Economic reality worldwide is marked by the evolution of globalization. This process entails effects that are perceived differently at national economy levels, function of their degree of development. We will proceed by attempting a survey of aspects pertaining to the relationship between globalization and developing economies, stressing on internationalizing Transnational Corporations and its effects.globalization, developing economy, transnational corporations, internationalization

Alexandru Ionescu

English

Research Papers in Economics

  77 
 
 
GLOBALIZATION vs. DEVELOPING ECONOMY 
 
Alexandru Ionescu
∗ 
 
 
Abstract 
Economic reality worldwide is marked by the evolution of globalization. 
This process entails effects that are perceived differently at national economy 
levels, function of their degree of development. We will proceed by attempting a 
survey of aspects pertaining to the relationship between globalization and 
developing economies, stressing on internationalizing Transnational 
Corporations and its effects. 
 
 
1. Globalization – approaches and concepts 
 
Internationalization, globalization, and regionalization - these are all 
concepts that make up contemporary reality. According to specialists, the above-
mentioned concepts have seen various approaches. If globalization and 
internationalization are sometimes deemed synonymous, on other occasions 
analysts see globalization as a mere stage in reaching internationalization.  
Subject to long scrutiny, globalization has turned into an objective, 
unprecedented phenomenon in history, through its scope and evolution. At the 
same time criticized and praised, it nonetheless follows through with its 
evolution. Albeit evincing negative aspects, it also comprises important ones 
providing balance and welfare. Globalization has emerged and developed 
following an unprecedented tightening of competition at all levels: economic 
actors, states, regions. 
Market liberalization in developing countries, even if it has affected 
domestic economic activity, has brought about benefits for poor consumers, by 
increasing their access to cheaper goods and in larger quantities. Proponents of 
globalization view this reality as a progress. Yet to skeptics, the deepening chasm 
between the rich and the poor is “an attack to democracy and welfare”. Critics 
accuse developed countries of hypocrisy since they have forced poor states to 
                                                 
∗ Alexandru Ionescu is Associate Professor of World Economy at the Romanian American 
University in Bucharest. 
Romanian Economic and Business Review – Vol. 2, No. 3   78 
adopt an open market policy, by doing away with trade barriers, yet without 
reciprocating. 
Some analysts feel that when setting up globalization priorities, poor 
countries are always the ones standing to lose or to gain a low benefit in terms of 
economic growth. The effects of globalization differ in terms of size and focus, 
their approach always brings about different and even conflicting stances. 
Worldwide anti-globalization and anti-regionalization movements are well-
known, amassing impressive ranks of supporters. Former UN Secretary General, 
Butros Butros-Ghali, would remind us that “we live amidst a world-scale 
revolution… Our planet is under the pressure of two giant, opposing forces: 
globalization and dissolution.” On major source of worries stems from the 
increasing world population, while resources, most of which limited and 
irretrievable are approaching a critical point. In this context, the only solution to 
problems is globalization. The whole universe is caught into the thralls of a 
revolution, a transformation of present reality that spares no one. To most 
nations, globalization is a forcefully imposed process they cannot elude. 
The principles underlying this process are set up by the great economic 
powers. To the US, globalization is an ongoing process supported by the political 
and economic elite. Through its economic power, the US has turned into a keeper 
of order in the chaos of global interdependence. Against the background of 
globalization, the US rules the roost on the financial market and in international 
trade, having all means through which to exercise its world super-power 
attributes. 
In contemporary economists’ opinion, the world should be an organized 
system, governed at global level, where competition among the main power poles 
– the US, EU and Japan – should be stimulated. Super powers have an important 
say in setting up the world’s development strategies, with the poor showing their 
discontent more and more vocally, so that marginalizing them could spark 
conflicts. 
Anti-globalization movements are the response to the position of 
international organizations that are unfavorable to developing countries’ 
economies and tip the scales in favor of super powers. 
The growing terrorist threat during the past few years has drawn attention 
on the existing cracks when drawing up these policies entailing severe losses. A 
solution to global problems can only be reached through joint, balanced actions. 
Globalization is therefore a highly controversial system. The world 
economy has seen unprecedented evolutions during the past years. Even 
economic process cycles have changed, so that coming out of crises no longer 
spans long periods of time, yet economic efforts and attempts to find solutions are 
tremendous. Experts claim that any economic growth should not spin out of   79 
control since it may entail a huge consumption of natural, human, financial and 
information resources, part of which are exhaustible and irretrievable, which 
could lead to natural disasters. Ideally, economic development should be 
underlain by scientific research focused on the effective use of resources. 
Research entails high costs that are inaccessible to developing countries. 
Consequently, while certain states evince an obvious economic growth, others 
trail at subsistence level. 
Optimists claim that, through its very nature, globalization will improve 
the social and economic situation of every state, even if differently, while 
pessimists feel that the gap between the rich and the poor will grow ever wider, 
with no chances of improvement. The overall process should be carefully 
developed in order to mitigate its negative impact. 
 
2. Developing countries and transnational corporations 
 
Globalization is strongly supported by transnational corporations that 
make up the bulk of economic internationalization. Economically speaking, 
corporations make up one of the most important factors of progress.  
Transnational corporations are deemed the main manifestation of an 
authentic global economy. With reference to transnational companies, K. Ohmae 
stated that these unaffiliated corporations have become the main “driving 
engines” of an interconnected economy, concentrated in North America, Europe 
and Japan. 
At global level, the scope of businesses has become an essential 
parameter, expressed by opening up out plants in various areas of the world. 
Corporate development beyond the borders of the mother company brings about a 
synergistic approach to operations and finances, aimed at decreasing their 
vulnerability and increasing their resistance to economic shock. Transnational 
corporations represent the main actor in international trade, with sales registered 
by subsidiaries currently making up more than double the amount of world 
exports.  
Corporations have come to change the structure of production factors in 
many countries as an aftermath of human capital shift, as well as the movement 
of technology from one part of the world to another, making up a new basis for 
fixed tangible assets. 
An increasingly dynamic development is underlain by a well thought out 
strategy regarding the use of opportunities provided by the global economic 
environment. Corporations have always focused their investments in high 
potential areas.    80 
Developing countries are a good example in this respect, by providing an 
economic, social and political environment that is auspicious to development. 
Theoretically speaking, these countries have a series of advantages stemming 
from corporate investment, embodied in high economic growth levels, increased 
occupancy, higher living standards and, not in the least, effects visible at the level 
of balance of payments and trade output.  
The issue of foreign trade in developing countries is delicate, since the 
majority of transition economies are confronted with high trade deficits and 
problems brought about by economic deregulation.  
Economic deregulation entails the liberalization of economic policies, 
opening up national markets and allowing all types of direct foreign investment. 
In fact, investments are the main financing source for developing economies 
worldwide. During the past few years, direct foreign investment has proved to be 
the steadiest source of financing, as opposed to portfolio investments or bank 
loans, since they have been less affected by financial crises.  
By acknowledging the importance of direct foreign investment, 
governments open up their economies in order to facilitate the exchange of 
goods, the access to information, as well as human resource turnover and capital 
flows. 
Corporations’ investment behavior is strongly influenced by short and 
long term changes occurring in the business environment. Recession and 
economic boom periods affect the evolution of all parties involved. Any change 
in the world political or business environment will equally reflect on economic 
performance and, implicitly, on directing capital flows. 
Statistics show that in 2001 alone, 208 changes have occurred in 
legislation pertaining to direct foreign investment in 71 countries. Over 90% of 
the changes were directed at setting up a more welcoming investment 
background. Moreover, a large number of states have been involved in signing 
bilateral investment agreements – approx. 2,100 in 2001 alone. The issues of 
investments make up an important topic for discussion within the WTO, as well. 
Given the situation that is a common occurrence in developing countries, 
Romanian included, where the State take on a foreign-oriented approach, 
according to classical and neo-classical concepts, theoretically speaking, the 
respective country should be recording an economic growth due to effective 
resource assignment. However, reality proves that, without significant direct 
investments, generally performed by transnational corporations, exports continue 
to cling to modest levels because of low product competitiveness on the world 
market. Competitiveness is closely related to the degree of technological 
endowment evinced by a country. Sadly, international technology transfers are 
also performed and controlled by large corporations, which are the only actors   81 
with the necessary capital worldwide. Even when developing economies settle 
their capital problems, domestic activities still evince a competitive advantage of 
transnational corporations, as opposed to national companies.  
Initially, transnationals have focused on fields where the cost margin of 
production factors was the most significant, but gradually operations have 
increased, comprising the majority of production fields and factors, which they 
have drawn into a global competition, oftentimes bearing negative effects on 
developing economies. 
Corporations are doubling their efforts to set up global production 
networks, mainly through mergers and acquisitions. Actually, a global market for 
the sale and purchase of companies has emerged, with whole industries being 
strengthened or restructured at global and regional scales. 
Alongside the advantages that developing countries have through 
globalization and actions undertaken by transnationals, there are also 
shortcomings, under the form of social and environmental concerns. 
Transnational corporations mainly focus on maximizing profits and 
dividends, therefore outplants are set up only in areas evincing competitive 
advantages. Keeping these targets close in check, a corporation will operate on a 
certain market for as long as the advantages provided are at an expected level. 
Throughout this time, all those involved in the activities of he respective 
transnational corporation have something to gain. When the out-plant’s activity is 
starting to show signs of decline following an increased level of mobility, the 
respective operation will be immediately relocated on a more attractive market. 
Once the operation has been relocated, the former transnational corporation 
market evinces a decline in its economic activity, under the former of social 
unrest related to decreased standards of living and increased unemployment in the 
area. Employees who can afford to follow the company will move away, whereas 
the rest will remain and cling to the hope that there will be employment for them 
as well, some time in the future. As far as shareholders are concerned, they are 
not bound by places, the distance between themselves and the companies whose 
shares they own bears little importance, the only significant point being the 
dividends they cash in. 
Labour globalization allows large corporations to employ intellectual elite 
worldwide, with no significant material and financial efforts.  
On the other hand, social effects of globalization are also brought about 
by the increasing complexity of technology and economic activities’ nature, 
which forces people to take on a new type of professional training, lifelong 
learning that entails constants ongoing intellectual and financial efforts that many 
people cannot afford. At the same time, advanced technology has cancelled the   82 
space and time barriers that people were supposed to overcome when moving 
from one place to another in order to perform their activities within companies.  
Another major issue that heavily features in developing countries is 
environment pollution. Pursuing profit regardless of consequences, transnationals 
have got as far as exporting polluting technology to areas where legislation 
allows it, global reality thus proving that we live within an accelerated social and 
environmental dissolution. 
As world economy is developing, limiting economic growth in order to 
keep a balance between the former and nature ever more necessary. Production 
needs to be kept within sustainable limits.  
Ideally, sustainable economic development, with a heavy stress on 
environmental protection should be globally promoted. These principles need to 
be adopted not only within develop countries, members of OCDE, but also within 
developing countries, by supporting them in order to set up the necessary legal 
framework that would ensure sustainable economic progress, based on non-
polluting techniques and technologies. 
The targets detailed in the present paper are difficult to reach, due to a 
decreased state power when confronted with corporation pressures. 
 
References 
 
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Dinu, M. 2001. Economie contemporană; ce este globalizarea?, Editura 
Economică, Bucureşti. 
Hirst, P. 2003. Globalizarea sub semnul întrebării. Editura Trei. 
Martin H-P., Schumann H. 2000. Capcana globalizării. Editura 
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Popescu, M. 1999. Globalizarea şi dezvoltarea trivalentă. Editura Expert, 
Bucureşti. 
Postelnicu G., Postelnicu C. 2000. Globalizarea economiei Editura 
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Globalization vs. Developing economy

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