2012. These statistics indicate that economic globalization between these countries has directly affected trade in these countries. Development and commerce and directly proportional, with increased trade, comes increased development. Trade encourages the flow of money within the economy. Statistics show that countries that have the highest economies are the ones with the biggest participation in the global trade. Greater economy translates into more development. Global South countries have had involvement that is more meaningful in the global trade of recent, and their steady growth has reflected this. Countries in sub-Saharan Africa and Asia are among the fastest growing economies, and the rest of the world has noticed it. They are all struggling to have a share of the pie. This will prove to be beneficial to all parties involved in the long-term.
According to statistics, the rest of the world is growing at an average rate of 4.2%, as of 2011. The advanced economies post 1.2 % growth rate (Rodrik, 1999). This is in contrast to the developing countries, on the other hand, posted a 6.3% growth rate which is a very high figure compared to the rest of the world. The statistics just go to show how economic globalization has enhanced the development strategies of the global south economies. The Global South economies are fueling the growth of the entire planet, and this is good for the world markets.
Economic globalization has positively affected the global South countries in some ways, but it also has had some negative impacted all of which will be discussed below. Increased standard of living. The various trade agreements that exist between these countries have provided them with access to loans. Loans which when invested in infrastructure, health, and schools bring exponential benefits to the countries. Better infrastructure ensures efficient movement of goods and people hence reducing cost in transportation. These results in lower cost of living hence allowing people to purchase products and services. This results in a consumer driven economy (Wade, 2003). The World Bank and the IMF have been major contributors to this. They have provided billions of dollars to the developing countries. The majority of this investment goes into the development of infrastructure. The infrastructural developments have affected positively on the elaboration of these countries.
The World Bank, however, has been facing criticism over their particular issue of loans. According to BRICS (Brazil, Russia, India, China, and South Africa), they want to become more involved in global affairs as they have over half of the worlds population. World Bank has failed to be a neutral party. A few economically powerful members run it. The interests of these few countries are always put ahead of the rest because of their contribution to the Bank. The countries get to elect their preferred leadership and get preferential treatment to the others. It is widely known that several of Global North countries have a higher voting power in the World BANK compared to the Global South (Moore, 2011). Some have gone as far as comparing this to apartheid. This has resulted in some members of the Global South economies to form their monetary fund where they can all have equal voting power. The failures of the World Bank mean that it has constrained some of the Global South countries in their development strategies. It also has created a rift between the North and South.
Secondly, the bilateral trade agreements offer new markets for the goods and services produced in the various countries. A country such as Brazil got a completely new market by entering into Preferential Trade Agreement (PTA) with South Africa. Through this agreement, Brazilian goods got access to a completely new African market while the South African goods got access to the South American market. This only goes to create a balance of trade for the two countries further. The local producers in the respective countries get to sell more goods to foreign customers creating more inflow of foreign cash. This is just another enhancement brought about by the economic globalization. Southern states are being encouraged to increase trade between themselves to reduce their dependency on the Northern countries.
The majority of the Southern countries population depends on agriculture as a source of living. That means Agriculture is their main economic activity. As a result majority of the countries happen to produce similar products. This makes them more of competitors rather than trade partners. The trade agreements do not help this situation, as it will require the respective countries to have to lower taxes on their primary source of income. A good example is China and India, which are both producers of tea. This makes the situation a bit complicated for these two, as they are both major producers of similar products. The agreement constrains their development strategy as now due to the agreement they have cheaper tea entering their country. This is a disaster their local farmers who traditionally depend on agriculture as a source of living. Another example of such an agreement is the agreement COMESA, which provides a common, market for eastern and Southern Africa countries (Rodriguez, 2000). The majority of these countries depend on tourism as a foreign income earner. Therefore, they are more of competitors rather than trade partners.
Economic globalization has resulted in reduced unemployment, which in turn reduces poverty levels. This is due to the increase in foreign investments because of economic globalization. According to statistics, China has invested over US$ 14 billion in Africa in 2016 alone, and this figure is set to rise in 2017. Multinationals set up shop in the Global South countries in search of new markets, in return, they get to create employment among the local population. Work directly affects the per capita income and raises the standards of living. Countries such as India have had their unemployment rate drop significantly due to foreign investments. The increase in employment rates results into the development of the economy as the local population can access better healthcare and education.
Foreign Direct Investment is the direct investment made by a country in a foreign country. This is only possible in an open economy as opposed to tightly regulated economies. If the direct investment is an international company, the threshold for it is minimum 10% ownership stake as established by The Organization for Economic Cooperation and Development (OCED). Economic globalization has enabled such trades to be possible. The possibility for foreign investment has allowed companies that have exhausted their local investment to expand beyond their borders. This gives them a competitive advantage over their competitors. Globalization had also removed the conflict that arose when a country was trying to enter a foreign market. Economic globalization has provided the companies with means of a collision with the local rivals. A country may exploit foreign Direct Investment with the intention of reaching a third country. For example, Brazil can utilize their trade agreement with South Africa to enable them export goods to Nigeria. This is because South Africa already has an established trade agreement with Nigeria while Brazil lacks such meaningful agreement. Hence, through their PTA, they can export goods to Nigeria through South Africa.
Through globalization, Southern countries have also been able to tap into the growth witnessed by developed countries (Little,1974). The removal of tariffs and lower tax rates for goods enables goods to move more efficiently through borders. This not only encourages trade it also allows for cheaper products. This creates interdependency between the countries where the majority of global South will depend on the Global North for resource flows and technology, the Global North will depend on the Global South for raw materials, and labor as has been witnessed recently. The majority of the Global North have some of their goods being manufactured in the Global South because of cheaper labor costs. In return, they create employment.
The global economy has been fueled by the growth in China. In averted the rest of the world have to benefit from this. However, more so were the countries that had a pact with China. During the 2008 global economic crisis, China was able to absorb most of the shock and enabled the majority of the countries to bounce back. Countries in the sub-Saharan Africa have of recent benefited from the growth witnessed in China.
The open borders have allowed easy movement of people across borders. The majority of citizens from the Global South are working in global North countries and sending a lot of money back home. A good example of this is Mexico who in 2016 alone received over $ 25 billion from its workers abroad. This is more money than they received from oil. The majority of this money of cos coming from the US. The economic globalization has allowed such things to be possible. This is the same case in the majority of the Global South countries such as India. The high rates of unemployment...
If you are the original author of this essay and no longer wish to have it published on the SuperbGrade website, please click below to request its removal:
- Review an Article on the Profability of the World Poor
- How the Leisure Cruise Industry Benefits the Economy?
- Political Economy and Environment of North America
- Economic Crisis 2005-2015
- Essay on Alberta Carbon Levy
- Global Entrepreneurship Index Methodology Analysis of Switzerland
- Effects of Capitalism on Global Food Crisis