Globalization and Pakistan

By S.HUSNAIN RAZA FA08-BBA-077

DEPARTMENT OF MANGEMENT SCIENCES

Comsats Institute of Information Technology ISLAMABAD CAMPUS MAY 19,2011

Globalization and Pakistan

Globalization refers to the shift towards the more integrated and interdependent world economy.For a developing and underdeveloped country globalization is good.through Globalization profit margin has increased. For a country like pakistan Globalization is very imported because in order to increase there profit margin.

Historical brief background of Globalization and Pakistan:Globalization is an historical process that began with the first movement of people out of Africa into other parts of the world. Traveling short, then longer distances, migrants, merchants, and others have always taken their ideas, customs, and products into new lands. The melding, borrowing, and adaptation of outside influences can be found in many areas of human life. Globalization in the mirror of History:1. 2. 3. 4.

Global Governance. Ideas travel the globe. Globalization of Foods and plants. Globalization of television supply chains.

A fundamental shift is occurring in the world economy. We are moving away from a world in which national economies were relatively self-contained, isolated from each other by barriers to cross-border trade and inverstment; by distance, time zones, and language; and by national differences in government regulations, culture and business systems. And we are moving towards a world in which barriers to cross border trade and inverstment are declining; perceived distance is shrinking due to advance in transportation and telecommunication technology; material culture is starting to look similar the world over; and national economies are merging into an independent; integrated global economic systems. The process by which this is occurring is commonly reffered to as Globalization The most global markets currently are not markets for consumer products- where national differcnces in tastes and preferences are still ofthen important enough to act as a brake on Globalization. But markets for industrial goods and materials that need a universal need the world over. These includes the markets for commodities such as aluminnium, oil, and wheat, the markets for industrial products such as microproceesors, Drams, computer memory chips and commercial jet air craft, and markets for computer softwares and the markets for thew financial assets . Historically there are two Components of Globalization in the perspective of Pakistan:

Globalization of the markets. Globalization of the production.

Globalization of the markets:-

The Globalization of the markets refers to the merging of the historically distinct and separate national markets into huge global market place. Falling barriers to cross border trade have made it easier to sell internationally. It has been argued for some times that the tastes and the preferences of the consumers in different nations are beginning to converge on some global norms there by helping to create a global market. Globalization of the production:Globalization of production refers to the sorcing of goods and services from the locations around the globe to take advantage of the national differences. In the cost and quality of factors of production(such as land, labour, capital and energy). By doing this, companies hope to lower there overall cost structure and or improve the quality of functionality of the product offerings therby allowing them to compete more effectively.

Question(s) and hypothesis:Core Question of my project: Does Globalization helps pakistan in the development of the country? Supporting questions: 1. Does Globalization helps pakistan to overcome there trade and inverstment barriers? 2. Does Globalization helps pakistan to cope with the technological change through globalization? Primary hypothesis that needs to be empirically tested:If globalization facilities are provided in abundance in pakistan then pakistan will prosper.

Literature review:The world is growing smaller day by day as powerful forces of politics and economics have sped-up the globalization of markets. On the economic side, technology is the driver; the relative cost of ocean, air, and road transportation continues to fall, removing an obstacle to cross border merchandise transactions. The revolution in information and communication technology has even more dramatic impact on trade in services. The improved availability of information and declining transaction costs has further stimulated international flows of capital, labor and technology. None of this would have been possible, of course in the absence of political decision to pursue policies consistent with globalization. Governments should remove overt and hidden barriers to international commerce and trade. They should abolish exchange controls and liberalize capital account transactions. Governments should also accelerate domestic capacity to produce for foreign markets and to make their economies an attractive destination for foreign investments. Globalization is further to go, in the

fully globalized world where the probability of purchasing goods and service from domestic and foreign suppliers was the same and the countrys trade should be the main source of its income. We are clearly away from this benchmark of globalization, the people of developed country place a much higher proportion of their savings in domestic assets rather to invest in the under developed country. Real interest rates and capital/ labor ratios continue to diverge across countries, despite the incentive for capital to flow from where it is abundant, to where it is cheap, and from where real rates are low, to where they are high. The point of these observations is that the globalization is unlikely to roll back and that it has considerably further to go. It is the big fact that technology marches only in one direction and that is forward. Further technological progress will deliver further reduction in the cost of acquiring information and communications and transaction across the distances and in other countries. This electronic revolution in the way we live and work is both a cause of and a response to a series of converging and unstoppable trends. The trends now are of developing technology, which gets faster, lighter and more powerful flow of information and including rising customer expectations and finally the business change encompassing a more competitive climate. This e revolution is already radically changing business irrevocably. Experts are consistently warning that any company which thinks it can wait until new concepts or applications are more developed runs a great risk of being left far behind. It is quite likely that organizations that fail to keep up with the opportunities of new technology will almost certainly see their market position surpassed by faster-moving competitors. The decision to move into new technology is a strategic one. You need to be satisfied that. It falls into with overall business objectives & strategy. It will work as an integrated part of your business objectives. You have the resources to meet any new demand you generate. Research is an integral part you need to understand how the technology works and how you can work with it. Getting up to speed on all this and beginning to implement new systems can seem a daunting task. But the acceleration is the main source of promoting globalization and economic growth.

Theory Guided research:

Certain theories of globalization are there which we can apply in order to more clarify our project. These theories include:

1. 2. 3. 4. 5. 6.

Mercantilism. Absolute advantage theory. Comparative advantage theory. Factors proportionate theory. Product life cycle theory. Theory of country size.

Mercantilism:Mercantilism is the first theory of globalization international trade. In those days the gold and silver were the medium of exchange. A country could earn gold and silver by exporting the products and importing goods resulting in an output of gold and silver. The main principle of merchantilism was that it was in the best interest of the nation to exports goods and then imports goods in order to maintain a trade surplus. By doing so a country can accumulate gold and silver and consequently increase national wealth. So in those days government therefore interfere to achieve a favouable balance of trading by importing tax quotas on goods imported and subsidizing export goods. Mercantilism is the economic doctrine that says government control of foreign trade is of paramount importance for ensuring the prosperity and security of a state. In particular, it demands a positive balance of trade. In thought and practice it dominatedWestern Europe from the 16th to the late-18th century. Mercantilism was usually a cause of frequent European wars in that time. It also was a motive for colonial expansion. Mercantilist theory varied in sophistication from one writer to another and evolved over time

Absolute advantage theory:What Does Absolute Advantage Mean?

The ability of a country, individual, company or region to produce a good or service at a lower cost per unit than the cost at which any other entity produces that good or service. The main concept of absolute advantage is generally attributed to Adam Smith for his 1776 publicationAn Inquiry into the Nature and Causes of the Wealth of Nations in which he countered mercantilistideas. Smith argued that it was impossible for all nations to become rich simultaneously by following mercantilism because the export of one nation is another nations import and instead stated that all nations would gain simultaneously if they practiced free trade and specialized in accordance with their absolute advantage.[7] Smith also stated that the wealth of nations depends upon the goods and services available to their citizens, rather than their gold reserves.[10] While there are possible gains from trade with absolute advantage, the gains may not

be mutually beneficial. Comparative advantage focuses on the range of possible mutually beneficial exchanges. Comparative advantage theory:In economics, the law of comparative advantage says that two countries (or other kinds of parties, such as individuals or firms) can both gain from trade if, in the absence of trade, they have differentrelative costs for producing the same goods. Even if one country is more efficient in the production of all goods (absolute advantage), it can still gain by trading with a lessefficient country, as long as they have different relative efficiencies. For example:if, using machinery, a worker in one country can produce both shoes and shirts at 2 per hour, and a worker in a country with less machinery can produce either 2 shoes or 4 shirts in an hour, each country can gain from trade because their internal trade-offs between shoes and shirts are different. The less-efficient country has a comparative advantage in shirts, so it finds it more efficient to produce shirts and trade them to the more-efficient country for shoes. Without trade, its cost per shoe was 2 shirts; by trading, its cost per shoe can reduce to as low as 1 shirt depending on how much trade occurs (since the more-efficient country has a 1:1 trade-off). The more-efficient country has a comparative advantage in shoes, so it can gain in efficiency by moving some workers from shirt-production to shoe-production and trading some shoes for shirts. Without trade, its cost to make a shirt was 1 shoe; by trading, its cost per shirt can go as low as 1/2 shoe depending on how much trade occurs.

Origin of the theory:Comparative advantage was first described by Robert Torrens in 1815 in an essay on the Corn Laws. He concluded it was to England's advantage to trade with Portugal in return for grain, even though it might be possible to produce that grain more cheaply in England than Portugal. However, the concept is usually attributed to David Ricardo who explained it in his 1817 book On the Principles of Political Economy and Taxation in an example involving England and Portugal.[4] In Portugal it is possible to produce both wine and cloth with less labor than it would take to produce the same quantities in England. However the relative costs of producing those two goods are different in the two countries. In England it is very hard to produce wine, and only moderately difficult to produce cloth. In Portugal both are easy to produce. Therefore while it is cheaper to produce cloth in Portugal than England, it is cheaper still for Portugal to produce excess wine, and trade that for English cloth. Conversely England benefits from this trade

because its cost for producing cloth has not changed but it can now get wine at a lower price, closer to the cost of cloth. The conclusion drawn is that each country can gain by specializing in the good where it has comparative advantage, and trading that good for the other.

Factors proportionate theory:Recall that we are trying to explain who exports what to whom . Adam Smith took the first shot at an answer, suggesting that I export to you the things that i'm good at making and you are poor at making. Ricardo realized that I could be worse than you (as measured by productivity) in every activity but nevertheless I could still export to you the things that I am relatively less bad at, i.e. those things in which I have a comparative advantage. This is probably in the Top 5 Economic Insights of All Time list. The problem with this work it is not very satisfying explanation. For instance, Canada is one of the world's largest suppliers of newsprint. Why? Well, because it has a comparative advantage in newsprint production. But why? Because relative to other nations Canada has a lower opportunity cost of devoting resources to making newsprint. But why ?

Over the next three lectures we will explore three different types of explanation for the source of comparative advantage.

Factor endowments. Diamond or Agglomeration Effects. Plant-level scale economies.

Central Proposition

FPT predicts that countries will be net exporters of goods that use their relatively abundant factors intensively. Relative supplies of general factors--Land (forest, pasture, agricultural, mineral), Labor(skilled, illiterate, scientific, artistic), and maybe Capital--Drive Trade. Goods:tradeable commodities and services Factors:the people and things which--when combined--create goods. Typically factors are assumed to be

1. else)

raw or primary ( in the sense of not being manufactured from something

electricity is not a factor. the rivers which give a country the capacity to generate hydroelectric power would be. 2. 3. general use: part of the production process for many goods. not mobile across countries (or much less mobile than goods)

Product life cycle theory:The product life-cycle theory is an economic theory that was developed by Raymond Vernon in response to the failure of the Heckscher-Ohlin model to explain the observed pattern of international trade. The theory suggests that early in a product's life-cycle all the parts and labor associated with that product come from the area in which it was invented. After the product becomes adopted and used in the world markets, production gradually moves away from the point of origin. In some situations, the product becomes an item that is imported by its original country of invention.[1] A commonly used example of this is the invention, growth and production of the personal computer with respect to the United States. The model applies to labor-saving and capital-using products that (at least at first) cater to highincome groups. In the new product stage, the product is produced and consumed in the US; no export trade occurs. In the maturing product stage, mass-production techniques are developed and foreign demand (in developed countries) expands; the US now exports the product to other developed countries. In the standardized product stage, production moves to developing countries, which then export the product to developed countries. The model demonstrates dynamic comparative advantage. The country that has the comparative advantage in the production of the product changes from the innovating (developed) country to the developing countries. There are five stages in a product's life cycle:

introduction growth maturity saturation decline

The location of production depends on the stage of the cycle.

Stage 1: Introduction
New products are introduced to meet local (i.e., national) needs, and new products are first exported to similar countries, countries with similar needs, preferences, and incomes. If we also presume similar evolutionary patterns for all countries, then products are introduced in the most advanced nations. (E.g., the IBM PCs were produced in the US and spread quickly throughout the industrialized countries.)

Stage 2: Growth
A copy product is produced elsewhere and introduced in the home country (and elsewhere) to capture growth in the home market. This moves production to other countries, usually on the basis of cost of production. (E.g., the clones of the early IBM PCs were not produced in the US.) The Period till the Maturity Stage is known as the Saturation Period.

Stage 3: Maturity
The industry contracts and concentratesthe lowest cost producer wins here. (E.g., the many clones of the PC are made almost entirely in lowest cost locations.)

Stage 4: Saturation
This is a period of stability. The sales of the product reach the peak and there is no further possibility to increase it. this stage is characterised by: 1. Saturation of sales 2. It continues till substitutes enter into the market. 3. Market must try to develop new and alternative uses of product.

Stage 5: Decline
Poor countries constitute the only markets for the product. Therefore almost all declining products are produced in developing countries. (E.g., PCs are a very poor example here, mainly because there is weak demand for computers in developing countries. A better example is textiles.)

Note that a particular firm or industry (in a country) stays in a market by adapting what they make and sell, i.e., by riding the waves. For example, approximately 80% of the revenues of H-P are from products they did not sell five years ago. the profits go back to the host old country.

Theory of country size:Absolute and comparative advantage theories do not consider the impact of country size on trade patterns. This is discussed ahead. A. Variety of Resources: Large countries are apt to have greater variety in climate and natural resources, making them more selfsufficient than smaller countries. B. Transport Costs: Large countries tend to face larger transportation costs in serving their markets domestically. It may be cheaper to buy imports simply if you live near the border than to have domestically produced cheaper goods shipped from across the country. C. Size of Economy and Production Scales: For products that can be produced more efficiently en masse, small countries will tend to export more, while large countries may be able to achieve economies of scale simply by producing for their domestic market. See below for more information. Theory of country size says that: It says that the size of the country decides how much and what type of products to trade in

Larger countries have varied climates and natural resources It makes them self sufficient, due to which they import and export less

In these countries, transportation is costlier to larger expanse of land, compared to smaller countries Since transport cost is less in smaller countries (due to less distance in production units and end markets), they have an advantage in international trade

Toward a Theory of Country Size

It is well known that following consolidation, during which it might have looked as if countries were destined to combine into a few supercountries, we entered a period of secession and disintegration, with the number of countries growing. One puzzle associated with this is why there are so many federations. What follows is the beginning of a theory of size and confederation - and I look forward to comments before putting this in the form of a full-blown theory. My starting point is that resources are not spread evenly across regions, so that when one part of a country is rich (as from salt deposits (long ago) or natural harbors or oil reserves), it will prefer to be on its own in order not to share its wealth with a larger group. But of course these pockets

of wealth will be vulnerable to attack (trade wars and embargos for starters, but then military invasions too) if they are on their own and not in reliable alliances. "Optimal" country size is thus about compromising security (which is positively correlated with size) with the cost of sharing valuable resources. Risk averse people might agree on a large country size if they did not know whether they would be rich or poor, but once they discover regional wealth, that region can be expected to be exploited. At the same time, large scale and central control creates a monopoly on power and that can be bad for everyone. A federation can be seen as a kind of compromise. The central government provides security against outsiders, and to a degree manages competition among the member states or regions. The members are left with enough power to enjoy some of their regional wealth, and they are in the business of competing with one another for mobile citizens, outside investment, and so forth. It is as if the region, or province, buys security and some insurance (because it might be resource poor in the future) in return for some ability to enjoy its wealth and to gain from the competition among jurisdictions within the federation. If invasion comes to be seen as politically or even morally unacceptable, or international organizations spring up that succeed in reducing international grabs, then we should expect more independence movements and more sovereign states because there is less need for mutual security. I am tempted to say that this is where we are in history, except that it is also true that services and human capital have become increasingly important in the creation of wealth. If immobile natural resources are less important than in the past, then we might find less of a drive to smaller states. Smaller states will continue to provide more competition among jurisdictions, and that is good in the market for political power and policies, but there will likely be less of a gain in terms of excluding outsiders from making tax or ownership claims on valuable resources. If so, and other things (especially the threat of invasions) constant, we should expect another phase of consolidation.

Methodology

Qualitative method:-

The Perils of Globalization: An Interview with Jerry Mander

Jerry Mander is regarded as one of today's most articulate and outspoken critics of technology and economic globalization. His books include Four Arguments for the Elimination of Television, In the Absence of the Sacred, andThe Case Against the Global Economy (co-edited with Edward Goldsmith). In this interview, Mander makes a forceful case against economic

globalization, arguing that we need to examine the hidden costs of free trade and deregulation and search for more enlighened economic models to guide us into the twenty-first century. Scott London: The case, as it's usually presented, is that the globalized economy is a good thing that will secure jobs, allow us to remain competitive, and promote democracy abroad. Isn't there some truth to that? Jerry Mander: The people who are making that case are the people who are promoting globalization corporations and banks and governments. They are saying that globalization can solve the world's problems, that it's going to give people something to eat and so on. They are redesigning an economy that they say works. But it doesn't work.

We've had globalization for quite a while, it's just being accelerated right now. Wherever the rules of free trade and economic globalization are followed, you have economic and ecological disasters immediately thereafter. You've got the complete destruct ion of small, traditional farming in Africa and elsewhere; you've got the complete devastation of nature all around the world; you've got people shoved off their lands to make way for giant dams and agri-business and so on, who then become part of the mil lions and millions of people roaming the land and going into cities looking for impossible-to-find jobs, all in competition with each other, and violent and angry. And then people are angry with them, because who needs more people around? So you've set in to motion a global disarray and nonfunctionalism that would not have been achieved certainly not at the same level and with the same speed without this emphasis on global development. However poorly people lived in terms of material wealth in traditional societies, there was much that they retained. They retained a fair amount of local control. They retained some degree of traditional culture. Even in societies that had already been im pacted, like India, you had a lot of cultural identity and a history of relationships to scale that were really different. It was an economy of small-scale institutions. That has been wiped out by economic globalization with the invasion of franchises and giant institutions that have taken over the land.

Quantitative methods:World wide survey on Globalization:This major research initiative will survey opinion leaders and individuals, as stakeholder panelists from around the world, working in senior positions within the NGO, government, and the private sector. Enlisting stakeholder panelists in a way that ensures a representative perspective is key to this initiative. The GSP aims to be a balanced platform through which world citizens from all geographic and economic perspectives can vocalize and define prominent issues. The results of each survey will be communicated to as many people as possible, reporting how each sector and each segment of society views globalization and governance. The findings will be freely available to all multi-lateral organizations, national governments, NGOs, businesses, and academic organizations, as well as any individual interested in the process of globalization and capacity building.

Economic and Political Responses to Global Market:Globalization the growth in world trade, investment, and immigration has provoked strong and varied responses from firms, workers, labor unions, and activist groups. Some have supported trade liberalization and the removal of restrictions on cross-border flows of capital and labor. Others have lobbied for new government regulations that would limit trade, investment, and immigration. Some have supported private forms of governance aimed at addressing social and environmental issues raised by globalization without government intervention.

Impact of Globalization On Pakistan's Economy:The term 'globalization' is multi-dimensional. It has economic, social, cultural and political connotations. It is defined as a process of rapid economic integration among countries driven by the liberalization of trade, investment and capital flows, as well as technological change [Torres, R (2001)]. Globalization has become a hotly debated subject in recent years. Although globalization is generally understood to have emerged out of the Uruguay Round of GATT, it is rather an old concept. O'Rourke and Williamson (2000) point out that the world economy even by the late 20th century standard was well integrated in the beginning of the twentieth century [Kemal (2001)]. The tendency towards globalism could be seen during the period of liberalism of the 19Th century, the relative stability after the First World War and the golden years of the 1950s and 1960s. The WTO (World Trade Organization) was formed essentially as areincarnation of the ITO (International Trade Organization) which was born prematurely after the Second World War. With it, the principles of liberalism, multilaterlism and nondiscriminations were achieved. This then shows a tendency towards globalism [Katsuni Sugiura (1999)].

The objective of this paper is to help improve understanding of the effects of the gradual and selective approach to globalization in terms of trade, wages,employment and social progress in Pakistan. Sample Interview Transcription:Question:- What shall be the impact of Globalization on Pakistan relations with other countries? Answer:-Well, I think that though the Globalization brought serious concerns for policy makers in countries like pakistan. There is a deeper concern of Globalization in pakistan about the exercise and the methodologies with fall important concers for pakistan.

Citing an Interview in Paper:According to an interview my thinking is that though the Globalization we take our country in developmental projects. There is a deeper concern among the residents of pakistan who took advantage of Globalization in pakistan and made there lives more prosperious.

Bibliography:Primary sources:Interviews:I took an interview of a person name mr.athar he gives me clear understanging of how Globalization affects pakistan economy and leads pakistan towards properity.He also portrays important features of Globalization and gives clear understanding of how the theories of international trade towards globalization apply to practical life. Reports of governments, semi-governmental bodies:DECRG Policy Research Report:Contrary to popular perceptions, globalization renders governments and civil society more, not less, important as actors for managing its associated risks and opportunities. The development process in general, and globalization in particular, fundamentally and necessarily changes both civil society and its relations with government, but this transformation need not entail conformity, coercion, or cultural homogenization: convergence on performance indicators (outcomes) can be associated with a variety of institutional forms. Survey results:When asked whether their business has been directly impacted by the current global financial crisis, the respondents were split, with 45 percent saying they were affected, and 55 percent saying they have not been affected to date. However, regional results show that members from companies in North and South America have seen a greater impact to their businesses. The survey also included questions about members' recent experiences in trying to raise capital and whether they have noticed a difference in the demand for their services or tools attributable to the financial crisis.

Secondary Sources:Books:I consult International business book by june hill and mike hikk for my research papers. Journal articles:I consult following articles for my project: Balasubramaniam K. Heads-TNCs win: tails-South loses or The GATT/WTO/TRIPS Agreement. Penang, Consumers International, Regional Office for Asia and the Pacific, April 1998.

Bale HE. Patent protection and pharmaceutical innovation. New York University Journal of International Law and Politics, 1997.

Newspapers reports/editorials/articles:Two news papers which I consult are the News and Dawn.