Globilisation, Trade and Financal Liberisation: Implication for the ...

International Conference on Applied Economics – ICOAE 2009 827 

Globilisation, Trade and Financal Liberisation: Implication for the 

Developing Countries 

Uwazie, I.U 453 and Ihugba, A. O 454 

ABSTRACT 

Developing countries are now getting increasingly globalized; according to this declaration, will lead to an improvement in 

international trade and with financial liberalization benefit developing nations. it can be properly understood only in contrast 

with the pattern of development that most developing countries were following in the ‗60s and ‗70s, and also by and large in the 

‗80s. Indeed, it is not implausible to argue that most developing countries remained underdeveloped because of their 

disadvantageous participation in the global economy. The paper, therefore recommends that extreme care must be taken and 

caution exercised in not only examining the long and short-term implications but in also applying them. Resources at the 

disposal of developing nations should first be used to the benefit of their people before globalizing it. 

JEL Codes: F330 

INTRODUCTION 

From the Mercantilist period till about the end of the 19th century, the world has engaged in 

international trade. This is trade between the nations of the world. It was Ricardo (1817) who propounded the 

theories of comparative advantage and comparative cost (Ezeanyika and Oruebor, 2001:18). The school of thought 

in international economic relations was given more dynamism by the contribution of David Ricardo when he 

published the Principles of Political Economy and Taxation in 1817. 

By these theories emphasis is placed on the advantages that nations derive in specializing in the 

production of particular commodities while leaving the rest to other countries to produce. For the two countries to 

benefit, Ricardo postulated the exchange of commodities. Many countries including the developing nations of the 

world for decades have been satisfied with this arrangement. But recently, especially after the discovering of 

modern system of communication and the development or international financial organizations, the developed 

nations have shifted from the Ricardorian system of international specialization and exchange to the world 

becoming one global world and the resources of the world flowing to any part of the world in which they are much 

needed. It is this thinking that gave rise to what is generally known today as ―Globalization‖. What then is 

globalization? Does financial globalization promote economic growth in developing countries? Is there any 

justification for globalization, international trade and financial liberalization? 

THEORETICAL FRAMEWORK 

Since international trade developed earlier than financial liberalization and globalization, it is important 

to first examine the full meaning of international trade before examining financial liberalization and 

globalization.International trade is concerned with the economic transactions between countries (Ojo, 1982:183). 

Hence one can understand from the above that international trade is trade between two or more nations of the 

world who engage in international specialization as a result of comparative cost advantage and later exchange 

goods in which they have less comparative advantage. Also according to Canircross (1960:543), trade between 

countries is distinguished from trade between the nationals of two countries. With respects to trade between 

nations it is the exchange of goods and services between two (bi-lateral) or more nations (multi-lateral). 

Furthermore, international trade is the movement of goods between countries; hence it is trade that cuts 

across national boundaries. To trade between nationals of two countries, it hit is the movement of goods and 

services (on a private arrangement) between two or more individuals of two or more countries. The governments 

of those countries that undertake trade between two or more other countries engage in ―International trade‖. With 

this, we are aware and have equally agreed that international trade is a trade between two or more nations of the 

world. 

Another important dimension that will enable us to appreciate the justification for globalization is the 

issue of tariffs in international trade and why the western nations want to see its demise. In the process of 

453 Uwazie, I.U. Department of Economics, Alvan Ikoku Federal College of Education Owerri, Nigeria 

454 Ihugba, A. O Department of Economics, Alvan Ikoku Federal College of Education Owerri, Nigeria email: 

ihugbablack@yahoo.com

828 International Conference on Applied Ecomonics – ICOAE 2009 

producing these goods and services, costs are incurred. To import and export these goods, many countries charge 

tariffs. Also developing countries use tariffs as a means of protecting their economy from the importation of all 

sorts of commodities. it also enables them to protect their infant industries that cannot compete with their 

counterparts in advanced countries. With the above arrangement, western nations started with the idea of 

international financial liberalization. Before liberalization came into being international financial institutions, 

which as we know are agents of developed nations, started with Structural Adjustment Programme to help to 

revamp the economy of developing nations. One of the tenets of the Structural Adjustment Programme was the 

issue of de-regulation with its attendant privatization and commercialization. 

According to western experts, this will enable capital to flow into the economies of developing nations 

and hence, the growth of their economy. To this end, they called for the dismantling of all artificial barriers to 

trade so that international finance could flow to help the 

infant industries to grow. That was what gave rise to international financial liberalization. Ezeanyika and 

Oruebor (2001:150) described international financial liberalization as one of the major aspects of globalization – 

the process of financial liberalization has been the most articulated. They therefore saw international financial 

liberation as the process of making finance available to any part of the world that it is needed. What therefore can 

be appreciated from the above is that international financial liberalization is one of those promises made to the 

developing and underdeveloped nations to enable them remove tariffs so hat foreign goods can be flooded into 

their countries thereby stifling their nascent industries. 

Also, it is important for us to appreciate the meaning of globalization, as this will finally enable us to 

justify or not justify the concept of globalization and what it portends for developing nations. 

Globalization or (globalisation) in its literal sense is the process of making, transformation of some 

things or phenomena into global ones. It can be described as a process by which the people of the world are 

unified into a single society and function together. This process is a combination of economic, technological, 

sociocultural and political forces Croucher (2004). 

According to Ezeanyika and Oruebor (2001:140) the concept of globalization refers to ―an increasing 

flow of goods and resources across national boundaries, and the emergence of a complementary set of 

organizational structures to manage the expanding network of international economic activity and transaction‖. 

Put differently, they also stated that it is a global economy in which corporations and financial institutions operate 

transnational i.e. beyond the confines of national boundaries. 

Also, Heald et.al (1999) sees globalization as a process of ―global transformers‖. It could, therefore be 

referred to as the historical epochs or to the various domains of activity affected and influenced by 

transformations, or to both (see Ezeanyika et al op cit p.142). 

According to Oniemola (2000:19) ―Globalization is nothing but the opening up of our economy for 

investment by the developed countries and deregulation in such a way that there should be no barriers or control of 

the economy in such a way as they may wish and repatriate their profits as they wish. He therefore concluded that 

this is causing a high level of poverty in the land and should not be swallowed just like that. He then cautioned 

developing nations to be weary about anything that comes out of the western nations. 

IMPLICATIONS OF GLOBALIZATION, INTERNATIONALTRADE, AND INTERNATIONAL 

FINANCIAL LIBERALIZATION 

At this point, one might simply ask, ―can anything good in terms of international business relationship, 

ever come out from the developed nations? Have the developing nations ever benefited from any kind of trade 

policy packaged by the developed nations? What then are the implications of developing countries embracing 

globalization and its twin evil, financial liberalization? Because the main export of poorer countries are usually 

agricultural goods. It is difficult for these countries to compete with stronger countries that subsidize their own 

farmers. Because the farmers in the poorer countries cannot compete, they are forced to sell their crops at much 

lower price than what the market is paying 

Before giving the answer to these questions, one has to define the services that can be traded 

internationally. According to Lehmann, Tamirisa, and Wieczorek (2003:4) They include a variety of highly 

heterogeneous economic activities which can be classified into distributive services (wholesale and retail, 

transportation and communications), producer services (advisory, legal services, banking and finance), social 

services (health and education), and personal services (hotels and catering). Services are often intermediate inputs, 

and thus play a key role in the efficiency of the manufacturing sector and the economy as a whole. Public 

regulation is more pervasive than in other sectors, and motivated by asymmetric information between providers 

and consumers, competition policy, and other policy objectives, such as universal service requirements in a 

number of social services. 

Globalization portends danger for the developing countries. A situation in which the developing 

countries could be asked to open up their borders for the importation of any kind or product implies that all infant 

industries in those countries will close-down. Not only this, the level of unemployment will become so high that 

crime rate will hit the roof tops.


As a result of the above, the western countries that are clamoring for the total and complete removal of 

any kind of trade restriction are not fair to the developing countries because it breeds exploitation of the people in 

those nations to become cheap labor. Due to the lack of protections, companies from powerful industrialized 

nations are able to offer workers enough salary to entice them to endure extremely long hours and unsafe working 

conditions. The abundance of cheap labor is giving the countries in power incentive not to rectify the inequality 

between nations. If these nations developed into industrialized nations, the army of cheap labor would slowly 

disappear alongside development. With the world in this current state, it is impossible for the exploited workers to 

escape poverty. It is true that the workers are free to leave their jobs, but in many poorer countries, this would 

mean starvation for the worker, and possible even his/her family Chossudovsky (2003). There is therefore no 

justification for the adoption of globalization and international financial liberalization. 

What the developed nations should do is to encourage the developing nations to develop their industrial 

base and open up their own markets for products manufactured in less developed countries. To this extent 

therefore, globalization implies economic disaster for developing nations and hence, there is no basis for its 

justification. The implication of globalization and the so-called financial developing nations‖ and Arigbede 

(2000:19) reviews it this way, ―do away with liberalization and globalization and poverty will be eradicated‖. 

In his own contribution, Nwosu (2000:386) stated that, ―the central problem with this accelerated 

globalization and//or liberalization process is the shocking degree of inequality and economic and cultural 

domination which it unleashes worldwide‖. That what we actually require is nothing but harnessing our God-given 

resources for the betterment of the lives of our people. 

GLOBALIZATION AND FINANCIAL LIBERALIZATION: ANY RELATIONSHIP? 

Many writers on international trade especially of recent, can readily tell you that there is a high and 

positive correlation and/or relationship between international trade, liberalization (be it financial or whatever) and 

the present drive to make the world to become the so-called ―global village‖. Writing on the evolution of 

globalization, Ezeanyika and Oruebor (2001:142) exposed the link between the General Agreement on Trade and 

Tariffs (GATT), the World Trade Organization (WTO), Structural Adjustment Programme (SAP) and the present 

globalization. All are the same fingers of a leprous hand. No wonder Rist (1979) and Sharp (1979) stated that, 

―despite the numerous efforts, made in order to develop‖ the poorest regions of the world, the majority of the 

people who are living in it tend to the world, the majority of the people who are living in it tend to become still 

poorer in relative and in absolute terms‖. What we are made to understand here is that despite the introduction of 

so many policies and programmes by the so-called international community, purportedly designed to help the 

poore4r countries to grow, they have even become poorer by all standards. Hence globalization that is presently 

being bandied about, financial liberalization and even international trade, are the same designed and used in 

underdevelopment of third world countries. Hence all are related both in content and in purpose. 

Apart form the above fact, which has exposed the treacherous act of western nations, we have also 

observed that when the so-called Structural Adjustment Programme was introduced in the 1980‘s, it was greeted 

by much fanfare by the western economists as a means of getting to the Promised Land. Yet, nothing came out of 

it. The same was applicable to privatization, commercialization, liberalization, etc. the same thing will be 

applicable to globalization. This is because all are designed with the purpose of keeping developing nations worse 

than they were before. Hence, we can conclude that all are the same thing. 

MEASURING GLOBALIZATION 

Globalization can be measured around the four main economic flows that characterize globalization: 

Goods and services, e.g. exports plus imports as a proportion of national income or per capita of population 

Labor/people, e.g. net migration rates; inward or outward migration flows, weighted by population; Capital, e.g. 

inward or outward direct investment as a proportion of national income or per head of population; Technology, 

e.g. international research & development flows; proportion of populations (and rates of change thereof) using 

particular inventions (especially 'factor-neutral' technological advances such as the telephone, motorcar, 

broadband).


Table 1: Foreign Direct Investment (FDI) Overview, Selected Years 

FDI Flows 1990-2000 2003 2004 2005 2006 

Nigeria 

Inward 

Outward 

Germany 

Inward 

Outward 

China 

Inward 

Outward 

United Kingdom 

Inward 

Outward 

France 

Inward 

Outward 

Singapore 

Inward 

Outward 

United states 

Inward 

Outward 

Japan 

Inward 

Outward 

1477 

302 

29354 

44323 

30104 

2195 

40321 

73378 

22611 

47659 

9204 

4757 

109513 

92010 

3149 

25409 

2171 

167 

32369 

5822 

53505 

2855 

16778 

62187 

42498 

53147 

11664 

2695 

53146 

129352 

6324 

28800 

Kenya 

Inward 

29 

82 

Outward 

3 

2 

Source: UNCTAD, World Investment Report 2007 

2127 

261 

-9195 

14828 

60630 

5498 

55963 

91019 

32560 

56735 

19828 

8074 

135826 

257967 

7816 

30951 

46 

4 

3403 

200 

35867 

55515 

72406 

12261 

193693 

83708 

81083 

120971 

15004 

5034 

101025 

-27736 

2775 

45781 

21 

10 

5445 

228 

42870 

79427 

69468 

16130 

139543 

79457 

81076 

115037 

24207 

8626 

175394 

216614 

-6506 

50266 

According to the United Nations, Foreign direct investment (FDI) in its classic definition is defined as a 

company from one country making a physical investment into building a factory in another country. Its definition 

can be extended to include investments made to acquire lasting interest in enterprises operating outside of the 

economy of the investor. Inward foreign direct investment is a particular form of inward investment when foreign 

capital is invested in local resources while outward foreign direct investment, sometimes called "direct investment 

abroad", is when local capital is invested in foreign resources. 

This type of investment plays an extraordinary and growing role in global business, in the other hand 

investment is a function of capital. According to table 1, Kenya and Nigeria are the least globalized, when it 

comes to outward foreign direct investment among countries listed while United States is the highest in terms of 

inward foreign direct investment. This goes a long way to buttress our stand on globalization that unrestricted free 

trade benefits those with more financial leverage (i.e. the rich) at the expense of the poor. Majority of the inward 

foreign direct investment into US and UK are from industrialized nations, who have enough legitimate capital to 

invest outside their country not from African countries where monies sent abroad are ill gotten and hidden in 

foreign banks. 

51 

24


Table 2: Cross-Border Merger and Acquisition Overview, 1990-2006 

Sales Purchases 

1990-2000 2004 2005 2006 1990- 

2000 

2004 2005 2006 

Nigeria - 10 43 28383 2 - - 21 

United 

states 

36118 81939 105560 172174 27256 110022 147551 171288 

Europe 56362 185809 445126 451288 66085 176095 413405 483637 

Africa 651 4595 10509 17569 1266 2718 15505 11208 

Asia and 4757 24820 59450 72240 5531 20604 53601 79789 

Oceania 

World 117889 380598 716302 880457 117889 380598 716302 880457 

Source: UNCTAD, World Investment Report 2007 

Table 2 also shows the level of globalization in terms of cross- boarder merger and acquisition. In 2006 

Nigeria recorded only 21 cross- border mergers and acquisition while US recorded 171288, a difference of 

171267. in 2006, Africa contributed only 1.3% of the world cross-boarder merger and acquisition while United 

States alone contributed 19.5%, which is more than the whole of Africa. See table 2. 

ANY JUSTIFICATION FOR GLOBALIZATION? 

Admired and academic literature has sufficiently addressed the scope and complexity of globalization, 

its assumptions, goals, strictures, and processes. Issues associated with human rights, labor conditions and 

compensation, environmental protection, national sovereignty, poverty, investment patterns and productivity are 

among the many concerns embedded in the broad theme of globalization. Analysts from a number of disciplines 

and political persuasions approach globalization from a variety of perspectives Garofalo (2002). Often they see 

globalization as either the inevitable next step in human progress or the evil free-trade juggernaut that threatens 

the future of most of humanity. What they tend to omit from these discussions, however, is an explicit concern for 

the underlying moral basis and justification for globalization and the particular role of public administrators across 

the planet. 

To the best of our knowledge and based on the facts so far made available in this paper, there is no 

justification for globalization and for international financial liberalization, if anything is to go by the antecedents 

of the western nations, i.e. unfavourable economic policies designed to further impoverish developing nations. 

One of the reasons why there is no justification is this; why did the western nations not consult the third 

world countries before coming out with the idea and the so-called ideals of globalization? If they did really mean 

well for the developing nations, why did they not consult them for a policy that would eventually affect them? 

Apart from that, why are the developed nations trying to force down this policy on the throats of the developing 

nations. Many developing countries (that have smelt the rat), have been threatened with sanctions or withdrawal of 

development aid. If the developed nations were sincere, then there would have been worldwide consultations 

mainly on non-consultation and the incessant threats by the developed countries, globalization and its financial 

liberalization is hereby rejected and hence, there is no justification for it. 

EFFECTS OF GLOBALIZATION 

Globalization has various aspects which affect the world in several different ways such as Industrial, 

Financial, Economic, Political, Informational, Cultural, Ecological, Social, Transportation, Technical etc. our 

interest is the effect on developing nations such as Nigeria. 

Financial globalization, in combination with good macroeconomic policies and good domestic 

governance, appears to be conducive to growth. For example, countries with good human capital and governance 

tend to do better at attracting foreign direct investment (FDI), which is especially conducive to growth. More 

specifically, research by IMF (2003) shows that corruption has a strong negative effect on FDI inflows. Similarly, 

transparency of government operations, which is another dimension of good governance, has a strong positive 

effect on investment inflows from international mutual funds. Emergence of worldwide production markets and 

broader access to a range of foreign products for consumers and companies. Particularly movement of material 

and goods between and within transnational corporations, and access to goods by wealthier nations and individuals 

at the expense of poorer nations and individuals who supply the labour. 

Globalization enables world governments to regulate the relationships among nations and guarantees the 

rights arising from social and economic responsibilities. Politically, the United States has enjoyed a position of 

power among the world powers; in part because of its strong and wealthy economy. With the influence of 

Globalization and with the help of The United States‘ own economy, China and Japan has experienced some


tremendous growth within the past decade. See table 1. According to Hurst (6th edition) If China continues to 

grow at the rate projected by the trends, then it is very likely that in the next twenty years, there will be a major 

reallocation of power among the world leaders. China will have enough wealth, industry, and technology to rival 

the United States for the position of leading world power. Globalization has brought about an increase in the 

consumption of foreign products (e.g. food) and ideas by the developing countries, advent of new categories of 

consciousness and identities which embodies cultural diffusion, and, adopts new technology and practices, and 

participates in a "world culture"; loss of languages (and corresponding loss of ideas). 

Ecologically, globalization and free trade interplay to increase pollution and accelerate it in the name of 

an ever expanding capitalist growth economy in a non-expanding world. The detriment is again to the poorer 

nations while the benefit is allocated to the wealthier nations. Globalization has brought about an increase in the 

use of foreign assembled cars in Nigeria, increase in circulation by people from the developing countries to 

developed countries to work as slaves and fewer restrictions on those from the developed countries to the 

developing countries, Provided that the people of those nations are wealthy enough to afford international travel. 

Finally, globalization has increased concentration of wealth in fewer and fewer hands. Media and other 

multinational mergers leading to fewer corporations controlling vaster segments of society and production. The 

decrease in the middle class and the increase in poverty observed within Globalized and deregulated nations. 

THE WAY FORWARD/RECOMMENDATIONS 

It was Nwosu (2000) who stated emphatically that there is only one way forward for third world and 

developing nations of the world, research and development, harnessing their God given natural resources for the 

good of their people and finally a good government. 

With this in mind, developing countries have been called upon to rally together and stop the idea of the 

advanced nations imposing any kind of policy on them without due consultation. The G77 made up of developing 

nation should pull resources together and help one another in the areas of industrial development. Anything shot of 

cooperation, sincerity of purpose, honesty and dedication to genuine development of their economies by 

developing countries will always see the advanced nations imposing policies and programmes that will only 

benefit them. 

This paper is therefore of the view that there is no justification for globalization at this time in the 

development of the developing nations. If the western world is desirous of making the world one global economy, 

this paper is recommending that they should wait until we are industrially advanced as they are. 

CONCLUSION 

What really encourages globalization is a combination of good Macroeconomic policies and good 

domestic governance, For example, countries with good human capital and governance tend to do better at 

attracting foreign direct investment (FDI), which is especially conducive to growth and seriously lacking in most 

developing countries. 

Having critically analyzed this issue, which is about the justification of globalization, we are concluding 

that applying globalization without taking into consideration the economic background of developing nations will 

only ruin their already battered economy and therefore, there is no justification for the (whole) nations of the 

world becoming one global village (in terms of international trade). That the basis of becoming one global village 

is one-sided and therefore there is no justification whatsoever for it. We strongly argue that globalization has 

brought about conflicts between the developing nations and the developed nations, so it should not be shoved 

aside as another bureaucratic policy forced upon us by the western world. When values conflict, it should be 

honestly discussed by all stake holders so that it can provide citizens the knowledge and information needed to 

make intelligent judgments about the process of globalization. 

REFERENCES 

Alexander Lehmann, Natalia T. Tamirisa, and Jaroslaw Wieczorek1, (Dec 2003); IMF Policy Discussion Paper 

Policy Development and Review Department International Trade in Services: Implications for the IMF 

Arigbede, S. (2000) ―… Do Away with it and Poverty will be Eradicated‖ Lagos, The Post Express, Wednesday, 

July 12. 

Canicross, A. (1960) Introduction to Economics (3rd edition), Londong, Butter worth & Co (publishers) Ltd. 

Charles Garofalo (2002) Globalization, Moral Justification, And The PublicService;Department of Public 

Administration Southwest Texas State University Public Administration & Management: An Interactive Journal 

7, 1, 56-70 

Chossudovsky, Michel.(2003) The globalization of poverty and the new world order. Edition 2nd ed. Imprint 

Shanty Bay, Ont.: Global Outlook.


Ezeanyika, E.S. & Oruebor, A.A. (2001) International economic Relations in a globalizing world, Owerri Desrele 

Publishers. 

Heald, D; McGrew, A.J; Goldblatt, D & Perraton, J. (1999)b Global Cambridge and Oxford, Polity Press. 

Nwosu, E.J (2000): The Challenge of Poverty in Africa, Owerri, treasure Books, skill Mark Media Ltd. 

Ojo, O. (1982), Advanced Level Economics Textbook for W/Africa. Ile Ife, Oniboneje Press & Books Ind. (Nig.) 

Ltd. 

Oniemola, D. (2000) ―Globalization & Trade liberalization is a Trap‖ Lagos, the Post Express, Wednesday, July 

12. 

Rist, G. (1979): ―Alternative Strategies to Development, goals Processes and Indicators of Development‖ U.N. 

University general Mimeo. 

Sharp, R. (1971): ―Towards A. New Model of Development‖ In Popull, Vol. 6, No.2. 

Sheila L. Croucher (2004). Globalization and Belonging: The Politics of Identity a Changing World. Rowman & 

Littlefield. p.10 http://www.worldfederalistmanifesto.com

834 International Conference on Applied Ecomonics – ICOAE 2009

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