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

Running head: GLOBALISATION
Globalisation
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GLOBALISATION
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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GLOBALISATION
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).