Project on Globalization Principle of Economics

Submitted To:
Mr. Junaid Noor

Submitted By:
Names: Roll #:

Abdul Rehman Awais Ahmed Maryam Tanzila

10209002 11123025 11133018 11133015

Table of Contents
......................................................................................... 1 Introduction ................................................................... 2
What is Globalization? ............................................................................................................ 2

History of Globalization ................................................ 3 Objective of Globalization ............................................ 6

Growth Rates of GNP .............................................................................................................. 6 Growth Rate of Exports and Imports ...................................................................................... 7 Capital Flows ........................................................................................................................... 7

AN OVERVIEW OF LABOUR MARKET TRENDS 8

INCOME DISTRIBUTION AND EDUCATION .............................................................................. 8 Real Wages in the Manufacturing Sector ............................................................................... 8 Real Wages in the Construction and Agriculture Sectors ....................................................... 8 Income Distribution and Poverty ............................................................................................ 9 Education ................................................................................................................................ 9

Literature Review ........................................................ 10 SUMMARY AND CONCLUSION ............................ 10 References .................................................................... 11

Introduction
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 a reincarnation of the ITO (International Trade Organization) which was born prematurely after the Second World War. With it, the principles of liberalism, multilateralism and non-discriminations were achieved. This then shows a tendency towards globalism [Katsuni Sugiura (1999)].

What is Globalization?
Globalization is an issue that rouses strong emotions among people. The first step in understanding the topic is to define what it means. We are hampered by the reality that there is no one single agreed definition indeed the term globalization is used in slightly different ways in different contexts by various writers and commentators. What is common to all usages is an attempt to explain analyses and evaluate the rapid increase in cross-border (trans-national) business that has take place over the last 10/15 years. "Globalization" is a term that came into popular usage in the 1980's to describe the increased movement of people, knowledge and ideas, and goods and money across national borders that has led to increased interconnectedness among the world's populations, economically, politically, socially and culturally. Although globalization is often thought of in economic terms (i.e., "the global marketplace"), this process has many social and political implications as well. Many in local communities associate globalization with modernization (i.e., the transformation of "traditional" societies into "Western" industrialized ones). At the global level, globalization is thought of in terms
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of the challenges it poses to the role of governments in international affairs and the global economy. There are heated debates about globalization and its positive and negative effects. While globalization is thought of by many as having the potential to make societies richer through trade and to bring knowledge and information to people around the world, there are many others who perceive globalization as contributing to the exploitation of the poor by the rich, and as a threat to traditional cultures as the process of modernization changes societies. There are some who link the negative aspects of globalization to terrorism. To put a complicated discussion in simple terms, they argue that exploitative or declining conditions contribute to the lure of informal "extremist" networks that commit criminal or terrorist acts internationally. And thanks to today's technology and integrated societies, these networks span throughout the world. It is in this sense that terrorism, too, is "globalized." The essays in this section address some of the complex questions associated with globalization in light of September 11. Before moving to these essays, consider the discussion below about some of the economic, political, social and cultural manifestations of globalization.

History of Globalization
The historical origins of globalization are the subject of on-going debate. Though some scholars situate the origins of globalization in the modern era, others regard it as a phenomenon with a long history. Perhaps the most extreme proponent of a deep historical origin for globalization was Andre Gunder Frank, an economist associated with dependency theory. Frank argued that a form of globalization has been in existence since the rise of trade links between Sumer and the Indus Valley Civilization in the third millennium B.C. Critics of this idea point out that it rests upon an overly-broad definition of globalization. Others have perceived an early form of globalization in the trade links between the Roman Empire, the Parthian empire, and the Han Dynasty. The increasing articulation of commercial links between these powers inspired the development of the Silk Road, which started in western China, reached the boundaries of the Parthian empire, and continued onwards towards Rome. The Islamic Golden Age was also an important early stage of globalization, when Muslim traders and explorers established a sustained economy across the Old World resulting in a globalization of crops, trade, knowledge and technology. Globally
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significant crops such as sugar and cotton became widely cultivated across the Muslim world in this period, while the necessity of learning Arabic and completing the Hajj created a cosmopolitan culture. The advent of the Mongol Empire, though destabilizing to the commercial centers of the Middle East and China, greatly facilitated travel along the Silk Road. This permitted travelers and missionaries such as Marco Polo to journey successfully (and profitably) from one end of Eurasia to the other. The so-called Pax Mongolica of the twelfth century had several other notable globalizing effects. It witnessed the creation of the first international postal service, as well as the rapid transmission of epidemic diseases such as bubonic plague across the newly-unified regions of Central Asia. These pre-modern phases of global or hemispheric exchange are sometimes known as archaic globalization. Up to the time of the voyages of discovery, however, even the largest systems of international exchange were limited to the Old World. The sixteenth century represented a qualitative change in the patterns of globalization because it was the first period in which the New World began to engage in substantial cultural, material and biologic exchange with Africa and Eurasia. This phase is sometimes known as protoglobalization. It was characterized by the rise of maritime European empires, particularly the Portuguese Empire, the Spanish Empire, and later the British Empire and Dutch Empire. It can be said to have begun shortly before the turn of the 16th century, when the two Kingdoms of the Iberian Peninsula - the Kingdom of Portugal and the Kingdom of Castile, began to send exploratory voyages to the Americas and around the Horn of Africa. These new sea routes permitted sustained contact and trade between all of the world's inhabited regions for the first time. Global integration continued through the expansion of European trade in the 16th and 17th centuries, when the Portuguese and Spanish Empires colonized the Americas, followed eventually by France and England. Globalization has had a tremendous impact on cultures, particularly indigenous cultures, around the world. In the 15th century, Portugal's Company of Guinea was one of the first chartered commercial companies established by Europeans in other continent during the Age of Discovery, whose task was to deal with the spices and to fix the prices of the goods. In the 17th century, globalization became a business phenomenon when the British East India Company (founded in 1600), which is often described as the first multinational corporation, was established, as well as the Dutch East India Company (founded in 1602) and the Portuguese East India Company (founded in 1628). Because of the large investment and financing needs and the high risks involved with international trade, the British East India Company became the first company in the world to share risk and enable joint ownership of companies through the issuance of shares of stock: an important driver for globalization.

The 19th century witnessed the advent of globalization in something approaching its modern form. Industrialization permitted the cheap production of household items using economies of scale, while rapid population growth created sustained demand for commodities and manufactures. Globalization in this period was decisively shaped by nineteenth-century imperialism. After the Opium Wars and the completion of the British conquest of India, the vast populations of these regions became ready consumers of European exports. Meanwhile, the conquest of new parts of the globe, notably sub-Saharan Africa, by the European powers yielded valuable natural resources such as rubber, diamonds and coal and helped fuel trade and investment between the European imperial powers, their colonies, and the United States. It was in this period that areas of sub-Saharan Africa and the Pacific islands were incorporated into the world system. The first phase of "modern globalization" began to break down at the beginning of the 20th century with the First World War, according to John Maynard Keynes The inhabitant of London could order by telephone, sipping his morning tea, the various products of the whole earth, and reasonably expect their early delivery upon his doorstep. Militarism and imperialism of racial and cultural rivalries were little more than the amusements of his daily newspaper. What an extraordinary episode in the economic progress of man was that age which came to an end in August 1914. The novelist VM Yeates criticized the financial forces of globalisation as a factor in creating World War I. The final death knell for this phase of globalization came during the gold standard crisis and Great Depression in the late 1920s and early 1930s. Globalization in the middle decades of the twentieth century was largely driven by the global expansion of multinational corporations based in the United States and the worldwide export of American culture through the new media of film, television and recorded music. In late 2000s, much of the industrialized world entered into a deep recession. Some analysts say the world is going through a period of deglobalization after years of increasing economic integration. Up to 45% of global wealth had been destroyed by the global financial crisis in little less than a year and a half.

Objective of Globalization
The objective of this 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.

Growth Rates of GNP

Real Gross National Product (GNP) per capita is a useful aggregate measure of annual income per person, net of growth in population and prices. Data shows that in 1947 real GNP per capita was Rs. 1,476 which has multiplied three and a half fold to Rs. 5,128 in 2001. In other words, an average Pakistani today commands purchasing power that is three and half times greater than in 1947 [Social Development in Pakistan, Annual Review, 2001]. The Gradual and Uneven Process of Foreign Trade and Investment Liberalization Import liberalization in Pakistan has been a rather gradual process, as exemplified by the gentle downward trend in the average import tariff rate. The decline in import duties as a revenue source can be seen from the fact that their contribution to total taxes has fallen from 50.4% in 1987-88 to 15.9% in 2000-01 [Social Development in Pakistan, Annual Review, 2001]. The most rapid dismantling of the 'old' economic regime occurred in the import duty. Within five years, the maximum tariff rate declined 55 percentage points from 150 percent in 1988 to 95% in 1992, reducing the effective import duty rate from 38.4% to 30.3%. By 2001, the maximum tariff rate dropped further to 35% -------- about One-fifth of the 1998 level ----- and the effective duty rate to 13 percent ----- about one third of the 1988 level.

Pakistan has also made substantial progress in eliminating or reducing non-tariff barriers to trade: at present, there are only 32 products (HS 4 - digit level) on the negative list and import of 28 products is restricted for health and safety regions. The government has abolished the restricted list, which enlisted products that could only be imported through designated importers, and has lifted the licensing requirements for goods outside the negative list.
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To stimulate export-oriented industries, Pakistan provides a variety of incentives including income and sales tax concessions, exemption from customs duty on imported intermediate inputs and capital goods, and easy access to credit facilities. Income from a wide range of export products is entitled to income tax concessions. The duty drawback rates are standardized as a percentage of the free on board value of exports or a specific amount per unit of goods exported. All direct and indirect exporters are allowed the facility to import inputs through no duty no drawback scheme, bonded ware housing facilities, export processing unit scheme, and other temporary import schemes without payment of customs duty, sales tax, and withholding of income tax. Other export promotion measures include provision of loans to exporters at concessional rates of interest through the export finance scheme, and financial assistance to export-oriented industrial units seeking quality certification in respect of ISO 9000 and 14000 series certification. With a view to promoting foreign investment in the export sector, Pakistan has established export processing zones at Karachi and Lahore. These zones offer better infrastructure facilities as well as various other incentives including tax holidays, and unrestricted repatriation of capital and profits.

Growth Rate of Exports and Imports

The shows that the rates of growth of exports and imports have both decelerated between 1999-00 and 2000-01. However, the decline in import growth is significantly greater than in export growth. [Social Development in Pakistan, Annual Review, 2001].

Capital Flows
FDI involves the long-term interest of one entity resident in one economy in an enterprise resident in an economy other than that of the foreign investor (United Nations Conference on Trade and Development [UNCTA], 1998). However, the drawback is that the degree of openness has widened the balance of payment deficits, and this problem will continue unless third world country like Pakistan is provided enhanced access to the international market.

But in-spite of that deficit there is a significant increase in growth rate of output, trade and FDI inflows but the important question is: To what extent increase in these growth have helped the growth of employment in Pakistan? But in-spite of that deficit there is a significant increase in growth rate of output, trade and FDI inflows but the important question is: To what extent increase in these growth have helped the growth of employment in Pakistan?

AN OVERVIEW OF LABOUR MARKET TRENDS

INCOME DISTRIBUTION AND EDUCATION
This section shows that the trade and FDI liberalization process went hand in hand with a substantial improvement in labor market performance and income distribution as well as in the educational attainment level of large segment of the Pakistani population.

Real Wages in the Manufacturing Sector

Real wages of the production workers increased by 8.8 percent during 1981-86 compared to the previous period. The real wages of non-production workers increased only by 7.9 percent compared to 9.2 percent in the last period. The estimates of real wages of both casual and regular worker reported in the show a rising trend for both categories of workers. Both the nominal and real wages peak in 1989-90 with a slight decline in real wages in 1988-89.

Real Wages in the Construction and Agriculture Sectors

Real wages of the construction workers both skilled and unskilled reported in show a sharp acceleration between 1974-75 to 1980-81, the period of their heavy outmigration. Thereafter they have stagnated until 1985-86. They peaked once again in 1987-88 but did not recover to the 1980-81 level. Both the nominal and real with a slight decline in real wages in 1988-89. Wages peak in 1989-90. However, the decline in the real wages of the casual workers is more pronounced than the regular workers.
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Overall, the wages in the informal sectors have been raising steadily, as well as wages of the production workers. However, the position of government servants has deteriorated sharply [Bilquees, 1992].

Income Distribution and Poverty

The poor as a percentage of population in Pakistan continued to decline from 40.2 percent in 1963-64 to 17.3 percent in 1987-88. Similarly, the share of the lowest 20 percent of the population rose from about 6 percent in 1963-64 to about 7-8 percent between 1966-67 and 1987-88, and then settled back to about 6 percent thereafter. The Gini coefficient, too, declined from 0.386 in 1963-64 to 0.348 in 1987-88 and then rose again to 0.4 in 1998-99 [Social Development in Pakistan, Annual Review, 2001].

There is deterioration in the economic situation over the 1990s due to a number of factors not necessarily relating to globalization. There has been a range of opinion which places the responsibility on governance failure. There has, however, been no documented evidence or formal analyses that establish the link between poor governance and poor economic performance. An alternative view is that the adverse trends in economic indicators are the result of policy failure.

Education
Although the literacy rate is still abysmally low, the number of literate person in the country has climbed up 17- fold. The number of universities has increased from four to 25 and there are an equal number of private universities, including specialized management, engineering, and medical universities. There is now a large cadre of professionals in every field that can excel by international standards. In 1947, female education was virtually unheard of, except in a few big cities and their vicinities. Today, there are hundreds of thousands of female teachers in the country, including the rural areas. Female primary and secondary enrolment rates have moved up 23- and 27-fold, respectively. Women professionals were once the rare exception; now they are the norm in almost every field, although not in all parts of the country [Social Development in Pakistan, Annual Review, 2001].

Literature Review
This analyses the effects of the gradual and selective approach to globalization in terms of trade, wages, employment and social progress in Pakistan. Economic performance of Pakistan since integration with the global economy can be characterized by an increase in GDP growth rates, decline in import duties, and an increase in FDI during the post 1988 decade, a sharp increase in degree of openness leading to a deteriorating balance of payment situation and continued high levels of poverty and unemployment. There is increase in the wages in the informal sector as well as wages of the production workers till 1990. There is deterioration in the economic situation over the 1990s. However this deterioration is due to a number of factors not necessarily relating to globalization.

SUMMARY AND CONCLUSION

This paper has shown that the Pakistan's economic performance since integration with the global economy can be characterized by an increase in GDP growth rates, decline in import duties, an increase in FDI during the post 1988 decade, a sharp increase in openness leading to a deteriorating balance of payments situation and continued high levels of poverty and unemployment. As globalization involves enterprises and workers of nearly all the world's countries in the goods as well as in the service sector. Consequently, the majority of the world's labor force is experiencing the effects of international competition. In Pakistan except for the government servants there is increase in the wages in the informal sector as well as wages of the production workers till 1990. As for as education is concerned, although the literacy rate is still low, the number of literate persons in the country has climbed up 17-fold and the number of universities has increased from four to 25.

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References
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Katsumi Sugiura (1999) American 'Globalism' and Asian 'Regionalism' in the Age of Transformation of the World System. Journal of International Economic Studies, No. 13. Krugman, P. (1995a) Growing World Trade Causes and Consequences. Brookings Papers on Economic Activity, No. 1. O'Rourke, Kevin H. and Jeffery G. Willianson (2000) When and Did Globalization Begin? Working Paper # 7632, National Bureau of Economic Research, Cambridge. Riordan, E. Mick and T.G.Srinivasan (1995) Pakistan's International Linkages: Evolution and Prospects, World Bank International Economics Department, Washington, DC. Social Policy and Development Centre (2002) Social development in Pakistan - Annual Review 2001, Oxford University Press. Torres, R. (2001) towards a socially sustainable world economy: An ana lysis of the social pillars of globalization, Geneva, International Labor Office. United Nations (1999) World Investment Report, UN Publication. World Bank (2000) Entering the 21st century - World Development Report, Oxford University Press.

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