This research has investigated the different aspects of international trade and globalisation in the context of issues faced by Guidia, which is a middle-income country with an average per capita income of $4,000 at market exchange rates. Its population of 60 million is 65% urban. The government of Guidia has been looking for ways to diversify its export base, which at the moment comprises mainly of raw materials. Guidia also has a small natural gas field and its first export-processing zone specialises in textiles. Given that the government has been urged through a IMF/World Bank report to involve more in globalisation, which it says will result in more trade, more foreign investment and more knowledge transfer and faster economic growth, this report has investigated wide-ranging interconnected issues that have a bearing on the expansion plans of Guidia and its further engagement with globalisation and international trade. This report has recommended that the government of Guidia should go ahead with implementing measures to engage more with globalisation in order to achieve higher levels of trade volumes, foreign investments and knowledge transfer, will result in faster economic growth.
Introduction
International trade is known to have permitted nations to take advantage of economies of scale and technological innovations to produce more efficiently with reduced costs of production. Productivity has increased along with the sharing of technology and knowledge in addition to enriching the different options available for consumers (Ilhan, 2007). However, assimilation of the global economy has not led to the accrual of such benefits for all nations because of scepticism about the advantages of international trade reaching every section of society. It is perhaps because of such circumstances that the IMF/WB report has urged the government of Guidia to involve more in globalisation, which it stresses, will enhance the quantum of trade and foreign investments and will result in higher levels of knowledge transfer and faster economic growth. This report shows evaluating the possible gains and risks associated for Guidia if it engages in higher levels of globalisation.
Guidia's Characteristics
2.1 Population
Guidia is a middle-income country with an average per capita income of $4,000 at market exchange rates. Its population of 60 million is 65% urban. Major demographic changes have occurred in the country during the last three decades because of large-scale changes emanating from governmental efforts in diversifying the economy from rural-based activities to greater focus on industrialisation, mining and exports of raw materials. In addition, there has been greater influx of immigrants on account of the need for specialists, professionals and skilled labour to execute plans for major expansion in mining, industries and gas exploration. Consequently, 65 per cent of the country's population now lives in urban areas.
2.2 Level of Development
In view of increasing globalisation, there is now greater demand for Guidia's raw materials, which the country is able to supply its natural resources, leading to massive expansion in the country's mining activities. Gas exploration has been given a boost through greater government investments in the sector, which has led to increased employment and entry of large numbers of immigrants as domestic labour is not skilled to manage the technologically advanced equipment required in mining and exploration of natural resources. The recent establishment of the textiles export processing zone has also created enhanced economic activities resulting in generation of employment opportunities and entry of foreign investors who get the facility to use the local work force and natural resources to produce goods that are re-exported to the home country of foreign investors. This has also led to greater prosperity in the country, which is evident from Guidia's high per capita income, which is presently $4,000. Although, Guidia's economy is performing quite well, the WB/IMF recommends further growth of the economy because of the rapid increase in globalisation emanating from enhanced global trading, foreign investments and outsourcing production of goods and services to less developed countries.
2.3 Urbanisation
The latest census reveals that Guidia's population increased from 53 million to 60 million in the last ten years, while the urban population increased from 27 million to 39 million during the same period. Similarly, the ratio of urban population or the extent of urbanisation also increased rapidly during the last ten years. It is apparent that a significant percentage of Guidia's population lives in urban areas, which is because of the changing demographic patterns emanating from focus being made on non-agricultural activities, resulting in faster migration of labour from rural to urban areas. It can be said that urbanisation in most parts of Guidia is the outcome of enhanced governmental initiatives and investments in industries, oil exploration, mining and export processing zones. Because of such initiatives, economic activities are largely concentrated in cities, particularly in the financial, trading, oil, mining, manufacturing and services sectors.
2.4 Exports
The economy of Guidia had shrunk considerably during the 1980s because of political instability and an ineffective government, which led to increase in poverty and deterioration in the economy. However, with the change to democratic form of government, rapid strides have been made in industrialisation, mining operations and oil explorations, which uplifted the economy within a short span of 15 years, leading to overall prosperity and economic stability. Regarding Guidia's natural resources, there appears to be no end to the huge potential it can exploit in terms of exporting natural resources such as minerals and gas. Because of increasing globalisation, the demand for Guidia's mineral resources is increasing rapidly, which means there is immense scope to increase its revenues by increasing supply of such resources. However, the country needs to adopt better technology and attract professionals in sectors such as mining and manufacturing and gas exploration for which it needs to make massive investments. In being a small economy, Guidia is not in a position to make huge investments and under the circumstances, the best option is to accept the proposals made by IMF/WB and invite foreign investments, which will gradually lead to development of better infrastructure and adoption of the latest technology to achieve economies of scale, increase in productivity and higher standards of living for citizens.
2.5 Benefits of Globalisation
The foundation of rapid economic integration on a global scale was laid with the political changes that happened in many developing countries during the end of the twentieth century. For example, political changes in China and India led to a new wave of economic reforms that opened up massive markets for saturated economies of the West that got opportunities to find new markets for their products. These developments led to partnerships through which production was outsourced to manufacturing centres in these countries, creating employment opportunities for the masses and thus increasing disposal incomes, which led to greater demand for goods and services produced by multinational companies (Aune, Rosendahl and Sagen, 2008).
In recent years, the new industrialised nations have benefited the maximum from globalisation because the share of manufactured goods in international trade has increased tremendously while share of non-fuel and agricultural products has declined. This provides good reason for Guidia to focus on increasing its revenues by making use of its resources of natural gas and other raw materials. Another factor working in favour of Guidia is that the dominance of developed nations in international trade is gradually reducing, which means there will be lesser competition and a bigger market for Guidia's exports. A noteworthy development after the oil crisis of the 1970s has been the remarkable growth in foreign direct investments (FDI). According to Shalmali Guttal (2007), globalisation is a complex term because it has been referred to being characterised with a number of impacts and powers.
2.6 Risks of Globalisation
Theorists not favouring globalisation hold that it harms the economies of nations because it works against the interests of national economies (Collier, 2010, pp. 47-52). They argue that globalisation is a kind of capitalist expansion entailing the amalgamation of local and national economies into globalised and unregulated market economies (Brakman, 2006, pp. 31-35). In addition, globalisation also requires the support of governments in creating the right atmosphere for it to become effectively ingrained in the economy (Bhagwati, 2004, pp. 121-132). Globalisation benefits only a section of the population by not delivering the stated gains and prosperity for everybody (Guttal, 2007).
Meon and Sekkat (2012) researched the impact of national political factors and found they can impose risks on the inflows of FDI, thus impacting the consistent economic growth of a nation. However, they asserted that political risks will not create adverse impact on FDI flows on an overall basis if the total amounts of FDI flows in the global economy are increasing on a consistent basis. From another perspective, there are increasing concerns about a decline in global trade as a consequence of the recent global economic recession that took most of the developed nations in its grip, creating adversities in their global trading positions (Gordon, 2012). Moreover, Guidia will have to be careful in taking measures to avoid possibilities of exploitation by multinational companies (Wolf, 2006, pp.76-79) because the government's main objective is to achieve higher economic growth and benefit for all its citizens. The economic theory of comparative costs does impact the locations chosen by multinational companies to establish their production facilities and plays a major role in determining prices (Faulkner and Segal-Horn, 2004). From this perspective, Guidia stands to gain by opting to invite foreign investments, which will create better opportunities for its local economy and citizens.
2.7 Political Benefits
It is apparent from political developments in many underdeveloped regions of the world such as in Africa that there is a strong link between security, politics and the economy, which means that it is important to first deal effectively in resolving political issues before venturing into implementing plans of globalisation (Bond, 2008). However, Guidia will not get impacted by such circumstances because it is primarily an urban economy with 65 per cent of the population living in urban areas. It is also apparent in this regard that the economic condition of Guidia's citizens is quite good in view of the country's high per capita income of $4,000. From this perspective, the arguments put forth by Martin Wolf (2003) are more relevant because he holds that the market economy is always triumphant in all economic and political circumstances. However, this claim needs to be first corroborated with concrete theory about how a market economy can work in an environment that is not characterised with freedom and equality, which is the basic requirement of a free market (La Croix., Mason and Shigeyuki, 2002). At the same time, it is apparent that the new world order is being increasing characterised with economic stability in larger parts of the world as compared to a few decades back. As Western economies get saturated, there are increasing efforts to create more markets through attempts to stabilise the political environment by creating larger numbers of value added activities (Dunning, 2009).
2.8 Financial Benefits
Guidia will be benefited immensely by engaging more in globalisation because of the inherent advantages of deregulation and reduction in restrictions that are presently imposed on foreign investments and international trade in the country. With increase in foreign investments, the country's infrastructure will improve and attain international standards in terms of capacity utilisation and achieving economies of scale, which will strengthen the economy financially in allowing for increase in per capita income and higher revenues for the government through enhanced exports of raw materials and natural gas (Gayi, 2012). Moreover, foreign investments through the FDI route will lead to a more robust economy in addition to huge inflows of capital putting bigger financial resources in the hands of the government and businesses.
Advantages and Disadvantages for Guidia being Globalisation
Guidia will benefit through greater involvement in globalisation because of the inherent advantages of deregulation and reduction in restrictions that are presently imposed on foreign investments and international trade in the country. In allowing multinational companies to invest on its soil, Guidia will benefit in terms of higher domestic investments, which will enhance employment opportunities and create a larger income base that will increase demand and expenditures, leading to higher production and overall dynamism in the economy. The conventional trade theory relates to several propositions in holding that if a country has the ability to trade at price levels that are at variance with its current relative price levels, it will stand to gain from international trade (Marrewijk, 2008, pp. 154-167). Many developed countries have a comparative advantage in terms of producing goods at lower relative prices in comparison with Guidia, which means that Guidia should enter into trade agreements with countries that can supply goods at lower prices than what are currently available to its citizens.
It is important to consider in this regard that there is significant difference in factor endowments and the technology available in Guidia, in terms of the optimum utilisation of labour and capital. The traditional theory of comparative advantage relies on linking the technological standards amongst countries as the main basis of trade (Stiglitz, 2010, pp. 49-53). From this perspective also, Guidia will gain by allowing multinational oil companies to use their technology and expertise in exploiting its gas fields and producing oil at lesser costs. This is in keeping with making the best of factor endowment disparities as proposed through the Heckscher Ohlin Model (Rodrik, 2011). In the case of Guidia, the assumptions relate to trade barriers by way of the restriction on imports and it is apparent that basic knowledge about comparative advantage and realistic theoretical implementation will highlight the imperfect market conditions in which its economy is currently functioning. It is important for the government to resolve problems arising from the existence of an imperfect market characterised with government monopoly, rising returns to scale in manufacture and different kinds of market failures (Henderson, 2002).
The resulting impacts of the recent global financial crisis have forced many economies to reconsider the practicality of benefiting from globalisation (Wade, 2009). But, the situation for Guidia is different because it does not need to enter into global financial markets as such need will arise only after its activities reach high level of maturity in international trade, giving rise to the need to enter into major financial agreements involving global financial institutions. Guidia is blessed with factor abundance in terms of raw materials and natural gas that it has been exporting so far. Such economic circumstances have allowed its citizens to have a per capita income of $4,000, which is quite high as compared to international levels. The relative factor abundance relates to the extent to which a country has more capital or labour, which explains the trade commodity composition in the event of the existence of technological variations amongst partnering countries, which is obviously relevant in the case of Guidia.
Guidia may have to suffer some setbacks initially because in order to have greater involvement in international trade, it will be required to open up its economy to foreign investments, which will come primarily through the FDI route. This will also imply that Guidia will have to actively adhere to the requirements of the World Trade Organization (WTO), which warrant that all economic systems will have to gradually transform their working patterns in meeting up with a uniform code of business practices that are followed by all WTO members. However, there are risks associated with this because of paradigms seeking to provide adherence to the globalisation process as they may not necessarily prove to be of the same competence standards presently prevailing in Guidia. However, as apparent from the Eclectic (OLI) Paradigm of International Production put forth by Dunning (2001), it will be beneficial for Guidia to adopt organisational paradigms that aim at assessing the costs and gains of other possible institutional instruments for the organisation of the given sets of capabilities and resources.
Conclusion
After having examined the concepts and theories of economic globalisation with reference to emerging trends and changes, it becomes that the government of Guidia should go ahead with implementing measures to engage more with globalisation in order to achieve higher levels of trade volumes, foreign investments and knowledge transfer. As a result, Guidia will have faster economic growth. At the same time, it is apparent that Guidia will have its own ability in absorbing technology that is developed in other countries, depending on its requirements of specific human skills, so as to effectively benefit from the adoption of knowledge relative to foreign technologies. Nevertheless, Guidia has a wide range of options in adopting policies that can be implemented in fostering technological development within its economy. Primarily attracting increased investments through the FDI route, which will benefit both multinational companies as well as local businesses. To start with, the main focus of Guidia policy makers should be on facilitating international technology transfer through foreign investments and creating a friendly investment environment for foreign companies. By increasing its initiatives towards globalisation, Guidia will gain in the short and long term because international organisations will assist the country in building infrastructure and developing human capital.
