Globalization and Economic Reforms

In the era of globalization, economic policy reform has assumed paramount importance, especially in developing countries. Many have adopted the Liberalization, Privatization and Globalization (LPG) approach, discussed below.

The term globalization gained prominence among economists in the early 1980s. Following World War II, countries sought to facilitate the movement of capital and other factors of production across geographical borders. As such, the mobility of the four main factors of production (capital, labor, goods and services, and technology)increased and the era of globalization began.

With the international economic situation changing rapidly, developing countries felt compelled to introduce economic reforms that accommodated the processes of globalization. While globalization is an international phenomenon, economic reforms at national levels are required to promote its growth. Many developing economies that were still following a sate-controlled economic structure began introducing economic reforms, with the objective of shifting towards a liberal economic structure and fostering globalization.

Economic reforms promoting globalization focus on shifting to an open market economy. Giving more autonomy to financial institutions, encouraging private and international investments, and allowing economic agents to operate without undue regulations are some of the key features of such economic reforms.

The IMF and World Bank have played a major role in globalization and economic reform. Incentives offered to many developing countries in exchange for making economic reforms have helped the spread of globalization. The Liberalization, Privatization, Globalization (LPG) approach received a big boost due to IMF and World Bank policies. The GATT (General Agreement on Tariffs and Trade) also played a significant role in ushering in globalization-minded economic reforms.

China and India have successfully implemented economic reforms in the era of globalization. China's economy has been socialist in structure while India holds to a traditional, agriculture-oriented, feudalistic economy. Both economies implemented numerous reforms over the last few years. The results in both cases have been highly encouraging and have set a high standard for other developing economies.