In the article, the authors measure investment protection and the effects of globalization on investor protection. The authors confirm that Foreign direct investment (FDI) is responsible for a large portion of global growth, and since the 1970s, there has been an increase in FDI (Lartey, 2020). Some believe that from that period on, there has been more free movement of capital and goods around the globe, increasing economic integration. Others may say it has increased instability due to financial crises in countries with poor regulation or weak institutions. In contrast, other countries have become more accepting of financial markets, which provide more stability in times of crisis. According to Lartey (2020), there is cause for concern as the effects of a globalized world are reaching new heights. To accurately measure the effects, the authors use data from 29 countries from 1970-2004 and conclude that FDI was negatively correlated with investor protection for all countries regardless of whether or not they had substantial regulation (Lartey, 2020). The only exception was among the Organization for Economic Co-operation and Development (OECD) countries. Globalization has negatively impacted investor protection, especially in countries where both investment and regulation are weak.
This article can be applied to a topic in chapter one, especially the sub-topic of the globalization debate that globalization is inevitable. It can be seen more clearly when authors assert that global supply chains have become a reality, which has shifted most manufacturing operations away from cheap labor markets to high-cost developing countries (Hill & Hult, 1994). For instance, the United States may have a comparative advantage in industries with higher-value-added products and services. However, globalization means the United States can no longer remain competitive in low-skill labor-intensive industries. The extreme variation in wages across countries will force firms and workers to specialize, which means that developed and developing countries will be forced to specialize in different industries (Hoekman & Nelson, 2018). China, for example, has been one of the most successful developing countries as it has been growing rapidly with the advantages of economic globalization.
In addition, in this chapter, there is a theme of globalization debate wherein globalization should not be downplayed. According to Hill and Hult (1994), if an economy is open enough, it will attract investments worldwide. Through the internationalization process, a country has its natural resources monopolized, which can be advantageous since it helps diversify the economy (Hoekman & Nelson, 2018). For instance, oil and gas are becoming more expensive in developing countries, as it is heavily dependent on the price of oil. These countries may also have lower labor costs because wages are cheaper, and they have no safety nets or social benefits that states provide in the U.S. economy. However, a consequence of this is the increasing specialization and trade-off between capital and labor, resulting in a loss of jobs (Hoekman & Nelson, 2018). It means that only a few people can compete with the world market for capital goods from developed economies (Hill & Hult, 1994). Through economic globalization, which has increased since World War II, developed countries have also seen their dominance challenged by emerging markets.
In conclusion, globalization has the potential to bring on development and opportunities for the people of developing countries. It can help promote sustainable development and improve conditions for the people of developing countries who have been disadvantaged for years. Globalization has become more prominent in business practices. Globalization is part of a long-term process of increased economic integration that began in the eighteenth century and continued through the mid-twentieth century.
Hill, C. W., & Hult, C. T. (1994). International Business: Competing in the International Marketplace. Irwin, Burr Ridge, IL.
Hoekman, B., & Nelson, D. R. (2018). Reflecting on populism and the economics of globalization. Journal of International Business Policy, 1(1), 34-43.
Lartey, T. A. (2020). Globalization, free markets, and investor protection.