Globalization and Economic Reforms

In the era of globalization, economic policy reforms have assumed paramount importance specially in developing economies. Many economies have adopted the Liberalization, Privatization and Globalization approach, commonly known as LPG approach. The term Globalization gained prominence among the economists since the early 1980s. Ever since the end of the Second World War, the need was felt to facilitate the movement of capital and other factors of production across geographical borders. It was to enable this, that the process of globalization was adopted. Globalization enabled the cross border economic movement of four key factors that are considered to be important for economic growth. These are -

Capital

Labor

Goods and Services

Technology. This helped to lower down production costs and increased market efficiencies and soon became a success with the open market economies that adopted globalization.

With the international economic situation changing rapidly, the need was felt by developing countries to introduce economic reforms to accommodate the process of globalization. While globalization is an international phenomenon, economic reforms at national levels was required to promote the growth of globalization and make it a truly global feature. This would also help to spread the benefits of globalization to the developing nations. Many developing economies that were till following a sate controlled economic structure, started introducing economic reforms with the objective of shifting towards a liberal economic structure that is necessary for fostering globalization.

Economic reforms with an eye to globalization and liberalization need to focus on shifting to an open market economy. The control on economy by the state needs to be slackened. Giving more autonomy to financial institutions, encouraging private and international investments, allowing economic agents to operate in an environment free from stringent regulations are some of the key features of such economic reforms.

The IMF and World Bank, the two apex financial bodies have played a major role in the area of globalization and economic reforms. The incentives to many third world countries for economic reforms have helped the spread of globalization. The Liberalization, Privatization, Globalization approach received a big boost due to the policies adopted by the IMF and World Bank. The GATT (General Agreement on Tariffs and Trade) played a significant role in ushering economic reforms with an eye on globalization.

China and India are two countries that have successfully implemented economic reforms in the era of globalization. These two countries had their own different approaches to the implementation of economic policy reforms. China's economy has been socialist in structure while India has been a traditionally agriculture oriented feudalistic economy. Both the economies implemented continuous reforms over the last few years with an eye to globalization. The results in both cases have been highly encouraging and have attained exemplary benchmarks for other developing economies.