GLOBALISATION AND ITS ECONOMIC COST  A perennial challenge facing all of the world's countries, regardless of their level of economic development, is achieving financial stability, economic growth, and higher living standards. There are many different paths that can be taken to achieve these objectives, and every country's path will be different given the distinctive nature of national economies and political systems. The ingredients contributing to China's high growth rate over the past two decades have, for example, been very different from those that have contributed to high growth in countries as varied as Malaysia and Malta.

Yet, based on experiences throughout the world, several basic principles seem to underpin greater prosperity. These include investment (particularly foreign direct investment), the spread of technology, strong institutions, sound macroeconomic policies, an educated workforce, and the existence of a market economy. Furthermore, a common denominator which appears to link nearly all high-growth countries together is their participation in, and integration with, the global economy.

There is substantial evidence, from countries of different sizes and different regions, that as countries "globalize" their citizens benefit, in the form of access to a wider variety of goods and services, lower prices, more and better-paying jobs, improved health, and higher overall living standards. It is probably no mere coincidence that over the past 20 years, as a number of countries have become more open to global economic forces, the percentage of the developing world living in extreme poverty—defined as living on less than $1 per day—has been cut in half.

As much as has been achieved in connection with globalization, there is much more to be done. Regional disparities persist: while poverty fell in East and South Asia, it actually rose in sub-Saharan Africa. The UN's Human Development Report notes there are still around 1 billion people surviving on less than $1 per day—with 2.6 billion living on less than $2 per day. Proponents of globalization argue that this is not because of too much globalization, but rather too little. And the biggest threat to continuing to raise living standards throughout the world is not that globalization will succeed but that it will fail. It is the people of developing economies who have the greatest need for globalization, as it provides them with the opportunities that come with being part of the world economy.

These opportunities are not without risks—such as those arising from volatile capital movements. The International Monetary Fund works to help economies manage or reduce these risks, through economic analysis and policy advice and through technical assistance in areas such as macroeconomic policy, financial sector sustainability, and the exchange-rate system.

The risks are not a reason to reverse direction, but for all concerned—in developing and advanced countries, among both investors and recipients—to embrace policy changes to build strong economies and a stronger world financial system that will produce more rapid growth and ensure that poverty is reduced.

The following is a brief overview to help guide anyone interested in gaining a better understanding of the many issues associated with globalization.

SUBMITTED BY

BINU KURIAN 

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