A brief on Globalization, Trade and Bangladesh

8/13/2019 A brief on Globalization, Trade and Bangladesh

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DE 101: A Brief on the concept of Globalization and Trade on the

Perspective of Bangladesh

Submitted by:

Tawfiq MD. Hasan

Roll393

2ndBatch, MSS

Department of Development Studies

University of Dhaka

Date of Submission: 6 December, 2013


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Table of ContentsIntroduction: .................................................................................................................................................. 1

Concept of Globalization: ............................................................................................................................. 2

Static Effects of Trade: ............................................................................................................................. 3

Dynamic Effects of Trade: ........................................................................................................................ 5

Effects of International Capital Flows: ..................................................................................................... 6

Other Effects of Globalization: ................................................................................................................. 6

Trade and Bangladesh: .................................................................................................................................. 7

Conclusion: ................................................................................................................................................. 11

References: .................................................................................................................................................. 13


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Introduction:

It has been discovered that the type linen clothing used for mummification in Egypt about 5

millennia ago could only be founded in China. It seems that when there were only a few

civilizations in the world, trades were happened among them. Trade is happening since there

were civilizations and the civilizations contained comparative advantages among themselves. So

the history of trade transcends with the civilization and globalization was a common

phenomenon since then.

The term Globalization is very familiar worldwide and is being used frequently in

communications. Thus it has become a buzzword. The origin of the word globalization is globe.

The process by means of which our activities are integrated and created interdependence globally

can be called as globalization. Therefore, it can be defined as the ongoing economic,

technological, social and political integration of the world. Though these processes,

interdependence level has been increasing day by day around the world. However, the vast

distances with the beginning of science and technology have narrowed down to such a position

that can consider the whole world as the Global village. This is the outcome of globalization.

Globalization is not a single concept that can be defined and encompassed within a set of time

frame. It involves economic integration; the transfer of policies across borders; the transmission

of knowledge; cultural stability; the reproduction, relations, and discourses of power; it is a

global process, a concept, a revolution, and an establishment of the global market free fromsociopolitical control. It is a concept that has been defined variously over the years, with some

connotations referring to progress, development and stability, integration and cooperation, and

others referring to regression, colonialism, and destabilization. Despite these challenges, this

term brings with it a multitude of hidden agendas. An individuals political ideology, geographic

location, social status, cultural background, and ethnic and religious affiliation provide the

background that determines how globalization is interpreted.

In the context of trade, Globalization is a process of expanding trade and commerce creating

borderless market all over the world. Some view it to be the conquest of one by other increasing

inequality between nations. Others view it to be benefiting for world economic development

andalso inevitable and irreversible.


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Concept of Globalization:

The concept of globalization is global and dominant in the world today. The dominant social

forces in the world today to serve their specific interests created it. Simultaneously these social

forces gave themselves a new ideological name the -international community -to go with the

idea of globalization (Madunagu, 1999). Globalization has largely been driven by the interests

and needs of the developed world (Grieco and Holmes, 1999). It has turned the world into the

big village. This in turn has led to intense electronic corporate commercial war to get the

attention and nod of the customer globally. This war for survival can only get more intense in the

new millennium. (Ohuabunwa, 1999).

In the course of this evolution, various developments and changes had taken place. These

changes or developments had, in most cases, affected the systemic existence of humankind per se

regardless of the geo-political location within the universe. Within the parameters of the

foregoing, globalization could be correctly defined from the institutional perspective as the

spread of capitalism (MacEwan, 1990). However, it is useful to outline that the collapse of the

Eastern bloc in the late 80s and early 90s led to the emergence and ascendancy of a global

economy that is primarily structured and governed by the interests of Western countries, thus,

facilitating the integration of most economies into the global capitalist economy. With the

demise of the Eastern Europe in the early 90s, capitalism as an economic system now dominates

the globe more than it had been at any time in its history.Even, China, by far the largest non-capitalist economy, has undergone dramatic changes in its

international economic policy orientation, and, is today the recipient of almost one-half of all

foreign direct investments that go into developing nations -this is a country that essentially

blocked all foreign investments until the 1980s (United Nations, 1995b). Globalization is one of

the most charged issues of the day. It is everywhere in public discourse - in TV sound bites and

slogans on placards, in web sites and learned journals, in parliaments, corporate boardrooms and

labor meeting halls. Remarkably, for so widely used a term, there does not appear to be any

precise, widely agreed definition. Indeed the breadth of meanings attached to it seems to be

increasing rather than narrowing over time, taking on cultural, political and other connotations in

addition to the economic. However, the most common or core sense of economic globalization

the aspect this paper concentrates on surely refers to the observation that in recent years a


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quickly rising share of economic activity in the world seems to be taking place between people

who live in different countries.

At its core, globalization means that international markets are becoming more integrated. Such

integration has been the subject of international trade theory for two centuries, and economists

have a good understanding of its effects. In this section, we review these insights from trade

theory.

Static Effects of Trade:

Who are the primary beneficiaries of the trade? The first answer is consumers. That is,

everybody in a country stands to gain from trade in their role as consumers of goods and

services. For many reasons a countrys average consumer, with an average income, is better off

with trade than without. The average persons income will buy a larger, more desirable bundle of

goods and services with trade than without, increasing their material standard of living. This

proposition, called the gains from trade, has been shown theoretically in all sorts of economic

models. With only a few exceptionswhich economists generally view as unlikely to reverse the

broad conclusion in practiceit applies to all countries comparing trade to not trading at all. The

argument extends to further degrees of openness, such as international movement of capital.

Thus, the fundamental case for trade and globalization is that it raises the average persons

standard of living.

However, this benefit applies to the average person, with average income. Income is not equallydistributed, and trade may not benefit everybody. A fundamental result of trade theory, the

Stolper Samuelson (SS) Theorem, identifies winners and losers from trade in terms of the

national abundance and scarcity of factors of production, such as labor and capital, from which

they derive their incomes. Owners of abundant factors tend to gain more than average from

trade, while owners of scarce factors are made unambiguously worse off. More general models

allow for additional sources of gain from trade and suggest that even owners of scarce factors

may gain, in which case SS says only that they gain less than average. But the possibility

remains that they actually lose.

So trade theory tells us that, indeed, there may be losers as well as gainers from trade and

globalization. Who are the losers? In the United States, with its abundance of capital, education,

and land, the scarce factor is clearly labor. In this relative sense, US is especially scarce is those

workers without a great deal of education, what we will simply call labor. Therefore, trade theory


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tells us that the group in the US most likely to lose from globalization, or at best to gain less than

everyone else, is labor. This is hardly a surprise. Growing opposition to globalization by

organized labor shows that they are well aware of this. The surprise may be that economists, who

tend to favor trade, would agree.

Leaving aside the legitimate question of whether an increased return to some other factors, such

as the return to education, may actually increase the opportunity to escape poverty by becoming

skilled, people therefore expect in the short run at least that globalization will increase inequality

in rich countries like the United States.

SS also applies to LDCs, but there the scarce factor is different. Being poor, LDCs are the mirror

image of the US, with labor abundant and most other factors scarce, especially capital and

education. These belong to the elite, who therefore lose from trade, according to SS. Labor in

LDCs will gain. Since labor in LDCs is far poorer than labor in developed countries,

globalization can be expected to reduce income inequality worldwide, even while it may increase

inequality within rich countries.

Trade theory does not in any way dismiss these costs as unimportant or even as smaller than

other gains. Economists therefore usually favor only gradual movement toward freer trade, so

that these adjustment costs can be accommodated within the routine ups and downs of markets.

Nonetheless owners of contracting-industry specific factors are a major source of concern in

response to globalization. These include, for example, American owners and workers in textile

and apparel firms, Indias skilled workers in steel mills that were built as it attempted self-

sufficient industrialization, and Mexicos small farmers of corn who now compete with more

productive farms in the Midwest United States. These are only a few of the many groups

throughout the world who have reason to be leery of globalization because of their dependence

on industry-specific factors.

It is not only whole industries that expand and contract due to trade. Within an industry,

particular firms also win and lose, and firms that have prospered in a protected domestic market

may not be the same ones that do well in a globalized economy. Anticipating in advance the

identities of winners and losers may be impossible, but once the process is underway, particular

firms will try to speed it up or slow it down, depending on how well they deal with its

competitive pressures.


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Dynamic Effects of Trade:

This discussion of gains and losses by particular firms and by specific factors is appropriate

primarily to the short run, because in the longer run, people relocate, retrain, and otherwise

readjust to changing circumstances. Gains and losses to abundant and scarce factors, in contrast,

last longer, continuing even after factors have moved from failing firms and contracting

industries into new and expanding ones. However, this is not the end of the story. Over even

longer time horizons, the total of a countrys factors changes with economic growth. It is

reasonable to ask, then, who gains and losses from trade in the very long run, as sizes of

countries and their rates of economic growth may change.

Keynes said that in the long run we are all dead and he was probably right. Thus whoever may be

the long run gainers and losers from globalization, they will be subsequent generations not

ourselves. That makes it harder to predict how they will fare, since we know less about them

than we do about ourselves. In a dynamic economy like the United States, the owners of

tomorrows capital, land, and human capital may not be the descendants of those who own these

factors today. Therefore, even without economic growth, our best bet for helping future

generations is to maximize total income. Globalization does exactly that.

Allowing for economic growth, this conclusion becomes still more likely, although the

theoretical basis for it is less certain than the aggregate gains from trade in the shorter run.

Economists do not in fact have a solid theoretical grasp of how trade affects economic growth,perhaps because growth itself is less well understood than the economics of static markets.

Instead, there exist a variety of models of growth, and even more ideas of how trade may interact

with growth. Some predict only that trade permits a country to grow larger than it otherwise

would; others suggest that trade lets countries grow faster indefinitely. And there are also models

where trade may be bad for growth.

But empirical evidence is much clearer that trade and globalization are good for growth. For half

a century, most countries that have minimized trade have failed to grow, while those that have

stressed exports have done much better. After a few successful countries demonstrated the

benefits of trade for growth especially the four tigers of Hong Kong, Singapore, South

Korea, and Taiwanother countries opened their markets and grew faster as well. If so, the case

is even stronger that, in the very long run, entire populations gain from globalization. Those who

are hurt by trade in the short run may lose relative to others. But because they will have a smaller


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slice of a larger pie, they may well be better off absolutely. That will surely be true if trade

permits countries not just to grow to larger size, but to continue growing at faster rates

indefinitely. In that case, globalization and trade are beneficial for everyone who will ultimately

be alive.

Effects of International Capital Flows:

The discussion so far refers to the gainers and losers from trade. To a great extent, the gainers

and losers from international capital flows are the same, since capital tends to flow in response to

the same market forces as trade. There is, however, the added proviso that those who are

internationally mobile tend to do better than those who are not. Dani Rodrik (1997) has stressed

that, in a globalized economy where some groups are mobile and others are not, those who can

move tend to benefit at the expense of others. In the last half century, capital has become

increasingly mobile while labor has not.

We therefore expect some additional tendency for labor to lose, and capital to gain, from

globalization. Capital mobility has another quite different implication, however, that has little to

do with returns to factors of production. Financial capital often takes very short-term forms, and

it is highly liquid able to move quickly into and out of a country or a currency in response to

speculative expectations. Such movements generate another class of winners and losers: those

who bet correctly and incorrectly on changes in financial markets. More important, however, are

other victims of short-term capital flight.When expectations turn against a country or its currency, the resulting capital outflows batters

many of those within the country. Borrowers default, banks become insolvent, credit to finance

exports dries up, and the damage spreads through domestic markets causing recession that hurts

much of the population regardless of their apparent exposure to foreign markets. This is the story

of the Asian crisis of 1997, but it had happened before, and will probably happen again. The

harm here is a byproduct of globalization, but also of the prosperity that globalization has

previously contributed to via capital inflows.

Other Effects of Globalization:

This completes our list of those gainers and losers from globalization. But the discussion would

be incomplete without mentioning several additional benefits and costs.

On the side of benefits, many say that globalization has reduced inflation. Inflation rates in many

countries are low, and inflationary pressures have so far been restrained even where


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unemployment rates are also low. Some attribute this to a new economy, in which technology

and global markets together restrain firms from raising prices. If this continues and if it truly is a

byproduct of globalization, then the lower inflation rate and the associated lower sustainable rate

of unemployment benefit almost everyone.

Another possible benefit of globalization is an increased rate of technological progress and

productivity growth. The slowdown in productivity growth that began in the mid-1970s appears

to have reversed in the late 1990s, although it is too soon to know whether this is permanent.

Here too, some argue that increased international competition has forced firms to innovate and to

economize on labor, increasing productivity, and that this may be a lasting benefit of

globalization.

Finally, globalization affects local cultures, causing changes that are sometimes admired,

sometimes deplored. International trade, travel, and capital flows have exposed people

everywhere to the products and sometimes the customs of other countries. This is evident in the

US, for example, with the variety of national cuisines now available in restaurants and

supermarkets. The same is happening even more in reverse, although many are unhappy to see it.

US culture is spreading throughout the globe through trade, especially US exports of movies,

music, and television programs. Young people around the world are adopting American styles of

dress, music, and behavior, to the dismay of some of their elders and of those who fear the loss

of their own cultural traditions. As economists, we are reluctant to discount the choices made

freely by consumers anywhere. But cultures are public goods, and fragile ones at that.

Globalization may bring cultures into conflict, and new policies for protecting them may be

needed.

Trade and Bangladesh:

21stcentury has been mentioned as the most significant time in the process of globalization. The

result of such boost is caused by the improvement in information and technology sector. Thus

economies in the world are now performing together and dependent on each other. As mentioned

earlier, the developing countries are facing much change in their economic scenarios. From the

figure 1, the data is showing the result of globalization. After 2001, the gross domestic

production (GDP) growth rate has raised and maintained the progress rate. The data of foreign

direct investment (FDI) and remittances have also risen from their previous years. The economic

recession in US on 2008 has caused some damage, but the economy did not fall back.


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Figure 1: GDP growth rate, FDI actual net flows and Remittance flows

Year

GDP growth Rate,

percentage

FDI, actual net flows in

million US$

Remittance Flow in

million US$

2001 5.3 355 2501

2002 4.4 328 3062

2003 5.3 350 3372

2004 6.3 460 3848

2005 6 845 4802

2006 6.6 793 5978

2007 6.4 666 7915

2008 6.2 1086 9689

2009 5.7 716 10987

2010 6.1 918 11650

2011 6.7 1137 12843

2012 6.3 1292 8729

Sources: World Bank.

In worldwide trade data of 2012, it is been observed that Bangladeshs position was almost

above of half of the countries in the world. In merchandise sector, Bangladesh held the position

of 68th in the export and 62th in the import all around the world. if the data excludes the trade

between Bangladesh and European union (EU), the rank moves forward to 47thin the export and

44thin the import sector. The commercial services provided by Bangladesh also have shown in

the WB data. It shows that Bangladesh stood in the 115 thposition and 70thposition consecutively

in export and import worldwide.

Figure 2: Bangladeshs position in Export and Import ranking of 2012

Rank in world trade, 2012 Exports Imports

Merchandise 68 62excluding intra-EU trade 47 44

Commercial services 115 70

Source: World Bank

Now the annual percentage change from 2005 to 2012 is shown in the figure 3 where the base

year is 2005. From that figure the percentage change of exports and imports volume change has


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been understood. Average percentage change from 2005 to 2012 in real GDP was 6 percent

where in 2011 and 2012, the change was 7 and 6 percent respectively. Similarly the change

occurred in the export and import of goods and services.

Figure 3: Annual percent change on Bangladesh,

Annual percentage change

Year 2005-2012 2011 2012

Real GDP (2005=100) 6 7 6

Exports of goods and services (volume,

2005=100)13 29 17

Imports of goods and services (volume,

2005=100)

11 29 19

Source: World Bank.

Now if the export and import data is breaking into merchandise trade and commercial services,

the percentage of worlds total share in world export and import data will clear to us. From the

figure 4, firstly the value of merchandise trade in the year 2012 has shown with the export and

import data in million US$. Then the annual percentage change from 2005 to 2012 has shown

with the more detail change in 2011 and 2012. The share of merchandise trade of Bangladesh in

the world export is 0.14 percent and import is 0.18 percent. Similarly on the second part, the data

of commercial services of Bangladesh has shown. Total value of commercial services in both

export and import mentioned in 1158 and 4913 million US$ respectively. Again the percentage

change from 2005 to 2012 has shown with 2011 and 2012 data. Finally, the share of world s

export and import has been mentioned which are 0.03 and 0.12 respectively. So from the figure

4, the worlds share of export and import is now clear in the case of Bangladesh.

Figure 4: Merchandise trade and Commercial service data of Bangladesh

MERCHANDISE TRADE Value Annual percentage change

Year 2012 2005-2012 2011 2012

Merchandise exports, (million US$) 25 113 15 27 3

Merchandise imports, (million US$) 34 131 14 30 -6

Share in world total exports 0.14 Share in world total imports 0.18

COMMERCIAL SERVICES TRADE Value Annual percentage change


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Year 2012 2005-2012 2011 2012

Commercial services exports (million

US$)1 158 14 15 -17

Commercial services imports (million

US$)4 913 14 21 -1

Share in world total exports 0.03 Share in world total imports 0.12

Source: World Bank

The economic depression of 2008 in US has caused major fallout in the worlds trade scenarios.

Europe has also faced downward movements in its states where many large countries like Italy,

Spain and France are still fighting to reintegrate their economy. Most of the exporting countries

of the world faced great challenges to maintain their economy. In Bangladesh, the trade scenario

is not indifferent to the world. From the figure, the data shows that information clearly. From

financial year (FY) 2001-02 to 2008-09, the export and import data shows that the trade deficit

was under than mostly 6 billion US$. After the economic depression in US on 2008, the trade

deficit raises to 17.46 billion US$. US have always been a major exporting country to

Bangladesh. Other countries also imports from Bangladesh which helped to minimize the trade

deficit.

Figure: Export, Import and Trade Deficit data of Bangladesh

Financial Year Import (Billion US $) Export (Billion US $ ) Trade Deficit

(Billion US $)

2001-02 8.54 5.99 2.55

2002-03 9.66 6.55 3.11

2003-04 10.9 7.6 3.3

2004-05 13.15 8.65 4.5

2005-06 14.75 10.53 4.22

2006-07 17.16 12.18 4.982007-08 20.37 14.11 6.26

2008-09 21.44 15.57 5.87

2009-10 33.66 16.2 17.46

2010-11 35.52 22.92 12.6


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2011-12 34.81 24.3 10.51

Source: Foreign Exchange Policy Department, Bangladesh Bank, CCI&E and EPB

After independence in 1971, Bangladesh was exporting mostly tea and jute products to the

world. Now From Bangladesh, the most exclusive trade product is readymade garments (RMG).

Now a days RMG sector is the owner of almost 80 percent of exporting goods from Bangladesh.

The frozen food industry is now in the second position of exporting goods. Medicine and food

products are also gaining worldwide recognition which raises the export orders from Bangladesh.

Though there were only a few developments, tea and jute products are still in the exporting

goods sector. Bangladesh is an agricultural country though it has boomed in the private RMG

sector. The whole sector is owned by the private owners and they created mass job opportunities

for the women in Bangladesh. Almost over 80 percent of garments worker are women which is

helping to improve their economic conditions.

Import is Bangladesh is always staying high than the export. Though we are exporting world

class clothing, most the local clothe market is importing its products from neighboring countries.

Electronics goods, communication market etc are holding the major parts of import. Bangladesh

has to buy internet from other countries and the most advanced communication providers of this

country are foreign countries. So the cost of communication is higher in Bangladesh. The fossil

fuels for power generation and vehicles, reconditioned vehicles are also raising the import costs.Though there are salt, sugar and other regular goods produce in Bangladesh, people are looking

to buy foreign products which affects the import balances.

Conclusion:

Globalization was supposedto bring unprecedented benefits to all. Yet, curiously,

it has come to vilified both in the developed and developing worldJoseph E

Stiglitz, Making Globalization Work, 2006.

There are always some advantages and disadvantages of everything. In developed countries

scenarios, especially Bangladesh has got the advantage to compete with the developed countries

products. Though some tough competition at the beginning, Bangladesh survived and recognized

for its quality assurances to the world market. The RMG sector is solved the unemployment and

created massive employment opportunities especially for the rural women. The social and

economic conditions of those women have upgraded and thus the status of Bangladesh is rising


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from LDC to developing country. The globalization has brought tremendous change in the tele-

communication sector of the world. People from any place in the world can contact with other

side of the world in just a few seconds. Medical science has reached to the door of poor with the

help of globalization. The cultural barrier of the world is slowly disappearing and people are

becoming citizens of the world. Now people can join in their suitable occupation with the help of

technology and anywhere in the world. Free movement of competitive labor forces has been

raised around the world.

The easy access of the information has created chances of identity theft around the world. People

are changing their lifestyles with modern needs whether s/he can afford that or not. Unlimited

needs of scarce resources are causing a tradition of corruption in the human nature which affects

the whole world. People are getting the negative sides of the cultural influences. Traditional food

behavior, dress patterns, religious values are depleting day by day. Accountability among the

human is decreasing especially in the developing countries and corrupt people are doing

whatever they like. Social insecurity and instability raises due to economic differences broaden

among the economic classes. People are getting richer and poorer as the capitalist economy rules

the world economy.

It is the decision of the society and the people to what will they except from right or wrong. The

choice of the people will shape the society. Trade has extended the opportunity to expand the

economy of a country. The local economy is still dominated by the agricultural products which

help to maintain the food balance in the country. The modern technology helps to overcome the

problems regarding mass food production and also to store additional foods for grave situations

like natural hazards. Bangladesh is still in the process of becoming a developing country. So the

people of the country should exploit the best products of the globalization, not the other way

around.


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References:

Baker, D. (1998), Globalization and Progressive Economic Policy, Cambridge University

Press, UK.

Crafts, N. (2000), Globalization and Growth in the Twentieth Century, IMF Working Paper,

WP/00/44, Washington DC, April.

Grieco, M. and Holmes, L (1999) "Tele Options for Community Business: an opportunity for

economic growth in Africa" Africa Notes (October) pp1 - 3.

Haque, B. (1998), The Era of Globalization and Emerging Issue: Challenges and Policy

Options for Bangladesh, Volume XIV, Number II, p 107 (Science Review),

December.

MacEwan, A. (1990): "Whats "new" about the New International Economy, mimeo,

University of Massachusetts, Boston.

Madunagu, E (1999) "Globalisation and its victims" Guardian (July 26) P53.

Martin A. Lee, Globalization And Its Discontents Far Right Backlash Against The European

Union, November 27, 2000 in the San Francisco Bay Guardian .

Muhit, M. A. (2003), Bangladesh in the twenty First Century University Press Limited, p-112.

Ohuabunwa, Mazi S.I. (1999), The Challenges of Globalisation to the Nigerian Industrial

Sector" Nigerian Tribune December 14, PP. 20 -21.

Scholte, J. A. (2000), Globalization: A Critical Introduction, MacMillan Press Ltd.Sobhan, R and Ahmed, M. (2004), Public Enterprise in and intermediate Regime; A study in

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A brief on Globalization, Trade and Bangladesh