Effects of Globalisation on World Trade, Income Distribution, Labour Standards, and Unemployment in Third World Countries

This paper discusses the effects of globalisation on world trade, income distribution, labour standards, and unemployment in third world countries. It covers various globalisation issues including the effect of globalisation on world trade, the effect of globalisation on the international distribution of income, the effect of globalisation on labour standards and wages and the effect of globalisation on unemployment in third world countries.

Running head: GLOBALISATION
Globalisation
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Introduction
Globalization is a major factor affecting the world’s economy. Mowforth and Munt
(2015) defines globalisation as a whirlwind of disruptive and relentless change which leaves
a trail of environmental, social cultural and economic problems thus placing governments in a
challenging situation. The globalisation process is a reality and has created many growth
opportunities and increased the living standards of people in the third world countries.
However, it depends on how a country can keep up with the globalisation trend and embrace
the opportunity for improvement. Therefore, the paper will discuss various globalisation
issues including the effect of globalisation on world trade, the effect of globalisation on the
international distribution of income, the effect of globalisation on labour standards and wages
and the effect of globalisation on unemployment in third world countries. In addition, the
paper will also cover two models relating to the effects of globalisation on third world
countries. The models include the Feenstra and Hanson’s Model and the Zhu and Trefler’s
Model.
Effects of Globalisation on the International Distribution of Income
The empirical evidence which suggests that globalisation affects the distribution of
income in nations which are industrialized is stronger than it has been initially thought,
especially in the manufacturing industry. According to Stockhammer (2013) the worldwide
distribution of income is still unbalanced. Various economists have also argued that the
income between the countries have greatly increased since 1960. As Spence (2011) argues,
developing countries experienced a GDP growth of 1.1% p.a. between 1960 and 1982. A
majority of economists usually tilt towards the GDP explanation. Rather than an increase in
the relative skills demand, the skills intensity has also increased both in developed and

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developing countries. Aggregate industry or country studies found support which was weak
for the causal effect of trade on skills demand change.
Further research by Intriligator (2017) shows that there is a great difference between
countries which are actively involved in globalisation and those which are not actively
involved. By comparing the two classes of countries, he found out that the countries which
are actively involved in the globalisation trend grew by 3.5% in the seventies and increased
up to 5% in 1980. On the other hand, countries which were not active in globalisation did not
achieve any further growth after 1980. Countries which opened their economies grew faster
than the countries which were developing. Therefore, it would be wrong to assume that
unequal distribution of income and inequality in the developing countries have been caused
by globalisation.
Effects of Globalisation on Labour Standards and Wages
According to Gindling and Terrell (2010) labour standards are the standard
conventions in respect to employees in matters of their basic rights, job security and wages to
be paid while wages are the monetary compensation which an employee receives from the
employer. In a bid to improve their competitive advantage, developing countries usually
lower their taxes, regulations and wages. When developing countries aim at becoming more
interdependent, protecting the rights of their workers is necessary. To achieve the aspect, the
developing countries are forced to increase the level of wages for their workers. However,
increasing the level of wages for the workers will reduce the participation levels of the
developing countries in the world’s nations and increase the standards of labour. Further
research by ==== shows that countries are limited in how they compete in laxity.
Organizations specializing in in the financial services to customers usually prefer establishing
their services in countries where the financial services are regulated properly (Michie, 2011).

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In this view, developing countries need to find a method of increasing their
competitive advantage so as to be able to compete in the changing economy of the world. In
addition, the Economic Intelligence Unit (2002) indicates that developing countries cannot
ignore the rights of workers in increasing their global competitiveness, since the countries
which are developed have to find countries with lower labour wages so as to lower their costs
of manufacturing goods. In this regard, developing countries have an opportunity for being
competitive in the global economy. Many investors get frustrated by the difficulty to establish
different manufacturing and production industries in the countries which are developing since
the countries have many obstacles and factors which slow down development. Furthermore,
some economists believe that the labour standards are currently declining and the low labour
standards have certain aspects which are posing a threat and creating great worry for
emerging and developing economies (Quinlan & Sheldon, 2011).
Effects of Globalisation on World Trade
Opponents to the globalisation process view the globalisation impact on developing
countries differently. Research by Erixon and Sally (2010) shows that globalisation has
increased the developed countries’ wealth significantly and greatly reduced the poverty gap.
Developing countries such as Asian countries have shown an improvement in the situation of
their economy. The Asian countries’ improvement has narrowed the income distribution gap
between developed and developing countries. Although there has been a great improvement
in their economies, many developing countries are still poor especially when they cannot
follow and catch up with the globalisation trend.
However, other people have different views in regards to the income distribution
between developed and developing countries. Hoffmann and Kumar (2013) believe that the
globalisation issue has been made more complicated since, in the integrated world economy,

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globalisation has led to industrial growth in few countries which are developed which has led
to serious financial problems. The aspect has widened the income gap between developing
and developed countries. During 1980-1990, twenty-five of one hundred and twenty one
countries globally carry out more than 90% of transactions in finance. Therefore, the
developing countries with a low income are forced to share the global capital flows
amounting to not more than 10% of the total transactions made. Krugman (2017) views the
developments as the transnational stage in capitalism development.
Generally, developing countries usually try to improve their competitive advantage
while the developed countries control the global economy. Globalization gives the
developing countries an opportunity of following and catching up on the globalisation trend if
they use the right methods in the global economy. According to Dunning (2013) foreign
Direct Investment (FDI) has been highly concentrated to the nations which are still
developing. For large areas which had been shut from trade, market forces and investment
have been focused on joining the capitalist club, reforming their economies and opening their
borders to welcome multi-national investment. There is a fair distribution of political and
economic power in the world and foreign direct investment has been playing an increasingly
important role in the economy of the world. Foreign direct investment provides equal
opportunities for both the developing and developed nations which has led to a decline of
poverty levels at the world level. Foreign direct investment is a key factor in globalisation
and it requires a country to maintain some basic rules so as to invest. Therefore, to succeed in
the global economy, nations have follow the foreign direct investment regulations and laws.
Effects of Globalisation on Unemployment
Various globalisation opponents argue that developing countries will always
experience high unemployment rates as compared to the developed countries due to

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globalisation. Other economists believe that stiff competition in countries with low wages
will result to a higher level of unemployment in developing countries since developed
countries will create opportunities for employment to people from the developing countries
offering low wages. Ukpere and Slabbert (2009) believe that it’s an overly simplistic view to
believe that globalisation has led to the high rates of unemployment in the countries which
are developing. He believes that the high rate of unemployment in developing countries has
been caused by the presence of advanced technology which has resulted to a great decline in
the demand for unskilled labour. Therefore, skilled labour is on high demand since many
organizations want to employ workers who have the specific skills of doing a particular job
like operating machinery. As compared to unskilled labour, skilled labour greatly improves a
company’s productivity.
However, Faustino and Vali (2011) believe that globalisation has led to workers
having low bargaining power. With the number of available jobs being very few as compared
to the unemployed people, workers have been left with minimum bargaining power. In
addition, the boundaries between countries have led to workers experiencing limitations in
their labour mobility. Furthermore, the cross border production has led to lower wages and
uncertainty on job security. Therefore, globalisation is not generally bad to the workers.
Models
Feenstra and Hanson’s Model
The Feenstra and Hanson (1996) model assumes that the process of producing final
goods which are simple requires different skilled labour levels. The model assumes that
countries which are developing are in a position of meeting the demand for unskilled labour
while the developed countries are in a position of meeting the demand for skilled labour.
Therefore, to lower their cost of manufacturing goods, organizations will shift their

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production to countries which are developing (Jung & Mercenier, 2009). The developing
countries benefit as there is creation of employment due to increased trade liberalisation and
foreign direct investment. Moreover, the labourers get a chance to improve their skills
through learning transferred from the countries which are developed.
Zhu and Trefler’s Model
The model is referred to the Ricardian sources based on the endowment factor and is
an extension of the Feenstra and Hanson model although now without foreign direct
investment. The model indicates that many companies in the developed countries tend to shift
their simple production processes to the countries which are developing due to their slow
technological catch up. On doing this, the organizations are able to minimise their costs of
production and are able to produce their goods in a more cost-effective way (Basco &
Mestieri, 2013). Therefore, the levels of skilled labour in the developing and developed
countries generally increase.
Conclusion
The paper has shown that under certain situations, globalisation can lead to instability
and high rates of unemployment in third world countries. In addition, the paper has shown
that globalisation is sustainable in third world countries based on the effects of globalisation
on different aspects. Without any doubt, globalisation can assist third world countries to
improve through knowledge sharing due to increased trade flows between countries. The
aspect can lead to higher servicing and living standards in third world countries. However,
due to the existence of a wide gap between developed countries and developing countries,
inequality may be created and it may be difficult for the developing countries to ever catch up
with the developed nations. Policies adopted by the government usually play a large part. If a
nation’s government focuses on doing what is right and at the right time, globalization will

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always create opportunities for the developing nations. Therefore, globalisation opportunities
will place developing nations in a better competitive edge with the developed nations. For
example, China which is not a fully developed nation is in a position of competing with the
United States of America.

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