Costs and Benefits of Financial Globalization for Developing Countries

In recent years, there has been a rise in the amount of capital that has been flowing into developing countries. Foreign companies investing in developing countries are significant in development (Ayhan Kose, Eswar Prasad, Kenneth Rogoff, and Shang-Jin Wei 2006: 15-19)

The developing countries are normally faced with problems of population explosion and insufficient resources to support the high populations. This creates the need for foreign capital to be introduced into the economy in order to take care of the deficit. Developing nations are also faced with a lack of skills and the appropriate technology to extract natural resources to boost the economy. Foreign investors are needed in order to bring the desired skills and technology. This indicates that there are several benefits that developing countries derive from financial globalization. However, there are disadvantages that are associated with this globalization. Developing countries tend to allow foreign investors after a comprehensive assessment of the costs and benefits of financial globalization to the economy.

When multinational organizations invest in developing countries, they promote economic development. They tend to introduce competition in the existing market system, compelling the domestic industry to become more effective in production in order to be competitive in the market. They help in the alleviation of monopolies within an economy, which may not be effective enough to satisfy the local demand. With this competition, industries tend to be innovative in order to keep their products ahead of the other competitors, which eventually leads to the production of high-quality goods in the developing economy.

Multinational companies bring in to market’s best practices in the developing economy. This comes in the form of technology transfer, due to the fact that they tend to be innovative and&nbsp.possess high levels of experience in various developed and developing economies where they have invested in the past.&nbsp.