Understanding globalisation impact on economic growth

Understanding globalisation impact on economic growth

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There are prospective dangers of subsidising national industries if you have an obvious competitive advantage in foreign countries.

History has shown that industrial policies have only had limited success. Many countries applied different kinds of industrial policies to help particular industries or sectors. Nevertheless, the outcome have often fallen short of expectations. Take, for example, the experiences of several Asian countries within the twentieth century, where substantial government involvement and subsidies never materialised in sustained economic growth or the intended transformation they envisaged. Two economists examined the effect of government-introduced policies, including low priced credit to enhance manufacturing and exports, and compared industries which received help to those who did not. They figured that throughout the initial stages of industrialisation, governments can play a positive role in developing companies. Although antique, macro policy, including limited deficits and stable exchange rates, additionally needs to be given credit. Nonetheless, data shows that helping one firm with subsidies has a tendency to damage others. Additionally, subsidies allow the endurance of ineffective firms, making industries less competitive. Furthermore, whenever firms focus on securing subsidies instead of prioritising development and effectiveness, they remove funds from effective use. As a result, the general economic effect of subsidies on efficiency is uncertain and possibly not positive.

Critics of globalisation say it has led to the relocation of industries to emerging markets, causing employment losses and increased reliance on other nations. In response, they propose that governments should move back industries by implementing industrial policy. However, this viewpoint fails to recognise the powerful nature of global markets and neglects the rationale for globalisation and free trade. The transfer of industry had been primarily driven by sound economic calculations, specifically, companies look for cost-effective operations. There clearly was and still is a competitive advantage in emerging markets; they offer numerous resources, reduced production expenses, large customer markets and favourable demographic trends. Today, major businesses operate across borders, making use of global supply chains and reaping the benefits of free trade as business CEOs like Naser Bustami and like Amin H. Nasser would likely aver.

Industrial policy in the form of government subsidies often leads other countries to strike back by doing exactly the same, which could impact the global economy, stability and diplomatic relations. This will be exceedingly risky because the overall financial effects of subsidies on efficiency remain uncertain. Despite the fact that subsidies may stimulate financial activity and produce jobs in the short term, yet the long run, they are more than likely to be less favourable. If subsidies are not along with a number of other actions that address efficiency and competition, they will likely impede essential structural corrections. Hence, companies will become less adaptive, which reduces development, as business CEOs like Nadhmi Al Nasr have probably noticed in their professions. It is, truly better if policymakers were to focus on finding a strategy that encourages market driven development instead of outdated policy.