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Issues in Global Economy

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Submitted By elaine0659
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This essay is aim tocritically review Jeffrey James’s views toward ‘information technology, cumulative causation and patterns of globalization’ in the developing countries. In this journal, James analysed the relationships and effects between the developing countries’ economy development and the information technology.
Firstly, from James (2001) point of view, there is a ‘cumulative causation’between foreign direct investment and exports and economic growth. Heclaimed that foreign direct investment (FDI) had a huge influence on the export performance of the developing countries, the degree of exports stimulates economy growth thus attract more FDI. There are some evidences exist to prove his claim. China isone of the good examplesto indicate that. Song and Zhang (2001) stated that there was a strong link between foreign direct investment and exports in China. Exports which generated by FDI had attracted more FDI into China. It also provided the evidence that only 1 percentage of FDI level changed in 2000 was related to 0.29 percentages rise in exports in 2001 (Song and Zhang). Moreover, foreign investment has played a vital role in both China’s economy and fast growth (Whalley&Xin, 2010). According according to Whalley and Xin (2010), their research result has shown that ‘China’s growth rate may have been around 3.4 percentage points lower in the past few years’ without FDI(Whalley&Xin, 2010).
While on the other hand, this ‘cumulative causation’ application may be affected by current global situation. The export-led growth strategy for those least developed countries seem to be not so effective in recent years. According to Stewart (2011), Unctadsuggeststhat the least developed countries may come up with some effective growth strategies instead of their current export-led strategy. Chinese cheap products exporting strategy may not work for the least developed countries, as the ‘after-effects of the credit crunch’ still disrupting the developed countries (Stewart, 2011). As a result, thiscreateda detrimental condition for those countries’ further growth and export (Stewart, 2011). Unctad also suggested the local development banks to build up the economy capacity instead of only seeking for exports to the developed countries to promote economic growth (Stewart, 2011).
Secondly, James (2001) also claimed that those East Asian NICs, which have integrated themselves into the globalization, have been developed quite well.Partly because those nations had adopted various information technology related policies to attract FDI (James, 2001). James (2001) also suggested that those least developed countries should change their policies to promote their economy development. It is true that government policies have benefited a nation’s economy by attracting FDI.As Maio (2008) claims, government policies do help promote the economy growth. Take TaiWan as an example, its open policy for foreign companies and its foundation of ‘Industrial Technology Research Institute (ITRI)’ have been quickly introducing information technology as well as attracting FDI into the local market.Brewer (1993) discussed that different kinds of government policies would change market weakness therefore affect FDI inflows (Banga, 2003). He emphasised on the importance of government policies contribute to the country wealth, which mainly consist of ‘National FDI Policy’ and ‘Tariff Policy’ in the developing nations (Banga, 2003). Those policies help remove various barriers from foreign firms expanding the business to those countries (Banga, 2003). This means the foreign companies have more power on control and access to the admission and establishment, which increases the attractiveness (Banga, 2003). It also increased two kinds of incentives, namely fiscal incentives and financial incentives (Banga, 2003). Fiscal incentives concludestandard company tax reduction; import tax reduction and duty drawbacks on exports (Banga, 2003). Financial incentives conclude loan guarantees; grants;highly risk firms venture refund etc. (Banga, 2003). Given those two incentives more FDI are coming two the countries and the economy thus grow rapidly (Banga, 2003).
However, whether changing the policies directly boosts a nation’s development is on the question. Althoughsome developing countries have introduced some their FDI attracted policies, it is still hard for them to promote their economy. As there are many other factorswhich block the FDI and economy development. According to Kinda (2008), infrastructure and human capital problems within a developing country are vital to aid economic growth and draw attention to FDI.‘Deichmann et al. (2003) in a study of 293 foreign firms location in Turkey find that infrastructure development increases the probability of MNE location’ (Kinda 2008). Moreover, the foreign firms also favour more on local developed financial market, which facilitate their business transaction between the country and the host country (Kinda, 2008). As shown in the enterprise surveys of company perceptions, financing accounts for the most factor which constraint the firms, and few foreign companies locate on the countries where financing constraints are high (Kinda, 2008). Kinda (2008) claims that these constraints specifically including skilled workers, good roads, transport system, local credit market and telecommunications which some least developed countries do not have.
Overall,through above analysis we can draw the conclusion that Jeffrey James’ claim towards the cumulative causation about the inter-relationship between FDI, export and economy growth was exist and may still exist in some leading developing countries. However, it may be not the case in the lease developed countries nowadays. As the global economy is changing, the export-led growth strategy may not boost their development of the economy so efficiently. His suggestion toward the policies change of the least developed nations was true to some developing countries, but it has some limitations. As changing policies may not help enhance those marginalized countries’ poor situation directly. There are many other factors should be considered, these countries may improve their current infrastructure, industry capacity, economic capacity, skilled people etc. while changing the policies.

References:
Banga R. (2003) ‘Impact of Government Policiesand Investment Agreementson FDI Inflows’. Available at: http://dspace.cigilibrary.org/jspui/bitstream/123456789/21650/1/Impact%20of%20Government%20Policies%20and%20Investment%20Agreements%20on%20FDI%20Inflows.pdf?1 [Accessed: 19 February, 2013]

Kinda T. (2008) ‘Investment Climate and FDI in Developing Countries: Firm-LevelEvidence’. Available at: http://economics.ca/2008/papers/0339.pdf [Accessed: 19 February, 2013]
Maio D. (2008) Industrial Policies in Developing Countries: History and Perspectives’. Available at: http://vi.unctad.org/files/wksp/tanzaniadar2011/files/suggested_reading/DiMaio-2008-%20industrial%20policies%20in%20DCs%202008.pdf [Accessed at: 20 February, 2013]
Stewart H. (2011) ‘United Nations Urges Poorest Countries to Put Growth over Exports’. The Guardian.Available at:http://www.guardian.co.uk/global-development/2011/nov/17/unctad-least-developed-nations-growth-policy?INTCMP=SRCH [Accessed: 20 February, 2013]
Whalley J. &Xin X. (2010) ‘China's FDI and Non-FDI Economies and the Sustainability of Future High Chinese Growth’.China Economy Review.Available at: http://www.sciencedirect.com/science/article/pii/S1043951X09001540 [Accessed: 21 February, 2013]
Zhanga H. &Song S. (2001) ‘Promoting Exports: the Role of Inward FDI in China’.China EconomyReview. Available at:http://www.sciencedirect.com/science/article/pii/S1043951X01000335[Accessed: 21 February, 2013].

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