Foreign Direct Investment (FDI) injects a considerable amount of capital into developing countries thus easing their efforts towards economic stability. The developing countries have also benefited in terms of increased financing through loans and grants from developed countries. It is true that increase in capital inflow serves the purpose of enhancing economic development in a country. What proponents fail to incorporate in their studies however is that net capital inflow could lead to negative effects on trade. Chan and Scarritt (2001, p. 154) note that large capital inflows often result in appreciation of exchange rates and inflationary pressures that impact on the country’s current account. This means that globalisation in an attempt to improve the economy could actually thwart the progress of the economy.
The reduction in trade barriers has led to the promotion of specialisation. This is an economic concept which denotes that countries can concentrate on the production of commodities that they can produce at the least cost
(Aurifeille, 2006, p. 252). This commodity can then be traded to earn maximum income for the country while other goods may be imported from other countries. In this regard developing countries should take advantage of globalisation to enhance their income through trading in goods which they can produce most effectively. Such a development not only gives developing countries an opportunity to prosper economically but also to obtain goods that prove expensive to produce in their own countries. Most studies on globalisation contend that globalisation enhances competition as the flow of goods and services between countries becomes easier. According to Corsi (2009, p. 9), competition is an effective way of enhancing innovation and the production of better quality goods.
Technological advancement and knowledge transfer
The transfer of technological know-how has taken an integral part in globalisation. Corsi (2000, p. 9) points out that this has led to increased innovation and better methods of production to developin