The question of whether integration into the global economy is beneficial for poorer countries is a highly contested and

controversial one. It is difficult to answer such a question with a linear response, rather, various interpretations can be found, depending on theoretical stance and elected real world examples.

Global economic integration refers to a number of processes in which national economies become more interdependent upon each other as national trade and capital movements are reduced. Such integration falls under the economic aspects of globalization and generally involves reductions in protectionist trade measures, greater foreign access to national markets and reductions in controls over national capital accounts. These processes are termed financial and trade liberalization.

Dependency theory and modernization theory are the dominant theories in regards to globalization and economic development. Dependency theory is generally anti-

globalization and anti-free trade. It is argued that such processes only intensify economic inequalities between rich and poor countries (Ghosh 2001: p159). In a clear connection with Marxist ideology, dependency theory also suggests that inequalities within countries are also exacerbated by globalization (Prebisch 1971). Poorer countries tend to export

primary goods, which are intrinsically destined to have higher fluctuations in price and a lower value ratio with manufactured goods (Ghosh 2001: p6). Poorer countries are in effect locked in to the prices and trade terms set by richer countries. It is worth noting that there is much internal debate amongst dependency theorists themselves. Singer and Prebisch posit that unfair trade relations are based on the inherently unequal characteristics of primary and manufactured goods (ibid). This is provided as the motive behind the steady decrease in relative GDP over the 20th century of various 3rd world nations, such as Argentina and Indonesia, in an environment of increasing global economic integration. In such a context, poorer countries are in the periphery of international economic relations, whilst rich nations, in the technologically advanced centre are provided primary materials and cheap labour on unfair trade conditions. Wallerstein and Frank furthered this idea with a stronger focus on power relations and the role of the U.S. as the World-systems hegemonic power. (Wallerstein pg 131 of dep theory book). Regardless of the different debates about the causes of dependency and its relationship with Marxist theory, dependency theory posits that rich countries obtain much of their wealth through the exploitation and domination of poorer countries, and that such exploitation is based primarily on unfair trade relations. Thus, poorer countries are underdeveloped, as their

development has been blocked or hampered as a result of foreign domination (Ghosh 2001 pp: 108).

In opposition to dependency is development or modernization theory. This theory emerged in the Cold War context of the 1950s, as a promotion of capitalism and free-market ideology in response to development theory and its socialistic tenets (Adjibolosoo & Senyo 1999: pp 10). In direct contrast to dependency, modernization theory posits that greater global integration is the only viable method for developing nations to achieve economic growth. It is believed that economic equality between rich and poor nations is acheivable in the current global economic context. Such theories find precedence in free-market ideology, and advocate a positive and guiding role for rich countries in the economic development of poor countries (Adjibolosoo & Senyo 1999: pp 20). IMF and World Bank policy is greatly influenced by this ideology (Clark 2003: pp 108). The core critique of this theory is that it applies a Western-based model to countries with completely different social, historical and economic contexts (Ghosh 2001 pp: 129).

The Indian Economy: Liberalization and growth. The Indian economy is often used as a real world example to advocate modernisation theory. After gaining independence in 1950, India undertook various socialist economic reforms. These included the introduction of protectionist and import substitution policies which were based on central planning and state intervention. The inference of such policies is that they were implemented in line with dependency theory ideology to evade the presumably exploitative nature of global economic integration (Clark 2003: pp11). The Indian economy was slow to develop under such policies and they were greatly criticised by free-market economists such as Milton Friedman, who pointed to the success and high growth rates of the more globalized Asian Tigers (Sing, 2002: p714). In 1991, the Indian economy was essentially forced to undertake a major re-structuring of its finance, trade and industry policies to avoid an international default (Clark 2003: pp 14). Although the Indian economy had slowly been moving away from the socialist/dependency theory policies throughout the 1980s, the 1991 economic liberalization is considered to be the defining moment in the new course of Indian economic history. (Rao & Dutt 2006: pp 141) The reforms progressed furthest in the areas of facilitating foreign investment, liberalizing trade and de-regulating and privatizing industry. The governments goals were set along neoliberal lines, with priority given to attaining the stability of the fiscal deficit, privatization of the public sector, and an increase in investment in infrastructure (ibid).

Trade liberalization did not cause an immediate increase in GDP growth rates, as it took time for the Indian Economy to recover from the near crash, however, substantial increases during the late 1990s and the 21st Century have resulted in Indias emergence as the 2nd fastest growing economy in the world (World Bank). The post-liberalization emergence

of India appears to constitute a success for modernist theory and policy. Other indicators, such as Foreign Direct Investment (FDI) and exports as a percentage of GDP have increased dramatically (Rao & Dutt 2006: pp 141). However, the Indian governments fiscal deficit has remained consistently high and its growing public debt is a cause for concern (World Bank). Despite this, such spectacular growth has led Goldman Sachs, one of the worlds largest investment banks, to predict that India will overtake the E.U. and Japan to become one of the top 3 world economies along with China and U.S (Purushothaman & Wilson 2003: pp 4 ).

Rao & Dutt point out that increases in GDP growth have not been matched by reductions in poverty levels or increased literacy rates (2006: pp 141). Also, dependency theorists would note, as a critique of liberalization that Indias income inequality has shown little sign of change if not increased (ibid). GOLDAR and AGGARWAL (2005, p361) demonstrate that despite the increase in productivity and profits, labors relative income share and real wage growth have fallen.

Goldar and Aggarwal posit that a significant proportion of the increase in productivity and profits is due to firms increased ability to extract value from labor as increased

liberalization and de-regulation has weakened unionization (2005, p360).

This value

represents the wealth extracted from labor in Indias new liberalized economic context, it is this capital that dependency theorists argue is siphoned off from emerging economies (Ghosh 2001: p 106). As can be seen, macroeconomic growth does not necessarily infer greater income or freedom for labor. From a dependency theorist perspective, domination patterns of capital over labor, whether international or internal, are in fact reinforced, as profits gained from liberalization are either extracted by foreign companies or consolidated amongst the dominant native class (Isenberg 2003: p 220). When these broader socioeconomic indicators are taken into account, it is difficult to draw such positive conclusions about the impact of global economic integration in India. Of course, such analysis depends on the way in which development is defined and measured.

The Asian Tigers and South Korea: From dependency to modernity

In the debate between modernization and development theorists, a greatly different example is provided by the four Asian Tigers, the economies of South Korea, Taiwan, Hong Kong and Singapore. Prior to the 1960s these countries ranked amongst the poorest and least developed in the world, with several sub-Saharan nations in fact ranking higher in economic development and GDP per capita (Mishkin, 2006: p 86). The subsequent success and emergence of these economies in the modern global context appears at first hand to be a victory for modernization theory which posits that increased integration leads to greater economic growth and development (Adjibolosoo & Senyo 1999 p 14). These countries now enjoy literacy rates, income equality and political and social freedoms similar if not

equal to those of the developed world (Mishkin 2006, p1). However, as modernization theorists and neo-liberal institutions such as the World Bank are often wont to admit, these nations established their industries in accordance dependency theory policies (Clark, 2001 p 63, Hamilton 2001, p306).

This paper shall focus on South Korea, which has had arguably the most varied and spectacular experience in the global economic environment. The economic expansion of Korea was instigated by the military dicatorship of Park Chung Hee. The government instituted a form of state capitalism in which the government played an active role in funding and directing economic development (You, 2006 p209). South Korea undertook protectionist measures and import substitution industry policies to ensure the growth of export oriented industries. The government also instituted various import restriction

policies targeted at reducing internal consumption and foreign competition (You, 2006 p208, Sing 2003, p15). South Koreas rapid growth is attributed to the governments successful intervention in the industrial development of the nation (Mishkin, 2006 p87). Such methods directly contrast with the free market ideology of development theorists. In fact, the Korean government was originally advised by the World Bank to specialise in rice and silk production, as it was in these commodities that South Korea had a comparative advantage (Hamilton, 2001: p306). It is hard to imagine that Koreas superb economic performance would have occurred if Koreas economy had remained concentrated in these commodities (ibid). It is also worth noting that although Korea currently enjoys democracy and well-protected civil liberties, much of its economic growth occurred during a period of political and social oppression (You 2006 p 211).

Rather than embracing free market/modernization practices from the onset, South Korea undertook selective economic openness and was indeed much more open to exports than imports (Singh, 2003: p19) Therefore, South Korean firms were protected from global competition until they were strong enough to compete in the international market (You, 2006 p213).

According to Clark, all rich countries today also used trade protection during the initial stages of their growth (2003, p63). Modernization and free market advocates are

ignorant of this key fact. Therefore, rather than being a case for the promotion of development theory, the example of South Korea provides a compelling argument in favour of controlled integration and strategic industry policy rather than full liberalization (Stiglitz, 2000 p1076).

Liberalization and the East Asian Economic Crisis

The example provided by Korea gives insight into the relationship between global economic integration and economic crises. Dependency theorists posit that the modernised global economy is inherently crises-prone and that crises are often perpetuated, worsened and spread as a result of increased integration (Ghosh, 2001 p130). There is much debate about the causes of the crises. Generally, internal conditions are considered to hold considerable responsibility in the cause/origins of the crisis rather than the nature of liberalization itself (Mishkin 2006 p100). However, there is also significant argument that

trade and (in particular) financial liberalization greatly attributed to the crisis depth and contagion (Sing, 2003 p24, Mishkin, 2006 p176). As a victory for dependency theory, nations such as Singapore, Taiwan and Hong Kong, which limited their global economic integration with higher capital controls, particularly on short term capital, were less affected by the crisis (Epstein, Grabel & Jomo, 2005 p 304, Mishkin, 2006 p212).

The contrasting experiences of India and South Korea provide much content for debate and disagreement between dependency and modernization theorists. As is often the case with economics, different conclusions are drawn from different methods of measuring economic progress. One of the most essential difficulties in the application and dissertation of such economic theories is that all countries experience greatly varying historical, social, geographical conditions which affect development independently of economic policy (Clark, 2003: p10). This is not to undermine the importance of theoretical application in policy making, rather, it highlights the importance of internal considerations whilst comparing real world examples and their economic relationship with the world.

Despite the aforementioned difficulties of drawing concrete conclusions about the appropriateness/legitimacy of different economic theories, some inferences can be drawn from this study. This papers key assertion is that there is no clear correlation between open trade policies and economic growth or poverty reduction (Clark, 2003 p63, Mishkin, 2006 p48). It also questions the measurement of development through purely

macroeconomic indicators. Economic growth can often be confined to particular segments

of the population and does not necessarily incur greater political and socioeconomic freedoms.

The debate about wether international economic integration is good for poorer countries continues. The contradictory nature of real world examples, which often have greatly variant economic, political and geographic contexts, means that debate will most likely never cease. From the examples provided, it is clear that the implementation and results of liberalization and protectionist policies vary greatly. Although further study is required, this paper would tentatively promote that the examples provided strengthen Stieglitzs notion that selective economic openness may be a superior strategy than either free-trade or openness (2000, p1085). However, the nature of such selective economic openness and its political viability, particularly on an international level, is questionable.

Integration itself is neither inherently beneficial nor harmful for poorer nations. Both modernization and dependency theory find contradictions and exceptions in their applications. Poorer countries are more dependent on trade than rich ones (Clark). With this in account the possibility of shutting oneself off from the international market is not plausible. On this note, this paper proposes that this essay question be developed into, how can global economic integration be made to be more beneficial for poorer countries.