Distributional Effects of Globalization in Developing Countries

The distributional effects of globalization in developing countries have major impacts on the economy of the respective countries. In the post-globalization era, the performance of the economy of a developing country largely depends upon the distributional effects of globalization. Not only that, the growth of the economy also depends upon the same at a large extent.

What does it mean by 'Distributional Effects of Globalization'?

So, the question is, what does it mean by distributional effects of globalization? The term “distributional effects of globalization in developing countries” means the effects of globalization on the income distribution in the economy of a developing country. There can be several types of globalization, viz. financial globalization, political globalization and military/security globalization. Globalization consists of various economic, political, social and cultural aspects of different types of global operations including easy movement of capital, free movement of capital, and international trade. However, the most important of all the globalization concepts is the propagation and promotion of free trades among different countries.

The Factors

Distributional effects of globalization in developing countries are largely associated with the trades, which depend on the mobility factors inherent in diverse sectors. There are some mobility factors which are quite expensive and need adjustment for the liberalization of the trade. The liberalization of trade largely depends upon the future investments of people, which is quite uncertain and tough to predict perfectly. It is the political process of the country that determines the actual reforms on the distributional effects of globalization, which would lead to sustain the growth of the economy. It'd also help out in assessing the effects of globalization on the economy of the developing countries.

Most of the developing countries have huge markets, both breadth-wise (refers to the number of buyers) and width-wise (refers to different income levels). The distributional effects of globalization in developing countries have greater impacts on the breadth (market) comparing to the width. And the reason behind is the lower income groups in the developing countries lack enough buying power.

The Heckscher-Ohlin Model

Let's have a look at the effects on the international trade. There are a number of factors that the international trade depends upon. The international trade, in these days, is largely dominated by the Heckscher-Ohlin is the model. It works on the basis of certain assumptions like:

• Competition across the market
• Perfect mobility factor among different sectors
• Economies of scale
• Profits from the goods and services
• Perennial returns

International trade largely depends upon the above factors. However, the model would function in the opposite direction for two different types of economies – developed economy and developing economy. For example, if the unskilled labor in developed economy suffers, it would make a steady progress in the developing economy. Those who have financial capital in developed economy can expect to earn good returns from their investments, whereas the financial capital owners and human capital owners from the developing economies may not experience the same outcomes.

The Effects

The distributional effects of globalization in developing countries are analyzed on the basis of the perfect perspective of individual losses and gains from the trade reforms. Globalization has made a significant effect on the economy of the developing countries. With the presence of several companies, consumers get plenty of options to choose from while buying products. It also increases the competition among the players within a market. Small players often feel the heat from the giants. Globalization also opens up several opportunities for the job seekers. The buying power of people also goes up as a large section of the people now have enough money to spend. It also leads to the growth of the economy of the nation at the same time.