Journal of Globalization for the Common Good

This paper looks at the challenge of globalization within a historic perspective and examines its impact on world economic convergence and growth with an emphasis on the position of developing economies. The study shows that globalization brought a much greater degree of economic convergence in the world but its impact on economic growth of developing countries is unclear. While volume of trade increased substantially over recent decades the same cannot be said about flow of capital (either in the form of portfolio investment or FDI) to developing countries. The plight of developing countries in general and the least developed countries in particular are curious. While they have become partners and supposedly equal members in organization such as WTO there is not consensus among scholars about their ability to have improved their negotiation power within international organizations. Thus the question remains that if globalization is not the cause, neither is it the solution to the world's continuing poverty and haunting inequality. It is hard to come to a concrete deduction as to how globalization may change the face of the world and solve economic problems of developing countries. Nonetheless, the future success in addressing the problem of economic underdevelopment will depend upon social, economic and political climate of regions involved and this in itself is going to unfold within a globalized world. The process can change but the direction will not.

Keywords: Globalization, Developing Countries, Economic Growth, Economic Convergence, Capital Flow

Globalization is often defined as a combination of four major trends: the expansion of international trade, financial flows (with FDI as the most important component of these flows), global communications (including transport) and movements of people (immigration).

It can be seen as a process of economic integration that started from the time of 16^th century Mercantilists to the present day of Transnational Corporations (TNC). The self-sufficiency of feudalism gradually and reluctantly changed and in the process gave way to the emergence of capitalism in its early form of a merchant dominated environment. As Stanly Brue (2000) notes cities which have been growing during middle ages became increasingly important, trade flourished both within countries and among different nations, and use of money received greater importance in trade. Later, national states rose and the emerging most powerful nations began acquiring colonies. Great geographic discoveries occurred following the ever importance of navigation systems and development of naval capabilities both in their military and commercial forms. This is the start of globalization in a relatively large scale unseen in any period of time before.

Mercantilist believed that the most desirable form of wealth was to acquire as much gold and silver as possible, mobilize their nations under nationalist fever, protect import and finished product while making importation of raw material duty free, and put a ban on export of raw materials to other countries. They used every possibility to regulate and influence their domestic economies. The impact of their government policies on other nations and on their own population was of little concern during this time. The doctrine of Mercantilism was to benefit those who were most powerful: kings, government officials and merchant capitalists.

In the early days of capitalism, income distribution and the wellbeing of populations had no importance. Most thinkers and elites were in favor of a hard-working and poorly paid population. Some like Jean Baptiste Colbert (1619-1683) were in favor of forcing child labor. According to Colbert, no child was young enough not to enter workforce. Idleness in early part of a person’s life “childhood” was seen as a reason for disorders in the older age.

The thinking about the economy, its function, role of business and government fundamentally changed since the early days of Mercantilism. With the start of physiocratic school in 18^th century and its development to classical school brought a different way of looking at the economy and the role of international trade. There was a profound change in the level of intellect during this time. This was the period known as the enlightenment. The idea of free trade found its roots in both the notion of natural order of physiocratics [i] and the theory of “Moral Sentiment” of Adam Smith, the most renowned economist of the classical era. Moral sentiment argued how moral forces restrain selfish tendencies of people in a society and economic forces guild individuals in their struggle for a better life.

Ronald Findlay and Kevin O’ Rourke (2001) follow the trend of integration of a commodity market during 1500 to 2000 and argue that the range of goods that had been traded between continents since the voyages of discovery steadily increased over time. The move towards greater market integration was not monopolistic; it often was interrupted by shocks emanating from wars and world depressions and/or by internal political responses to the income distributional aspects of the process.

The trend of globalization has continued over the past five centuries and found greater momentum in the 20^th century. Jeffrey Williamson (1996) in looking at the history of globalization in the OECD countries argues that the trend of globalization in the latter part of 19^th century (1850 to 1914) was rather rapid. It brought massive immigration and climate of open economies for a number of decades. Capital and labor flowed across national frontiers in unprecedented quantities resulting in a great boom in commodity prices and a considerable reduction in cost of transportation. This brought about a considerable convergence in living standards among all nations, but particularly among the OECD countries. Poor countries at the periphery of the European club grew faster than the rich industrial centers in the of the Old World (these were Scandinavian countries, Ireland, and Italy). The second period between 1914 and 1950 witnessed a growing trend of autarchy in various nations. This period witnessed a trend of de-globalization and divergence between and among the countries.

Michael Bordo, Alan Taylor, and Jeffrey Williamson (2005) notice that despite the growing importance of globalization and its great impact on governments and businesses around the world, little efforts have been made to understand and predict the long term economic and social impact of the process and its place in the history of international integration.

On the positive side of globalization, the process is believed to give consumers more choice, and a broader range of qualities to choose from. Globalization is likely to permit an increase in the level of global output, stimulate economic growth and generate new employment. Trade allows countries to export those goods and services that they can make efficiently, and to import those goods and services that they make inefficiently. Increasing trade can add national incomes and personal incomes. Globalization results in lower prices, enabling consumers to buy more at lower prices and therefore enjoy a higher standard of living. Trade introduces more competition into domestic markets so that local monopolies can be avoided. Free trade exposes countries to new production and management technologies that foster higher productivity at both the firm and the industry levels. Globalization brings better and more advanced technology and other forms of intellectual capital to countries that would otherwise have to live without it.

On the side of opposing globalization, the list of complaints is not any shorter. Many claim that commercial interest takes priority over development so that developing countries are exploited. Globalization widens the gap between rich and poor and contributes to the impoverishment of developing countries. Companies move to countries with lower environmental standards which increases pollution. Health and safety regulations are avoided by moving into lower standard countries. Globalization destroys jobs due to rationalization. The economic power is concentrated in the hands of a few large multinational corporations, such as banks and petroleum companies. Individual cultures are endangered by a global culture. A global network makes it easier to distribute illegal goods and contributes to violence and crime. The independence between countries is increasing and the economic development in one country can easily be influenced by policies in other countries. It is hard not to be attracted to either side of this argument.

For the purpose of this paper we would like to look at this process in an effort to find answers to the following three questions:

2.1) Has Globalization Made the World More Equal and Been a Force for Economic Convergence?

Peter Lindert and Jeffrey Williams (2001) contend that the world economy has become far more unequal over the last century than ever before in the course of history. They argue that within country income inequality has risen and fallen episodically. Prevalence of free market can be achieved easier through opening up to a competitive global economy, but it does not imply that we will have greater equality between the nations or within each as the result of greater globalization.

Lindert and Williams argue that “virtually all the observed rise in world income inequality has been driven by widening gaps within nations.” Meanwhile they attest that the world economy has become more integrated. As such a simple correlation indicate that greater economic integration resulting from globalization must have caused greater inequality among the nations but it may have not had a clear role in creating greater inequality within nations. Lindert and Williams argue that the likely impact of globalization may be quite different with what such simple correlation suggests. They argue that countries gained from globalization based on their abilities to change their policies. Those who gained most had greater ability to change and take advantage of the circumstances and those who did not such receptivity for change gained least. The question of following market based allocation and creation of greater competition in a county and equality within and among the nations remains a contention among different economists and policy makers.

“In reality, competitive markets do not guarantee that income and consumption will necessarily go to the neediest or most deserving. Laissez-faire competition might lead to greater inequality, to malnourished children who grow up to raise more malnourished children, and to the perpetuation of inequality of incomes and wealth for generations. There is no economic law that ensures that the poor countries of Africa will catch up to rich countries of North America. The rich may get healthier and richer as the poor get sicker and poorer. In a market economy, the distribution of income and consumption reflects not only hard work, ingenuity, and cunning but also factors such as race, gender, location, health, and luck.”

The issue of economic equality and implementation of policies that can result in greater equality in income distribution is a complex and politically charged issue. One of the more controversial topics of debate is the cost of redistribution of income. This is captured by Arthur Okun’s “Leaky Bucket” argument.[ii] Arthur Okun (1975) argued that in taking steps to bring about better distribution of income by taking income from rich to poor, the amount of national income may go down. The issue therefore becomes how far a country is prepared to go to bring about a better income distribution facing the cost of a reduced national income.

The question of a tradeoff between economic growth and inequality is best recognized in the work of the famous economist, Simon Kuznest (1901-1985). His argument, known as Kuznest curve, suggests that inequality within a nation increases as the economy experience economic growth in its early stages. As the economy grow and along with it per capita income goes up inequality after reaching a peak will subside and becomes lower.[iii] One of the reason as to why such a cycle will be followed in an economy is that in the early stages of economic growth, physical capital is the main source of economic growth and few by comparison own the means of production and thus a greater number of people will not experience the same level of improvements in their lives as the economy grows. However, by continuation of growth and expansion of the economy, the role of human capital becomes more important and through such change a greater number of people experience improvement in their wealth and wellbeing and this change is expected to create greater equality in income distribution.

While causal observation may support Kuznets’s argument the change in income distribution measured by Gini Coefficient presents a different pattern of change in various countries over time.

Using the Gini coefficient is a good indicator of income inequality within an economy. A higher value of the Gini Coefficient suggests a wider income gap within an economy than a lower value. Lindert and Williams (2001) argue that the world Gini Coefficient for 1992 was about 0.663 compared with a lower value of 0.408 for the United States in 1997 and a much lower level of 0.249 for Japan in the same year. They use these numbers to argue that there is nothing less egalitarian about a large integrated economy compared with our barrier –filled world. The authors continue to claim that the real source of inequality within a nation is poor governance and lack of democracy than globalization.

The reasons for greater inequality may be a source of disagreement among economists, but there is little debate about the worsening trend of equality among the nations. Robert (Bob) Sutcliffe (2004) takes a close look at a number studies that addressed recent trend in income distribution among the rich and poor nations and regions of the world during the last half a century.

Source: Calculation by Sutcliffe (2004) based on data provided by Agnus Maddison (2003)

The above chart shows an overall improvement in the first decade and a half of the post-World War II period and little significant change thereafter. The South on the other hand showed improvement in its income distribution since the 1990s. Income distribution in Asia worsened during this period. Latin America showed some improvement since 1950.

The table also shows that compared with the North, Latin America and Africa had the highest decline. Asia as a continent and China as a country within that continent show great improvement in 1990. The condition in Africa is of particular importance as the comparative income of this region drastically declined since 1950 and the trend worsened in the last two decades.

Sources: Sutcliffe (2003) and authors calculations based on World Bank (2003)

The above chart shows that the Gini Coefficient as a whole changed very little over the last two decades of the 20^th century, while the gap between the top income earners of the rich and poor countries widened considerably during such a short period of time. In order to have a better picture of the widening gap between rich and poor nations, Sutcliffe (2003) uses different datasets and calculates the ratios of various nations income based on their place on the lists of nations. The ratios in the table show that while the gap in income of the 50 and 20 percent of rich over poor nations showed slight improvement (reduction in ratio that indicates a narrowing of gaps) the inequality in the top 10, 5 and 1 percent of the richest and poorest grew tremendously. The gap between the top 1 percent of the richest and the poorest shows a shocking increase.

As pointed out in the early part of our discussion, economists for a long time argued that ability to change is an important element in benefiting from the positive impact of globalization. This a complicated conjecture that may relate to a number of issues not all to be found in the economic potential or ability of different countries that succeeded in bringing the needed change.

Political problems often brought about by intervention from outside a country played an important role in many parts of the world. A clear manifestation of such intervention in recent time can be seen during the Cold War that tore the world into two camps of East and West. The hope of a new era of becoming free from centuries of being colonized turned into desperate decades of further pillage and devastation in the hands of their own home grown military junta and despots supported at all costs by one of the two super powers.

Most economists consider greater ability to change from an economic perspective in the ability of various regions to bring structural changes in their economies. The efficacy of structural adjustment as proposed and supported by the World Bank and the IMF needs special attention that falls outside the focus of this paper.[v] Francisco Rodriguez and Dani Rodrik (1999) look at the empirical evidence concerning the relationship between trade barriers and economic growth. They are skeptical that there is a strong negative relationship between trade barriers and economic growth, at least for levels of trade restrictions observed in practice.[vi] They suggest that in cross-national work, it is useful to consider contingent relationships between trade policy and growth as to find out whether the relationship may be different in low versus high income countries, or in small versus large countries. They ask the question of how the relationship may stand in comparing countries with comparative advantage in raw materials versus those with growing manufacturing sector. The authors expand their observation and include many other specific questions aimed at finding the relationship between economic growth and trade restriction. While the authors do not support trade protection as a way of supporting a country’s economic interests,[vii] they raise the important issue of how trade policy should be looked at where the notion of free trade and greater economic growth may not always be the situation that all countries have experienced over the last several decades.

Many economists believe that globalization can help the flow of capital to where it is needed and through such process help economic growth of the countries concerned. Peter Rousseau and Richard Sylla (2001) show that countries with more advanced financial system are better integrated with countries with similar financial structure. They showed that development of a financial system played an important role in growth of trade and the economies that opened up to the trade.

Larry Neal (1990) analyzes the rise of financial capitalism in its historic context. He shows that emergence of long distance trade brought about a greater need for financial innovation that can be traced back to the sixteenth century. It grew much stronger during the course of development of European economy in the later centuries and found its strength through development of an information network.

Alan Taylor and Jeffrey Williams (1994) argue that in the early days of capitalism in the Old World Europe, the dominant countries exploited other countries by import of their cheap natural resources and export of their finished products. The major impediment was cost of transportation. By the late nineteenth century, freight rates had fallen far enough to create a convergence of resource intensive exports for exploiting the benefit of trade. Despite the Old Europe, the New World had fewer labor and little capital but abundance of cheap resources and raw materials. The flow of capital along with immigration of labor is atypical of any classic growth model, as capital does not chase labor from labor abundant economy to labor scare new world, but the reality of the time shows that there was a huge capital export from Britain around the turn of the nineteenth century to the New World. This serves as good evidence that foreign investment in the New World prior to the World War I should be viewed as an intergenerational transfer.

Kevin O’Rourke and Jeffrey Williamson (1999) investigate the flow of international capital since late nineteenth century. They conclude that international capital markets were well integrated in late nineteenth century. The market was mobile and sensitive to rate of return differentials between capital exporting and capital importing countries. Among a number of relevant issues to capital flow and globalization they make an attempt to answer the question that to what extent capital mobility helped poorer countries to catch up with rich countries. Theoretically capital mobility, given the same level of risk, will allow capital flow from low return investments to where the return is higher. O’Rourke and Williamson conclude that in late nineteenth century, world capital flows were a force for divergence since much of the capital moved to some of the richest countries in the world. Indeed they showed that European capital tend to chase European labor who immigrated to land abounded and capital scarce New World. Only in few cases capital moved from rich to poor countries in search of cheap labor.

Robert Locus (1990) takes up the question of capital flows from rich to poor countries within the recent evidence of late 20^th century. He argues that the central idea of all postwar development has been to stimulate transfer of capital from rich to poor countries. He argues that such transfers will be fully offset by reduction in private foreign investment in the poor country or by increase in that country’s investment abroad or both.

Some believe that transfer of capital from rich to poor countries has been made much easier through Transnational Corporations (TNC). They claim that such corporations can easily establish their affiliated companies and plants in developing countries and transfer the needed capital. Andrew Walter (1998) believes that globalization theory has exaggerated the degree of mobility and structural power enjoyed by TNCs in the world political economy. He states:

“The claim that states suffer from a collective action problem vis-à-vis TNCs is also misleading. It appears to be firms rather than states that have suffered from collective action problems, since there has been no strong tendency on the part of TNCs to avoid China, Indonesia or Malaysia simply because they dislike aspects of these countries’ investment regimes. While TNCs investing in countries like China or Indonesia would prefer these countries to provide a strong liberal investment regime, the sheer attractiveness of these economies for most investors has prevented them from wielding power over the host government to force such liberalization.”

Restriction and limits on foreign-owned companies in developing countries have been mentioned as a reason for the inability of a number of these countries to take advantage of capital flow from rich countries. Changes since the 1980s provide strong evidence that a number of these countries particularly in Asia have changed their policies and become more receptive to higher share of ownership by international companies. A number of other countries have been forced to liberalize their foreign investment rules and regulation under pressure from IMF and WB.

The fact of the matter is that while volume of trade increased substantially over recent decades one can not say the same about flow of capital (either in form of portfolio investment or FDI) compared with developed countries. This trend is verified in the paper by Manuel Penalver (2002) who notes that FDI going to developing countries has also increased substantially during the 1990s but, contrary to trade, it remains at levels well below those of industrialized countries (3.5 percent of their GDP in 2000, against about 10 percent for the developed countries.) The following table taken from Penalver’s study shows that the trend of increased in net capital flow during 1990 and 2000 have been vastly different in various regions of the world.

Source: Manuel Penalver (2002), Globalization, FDI and Growth: A Regional and Country Perspective, United Nations Department of Economic and Social Affairs, Marrakesh, Morocco, 10-13 December, 2002.

The above table shows that overall the net capital flow increased by more than four time over a period of ten years.[viii] As the following table shows we can see a similar trend in the FDI flow to different regions in 1990 compared with 2000.

Source: Manuel Penalver (2002), Globalization, FDI and Growth: A Regional and Country Perspective, United Nations Department of Economic and Social Affairs, Marrakesh, Morocco, 10-13 December, 2002.

In order to better understand the regional patterns of FDI and trade flow we use the following table from the same study that presents an overview of regional performance in FDI, GDP growth and trade. The following table shows both in absolute amounts and in percentage of GDP (Latin America) has had much lower growth rates than other regions (East and South Asia), as well as much lower degree of “globalization” as measured by the share of trade in GDP.

Source: Manuel Penalver (2002), Globalization, FDI and Growth: A Regional and Country Perspective, United Nations Department of Economic and Social Affairs, Marrakesh, Morocco, 10-13 December, 2002.

As the author indicates in spite of its rapid increase, FDI as a share of GDP is still much smaller in developing countries than in industrialized ones; for the latter, this share increased from 3.0 percent in 1990 to 10.1 in 2000; in the developing countries the share increased from 0.9 percent to 3.5 percent in the same period.

Penalver’s study reaches a set of interesting conclusions for what we set out to explore in this paper. He states:

“There are two major caveats to the benefits of FDI for developing countries: one is that, even under the best circumstances, FDI has played only an important but complementary role: domestic savings and investment are still the major source of growth for developing countries…….. Historians would remind us also that the shares of FDI were much higher in earlier globalization periods, such as the one from 1870 to 1914. Should conditions (the “absorption capacity”) in developing countries and aggregate demand in developed countries improve, FDI flows at the end of the current decade could show further increases to the ones between 1990 and 2000. The second caveat is that FDI is clearly not a panacea for growth: there are several country instances of fast growth with little FDI and many more of substantial FDI with little or no growth. The discussion of country conditions shows that, under certain conditions, countries can attract FDI for the wrong reasons (e.g. privatizing monopolistic power, delaying reforms, providing restricted access to markets or resources, etc.). Like any other investment, FDI can, on occasion, provide a private benefit at a public cost.”

2.3) Has Globalization Helped the Developing Nations Obtain Greeter Negotiating Power in Determining Their Future Political and Economic Destiny?

Earlier in this paper we said that the period between 1914 and 1950 witnessed a growing trend of autarchy in various nations. This period witnessed a trend of de-globalization and divergence between and among the countries. Indeed during this period the world economy went into a deep depression in the 1930s, as many countries set barriers to trade with other states. This led to mass unemployment, social upheaval, the rise of fascism, and finally, the Second World War. After the war the global powers set up bodies to support international trade. In doing so they established International Monetary Fund, World Bank, and all countries were encouraged to join these organisations, or face exclusion from benefits of free world trade. The emphasis on trade and economic liberalization brought its own challenges. The new phase of globalization as mentioned before brought about the third phase of globalization since the mid-19^th century.

IMF was to lend to countries with balance of payments problems, pushes for economic reforms, and reports on policies in member states. World Bank aims were to help development by advising and lending – with many conditions and countries were encouraged to lift import and export barriers, cut subsidies and remove price controls. These two organizations followed a market based growth model to modernize the economies of developing countries and assist them to embark on greater economic development and growth. In following such doctrine the IMF would only lends money if countries agree to sell their resources cheaply, cut public spending, get rid of consumption and production subsidies (the many developed countries were reluctant to give up), leave any attempt to control their exchange rate, and balance their budget. Critics of IMF are quick to say this served to increase the problems of poverty in poor member countries.

For many years, the rise of poverty did not come to the purview of either IMF or the World Bank. The World Bank’s loans depend on countries to accept adopting WB prescribed Structural Adjustment Program. IMF used adherence to its Stabilization Policy as a prerequisite for its line of credits to these countries. Many believe that such programs in many cases led to rapid increase in price of goods in those countries, increases poverty, lowered investment, and cut social spending. Furthermore there is little evidence to strongly support that these policies actually work in where they were intended.

A third major player in the international scene is the Word Trade Organization (WTO). The WTO deals with the rules of trade between countries. It developed from the General Agreement on Tariffs and Trade (GATT). WTO agreements set the ground rules for international commerce. The experience of the past several decades show that opponents of globalisation point to falling share of world trade taken by developing countries (as shown earlier in this paper). While developing countries are pushed to open their trade and reduce their barriers to trade subsidies and tariffs set by rich developed economies, such as the USA continues with its steel tariffs and EU agricultural subsidies are the greatest barrier for developing countries to get access to their markets.

The WTO has three categories of member countries: developed, developing and least developed countries. The latest data for January 2007 shows the WTO has 150 member countries and 31 observers who wish to join the group at a later date, when their application has been accepted by the organization. Out of these members some 54% are developing countries, 22% least developed and only 24% are categorized as developed economies. Indeed some 76% of the members are either developing or in the group of least developed. The problem with free trade are many and the loss of that are primarily born by the least developed or developing countries. This brings up an important issue as to why the large segment of the membership cannot do anything to change the situation and persuade the organization to take more decisive measures in support of its majority. To understand this dilemma we need to look deeper into the organization of WTO and how decisions are taken within the organization.

As Nancy Birdsall (2002) notes, most developing countries began to be tied into the world economy only in the 1980s. She states:

The above chart shows that increase in export does not necessarily follow the trend of growth in world GDP and the trend for developing countries based on the foregoing discussion indicate a lesser degree of positive correlation.

An important question about the position of developing countries in international organizations such as WTO is whether membership that these countries provided them with equal rights and say within these organizations. A number of researchers believe that despite the rhetoric of partnership and equal say within the organizations such as WTO, powerful countries of the West in general and the United States in particular call the shots. The increased level of poverty in many regions of the world despite their attempt to obey the rules of the developed nations is difficult to explain.

The question remains that if globalization is not the cause, neither is it the solution to the world's continuing poverty and haunting inequality. Many of these countries are dependent on primary commodity and natural resource exports. While they were asked to open their markets in the early 1980s, they have not been able to diversify into manufacturing (despite reducing their own import tariffs). Indeed during the course of the last two decades many of these countries witnessed a fall in their price raw materials they export, pushing them remain behind. Many have taken the medicine prescribed by the international multilateral organization and have not yet been able to increase their export income, failed to attract foreign investment, and grown little if at all.

According to the rules and regulations of the WTO, its decisions are absolute and every member must abide by its rulings. So, when the US and the European Union are in dispute over bananas or beef, it is the WTO which acts as judge and jury. WTO members are empowered by the organization to enforce its decisions by imposing trade sanctions against countries that have breached the rules.

Sheila Page (2003) takes the issue of developing countries and WTO in a study that she conducted for the United Kingdom Overseas Development Institute. She challenges the two pessimistic views that believe developing countries can not gain from participating in the WTO negotiations. These views according to Sheila Page suggest that if, the outcomes of negotiations depend on the balance of power, and then no amount of negotiating will make a difference. They go further and assert that the only way to change the outcome is to change the basis of power within the WTO. A good example for such change is the rise of the EU in the GATT/WTO from the 1950s to the present.

She argues that the second cause for pessimism suggested by those who have a negative view on that matter is to take a look at what has happened in the last few decades. It is argued that developing countries have achieved little or even lost in trade, climate change, and other environmental negotiations. The author argues that the evidence and the opinion of the developing countries reject such pessimism. To support her claim she explains that the outcome of Seattle and Doha showed some progress on the part of the developing countries. At the Seattle Ministerial in 1999, developing countries’ refusal to accept a process from which they had been excluded led to a collapse of the meeting. There were other reasons for the failure, but the developing countries concluded that there had been a further shift in the real balance of power; developing countries could not only negotiate, they could block negotiations.

At Doha in 2001, there was further evidence of the ability of developing countries to influence outcomes. While the broad support for the successful anti-subsidy position in agriculture precludes claiming this as a developing country achievement, the developing countries were a visible part of the alliance. The lessons of the latter development within the WTO suggest that the future may be different with the past and there are reasons to believe that developing countries may succeed to pursuing their objectives in the upcoming negotiations. Among the reasons for optimism is more experience in setting agenda recognizing that they could not remain outside any negotiation, however irrelevant or unimportant it might seem initially. Developing countries gained more negotiating experience in the regional trade negotiations. They also received help from the private sector.

It is true that technical know how and ability to acquire professional service are important elements of a successful negotiation and for a long time, although there was some help available to them by international organizations such as the World Bank or the UNCTAD, the level of support was not enough to give them the skills and the experience needed for a successful negotiation. The future seems more optimistic. However, the remaining problem is the dependency of developing countries for financial and technical support from developed countries and this may still be a source of influence in the interests of the developed countries.

Current literature on the impact of globalization is mixed. Some see the process as the most effective way of overcoming the challenge of underdevelopment, poverty and inequality in the world. Others hold the exact opposite opinion and consider it an empty promise with little evidence to show that it has made any positive impact on lives majority of people in countries that have embraced the process. This study looked at both sides and although has no concrete answers for the questions it posses, it sheds light on many issues debated by the proponents and the opponents. The study provides the following conclusions and deductions:

[i] The term physiocrat means “rule of nature.”

[ii] For more information see Arthur M. Okun, Equality and Efficiency: The Big Tradeoff, Broking Institution, Washington, D.C., 1975.

[iii] For more information see: Wikipedia; the Free Online Encyclopedia http://en.wikipedia.org/wiki/Kuznets_curve

[iv] Word Development Indicators (WDI) are produced and published by the World Bank.

[v] Explain structure adjustment and stabilization policies in some details.

[vi] The authors make a clear point that trade restrictions are varied and numerous. While most studies emphasize on a traditional form of trade restrictions, many other ways of restricting trade exist in different countries ranging from restrictive laws limiting competition from outside to imposition of a variety of local taxes that are aimed at limiting competition from outside.

[vii] Francisco Rodriguez and Dani Rodrik (1999) assert that there is no strong evidence to suggest that greater trade protection results in higher economic growth at least (as they indicate) since post-World War II period of 1945.

[viii] The amounts are not adjusted for inflation (world or for the region). However, the increases certainly outpace the trend when it is adjusted for the respective rate of inflation.

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About the Author

Jamshid Damooei is a Professor of Economics and Co-Director of the Center for Leadership and Values at California Lutheran University, USA.