Question

How do the economic effects of globalization on developing countries compare to those of developed countries?

Answer 1

The correct answer is: "Firms from developing countries cannot compete with developed countries in the manufacturing sectors".

Economic globalization has involved market integration. Both have possible due to improvements in both transport and communications technologies. Many trade barriers have dissapeared and many markets of goods, services and factors of production function at an international or global level.

• This scenario has been a source of wealth for developed countries, whose goods and services are commercialized all over the world. Firms serve larger markets, produce higher outputs that enable them to enjoy economies of scale and earn greater profits.
• On the other hand, many firms from developing countries have been worse off due to market integration. They do not have the technology or the efficiency to compete with firms from developed countries in the manufacturing sectors and many go bankrupt because consumers end up purchasing cheaper importer goods. Developing countries can only sell raw materials in the international markets, which are sold at a cheap price and, afterwards, they buy the final products which integrate those raw materials at a more expensive price from developed countries. This is why many developing countries protect their domestic industries by implementing protectionist trade policies.

Answer 2

Globalization is a process that aspires to enlarge bussiness operations around the world, making use of technological advancements, as well as political and socioeconomic development.

On developed countries, it was proven beneficial as it led to economic growth. But on developing ones, it was harmful to their economy as the costs of it, outweighted the benefits. Although free trade* boosts opportunities for international trade, it also rises the risk of failure for smaller companies that cannot compete internationally.

*Free Trade: policy that erases discrimination against imports and exports.