PB458 Assignment 5 Final jiro

PG – 458 Globalization Dependency and Development DEPARTMENT OF BUSINESS STUDIES John Starling Iro Due Date: 20th may 2015

Table of Contents

1. Introduction……………………………………………………………………………………………………………………2

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1.1 Definition………………………………………………………………………………………………………………..3 1.2 Development Theory………………………………………………………………………………………………3 1.3 Modernization Theory…………………………………………………………………………………………….4 1.4 Significant characteristics of developing countries………………………………………………….4 1.5 Development and dependency……………………………………………………………………………….5 Papua New Guinea and its resources………………………………………………………………………………5 2.1 Who are dependent on this resources…………………………………………………………………….5 2.2 PNG Development partners…………………………………………………………………………………….6 Does dependency help development………………………………………………………………………………7 Conclusion………………………………………………………………………………………………………………………8 References………………………………………………………………………………………………………………………9

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1. Introduction Dependency Theory developed in the late 1950s under the guidance of the Director of the United Nations Economic Commission for Latin America, Raul Prebisch. Prebisch and his colleagues were troubled by the fact that economic growth in the advanced industrialized countries did not necessarily lead to growth in the poorer countries. Indeed, their studies suggested that economic activity in the richer countries often led to serious economic problems in the poorer countries. Such a possibility was not predicted by neoclassical theory, which had assumed that economic growth was beneficial to all (Pareto optimal) even if the benefits were not always equally shared. (Ferrano, 1996) Prebisch's initial explanation for the phenomenon was very straightforward: poor countries exported primary commodities to the rich countries who then manufactured products out of those commodities and sold them back to the poorer countries. The "Value Added" by manufacturing a usable product always cost more than the primary products used to create those products. Therefore, poorer countries would never be earning enough from their export earnings to pay for their imports. (Ferrano, 1996) Prebisch's solution was similarly straightforward: poorer countries should embark on programs of import substitution so that they need not purchase the manufactured products from the richer countries. The poorer countries would still sell their primary products on the world market, but their foreign exchange reserves would not be used to purchase their manufactures from abroad. In this assignment I will be basing most of my approached in regards to Prebish’s theory of dependency.

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1.1. Definitions Dependency is define as a situation in which the economy of certain countries is conditioned by the development and expansion of another economy to which the former is subjected. The interdependence relation between two or more countries or economies and the world trade seems to form a dependency attitude. The developed countries can expand and self-sustaining. While on the other hand the dependent countries can only be affected as a result of that expansion. It could be a negative or positive impact on their urgent development desire. (Ferrano, 1996) Development can be defined as the systematic use of scientific and technical knowledge to meet specific objectives or requirements. The process of social and economic transformation that is based on complex cultural and environmental factors and their interactions. 1.2.

Development Theory

Globalization and regionalization are overtaking the standard unit of development, the nation. International institutions and market forces overtake the role of the state, the conventional agent of development. The classic aim of development, modernization or catching up with advanced countries, is in question because modernization is no longer an obvious ambition. Everything that development used to represent appears to be in question, in crisis. (Ferrano, 1996)Thus health care and education have improved even in the poorest countries and in countries where growth has been stagnant. Another reaction is to acknowledge crisis and to argue that crisis is intrinsic to development, that development knowledge is crisis knowledge. From its nineteenth-century beginnings, development thinking was a reaction to the crises of progress, such as the social interruptions caused by industrialization. Hence questioning, rethinking and crisis are part of development and not external to it. Therefore it is proper to view 3

development thinking as an ongoing process, of evolving of economic activities. (Ferrano, 1996)

1.3.

Modernization Theory

A country must be seen as modern, modernization theorists say it has to undergo an evolutionary advancement in science and technology which in turn would lead to an increased standard of living for all. Modernization theorists aimed to: Explain why poorer countries failed to evolve into modern societies. Reduce the spread of communism by presenting capitalist values as the solution to poverty. (Ferrano, 1996) Developing nations’ are very much dependency on the west: This is because they have what the developing nations are lacking such large factories, finance, mass media and expertise in different fields of development and have great influence in international organizations. 1.4.

Significant characteristic of developing countries

The structural diversity of developing economies can be analyzed with the following components. The Size or land mass of the countries. Most developing countries have a small land mass compared to large developed nation although size is an important factor of consideration it’s not so significant in the measure of developed and underdeveloped economies. Geography and population plays a key role in the significant characterizing of development nations or economies. This is basically because population plays an essential role in the development activities on an economy and it has a significant relation to the physical geography of a country. Historical and colonial background Endowments of physical and human resources, as well as ethnic and religious composition and relative importance of public and private sectors (Hualupmony, 2010)

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1.5.

Development & Dependency

If a resource-dependent economy is defined as one in which extractive industry contributes more than 50 percent of export earnings and more than 15 percent of GDP, then PNG has had a resource dependent economy for most of the period since 1975 and all of the period since 1985. Even at the time of Independence, when the Panguna copper mine was the only large-scale mining operation in the country, mineral exports accounted for 60 percent of the value of all PNG’s exports. (Economin Report( PNG), 2006) Since 1984, when the Ok Tedi mine came into operation, the proportion has rarely fallen below 60 percent, even after the Panguna mine was forcibly closed in 1989 Australian aid to PNG is the second largest assistance to PNG which directed to priority areas. The priority areas are health, education, law and justice, transport, infrastructure and gender equity. (Economin Report( PNG), 2006) In line with the Australian aid policy priorities, Australians will strengthen its focus on private sector led growth. (Costello, 2012) 2. Papua New Guinea and its resources 2.1. Who are dependent on these resources Papua New Guinea (PNG) is as an example of a developing country of moderate size with a significant resource boom, but very poor human development indicators. Throughout its history as an independent nation, it has been heavily dependent on the resource sector for both export earnings and government revenues. (Costello, 2012) Australia Export into PNG is huge in terms of Engineering equipment and parts, frozen meat and electrical goods, building material, medical equipment, and many other products and services. Further to that PNG 5

also offer human capital, through different knowledge expertise in aviation, mining and other essential areas of development. Australia imports from PNG gold, crude oil petroleum and other minerals. Agricultural products like cocoa, tea and coffee. Australia investment in PNG Approx.: A$20 billion. Resources have traditionally been the focus for these investments. Examples Australian companies in mining and gas includes oil search Ltd & Highlands Pacific. This indicates that many countries besides PNG are also dependent on the resources of Papua New Guinea for their consumption and use which validates the theory of dependency. (Economin Report( PNG), 2006) 2.2.

Papua New Guinea and its development partners

Papua New Guinea depend very much on developed countries like Australia, Japan, New Zealand, USA and many other European nations for Aid fund, basic goods and services, Human resources development, military enhancement and economic and security issues. Australia one of the major trading partner to Papua New Guinea, compared to other nations. Fisheries Minister Mao Zeming announced last week 309 licenses had been issued to fishing companies mainly from the Philippines, Korea, Taiwan, Japan and China for 2015, with access to Archipelagic Waters reduced from 9000 to 5500 days. (Economin Report( PNG), 2006)The latest PNA agreement saw fees rise to US$10,000 per day, providing an estimated US$300 million (K792 million) for participating Pacific nations. Australia remains the biggest global donor to the Pacific. Over the next four years, Australia plans to increase aid to the Pacific region by around 37 percent, from $1.17 billion in 2012-13 to $1.6 billion by 2015-16. (United Nation(ESCAP), 2013) China’s President Xi Jinping met with the leaders of Fiji, Papua New Guinea, Tonga, Samoa, Vanuatu, Micronesia, Cook Islands and Niue on the first state visit to Fiji by a Chinese leader. It followed the G20 summit in Brisbane. PNG, Samoa and Fiji received the largest amount of investment from China in that time. Imports from China doubled to 15 per cent of all 6

Pacific imports in the last four years, pretty much in line with investment growth. Some of the major development partners of PNG are Philippines, Korea, Taiwan, China, and Australia. (United Nation(ESCAP), 2013)

2.3

Does dependency help development?

More than 60 per cent of the world’s tuna is caught in the Pacific by vessels from distant water fishing nations such as China, Japan, Taiwan South Korea, Spain, North and South America. The PNG fisheries zone of 2.4 million square kilometres is the largest in the South Pacific, and between 10% and 20% of the world’s tuna catch is caught in PNG waters. It is also hard to estimate the number of jobs that exist in that branch of the informal economy which consists of alluvial or artisanal mining. (Costello, 2012) In 2000, there were thought to be as many as 60,000 artisanal gold miners in PNG, although many of them only worked on a part-time basis. So from the so many economic indicators that is used to observed and measure the economic development progress and changes. I think dependency does help in development. (Economin Report( PNG), 2006) Thus as the developing nation, PNG is still dependent on donor AID and from other country for development; currently PNG is not fully independent in terms of financial. PNG is heavily depending on Australia for development assistance. A classical example is the help develop this nation in terms of Australian - Aid funding program. (Economin Report( PNG), 2006)This provided support in various development areas such as in, police and military enhancement program, and trade and investment. Although PNG is rich in natural resources, there is obvious misappropriation and lack of accountability for millions of Kina annually, without any physical development on the ground. There is a still huge borrowing from international organizations donor partners as World Bank, IMF, Exim Bank, UBSS and ADB. (Costello, 2012) 7

3. Conclusion Therefore we can say that dependency helps development because it is evident that countries do provide assistance for each other. Although countries must move toward interdependent it is important to note that they will for the start need a lot of assistance in the form of aid and technological know-how in order to drive their effort in an attempt to become integrated into the global economic interconnectedness, so Dependency also help to facilitate development in very many ways. (United Nation(ESCAP), 2013) To conclude, investing in institutions in PNG by foreign direct investments enables human resource development. This is a one of the essential economic development factor. (UNFCCC, 2007) As countries strive in an attempt to become part of the interconnected global economy it is important to note that we need support from bigger and developed countries. We all are interdependent on one another to a certain extent, thus it is vital that appropriate and fair policies are in place to ensure balance in trade and economic development among developing nations. (United Nation(ESCAP), 2013)

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4. Reference

1. (2006). Economin Report( PNG). Papua New Guinea: Department of commerce and publication administration. 2. Costello, T. (2012, september). Papua New Guinea's future depends on Australia. Australia world commentary, pp. 1-2. 3. Ferrano, V. (1996). Dependency Theory: An Introduction. Mount Holyoke College, South Hadley. 4. Hualupmony, F. (2010). Impacts of Globalization on small Island developing economy: A PNG perspective. Divine Word University Reseaarch journal, 12. 5. McAusland, C. (2008, November). Globalization direct and indirect effect on the environment. Globla forum on transport and environment in a globalising world. Guadalajara, Mexico: University of Maryland, united states. 6. Mrak, M. (2000). Globalization: Trends, challenges, and oppotunities for countries in transition. Vienna: UNIDO- United nations industrial development. 7. UNFCCC. (2007). Climat change: Impact, vulnerability and adaption in developing countries. New York: United nation publisher. 8. United Nation(ESCAP). (2013). Papua New Guinea and the natural resources curse. Asia pacific region trade network. (p. 19). geneva: ESCAP. 9. Vasajoki, O. (2002, December). The effects of Globalization on culture - A study of the experiences of globalization among finnish travellers. University of Jyvaskyla. 10.Zukang, S. (2009). Rethniking poverty: Reports on the world social situation 2010. United Nations, Department of economic and social affairs. New York: United nations publications. 9

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1. Reference 1. Hualupmony, F. (2010). Impacts of Globalization on small Island developing economy: A PNG perspective. Divine Word University Reseaarch journal, 12. 2. McAusland, C. (2008, November). Globalization direct and indirect effect on the environment. Globla forum on transport and environment in a globalising world. Guadalajara, Mexico: University of Maryland, united states. 3. Mrak, M. (2000). Globalization: Trends, challenges, and oppotunities for countries in transition. Vienna: UNIDO- United nations industrial development. 4. UNFCCC. (2007). Climat change: Impact, vulnerability and adaption in developing countries. New York: United nation publisher. 5. Vasajoki, O. (2002, December). The effects of Globalization on culture - A study of the experiences of globalization among finnish travellers. University of Jyvaskyla. 6. Zukang, S. (2009). Rethniking poverty: Reports on the world social situation 2010. United Nations, Department of economic and social affairs. New York: United nations publications.

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