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Globalization effects on the UAE economy

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Nobody can deny the role of globalization in emitting boarders among countries and turning the world into one small village, but has globalization benefited countries? Since we are living in the UAE, has globalization affected the UAE positively or negatively? What are the fields that have been influenced by globalization? From the developments we are observing here, we can state that globalization has turned the UAE into a developed country in many fields, as infrastructure, education, and media have all improved. Nevertheless, the effect of globalization on the UAE economy is without any doubts the most important effect. Globalization has affected the UAE economy positively because it has increased foreign investments, has encouraged domestic investments, and has promoted free trade between UAE and other countries.

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 To start with, globalization has increased foreign investments. According to a survey that was conducted in 2005, “Foreign direct investment inflow into the UAE achieved a record US$ 10 billion amounting to nearly 34 percent of the total foreign capital flow into the Arab world” (United Arab Emirates 2007, 2007, p.76). The reason for this high percentage of foreign investments is because the UAE is politically stable, not to mention that it preserves working rights for businessmen by allowing them to rent and sell easily without interfering with them or imposing taxes on their products and revenues. For example, “170 licences to branches of foreign firms were issued last year, 20% more than in 2005. British companies were issued the maximum number of licences with 24. German businesses were granted 13 licences followed by British Virgin Islands (11), Indian (10) and American (8) companies.” (James Bennett, 2007, para3). Since globalization has turned the world into one small village, it was easy for other countries to know about the economic virtues the UAE grants for businessmen. One might argue that foreign investments flow back to foreign owners and this means no benefit for the Emirates society (Mankiw, 2004). Yet, the UAE economy has experienced an increase in the capital stock due to these foreign investments. This increase in the capital stock has entitled UAE to have more equipment and structures to produce goods and services. Therefore, productivity has increased significantly; as a result, UAE economic growth and living standard have both increased.

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In addition to that, globalization has encouraged the UAE domestic investments. For instance, “The UAE is an important participant in global capital markets through several investment institutions, including, among others, the Abu Dhabi Investment Council, the Dubai Port, Dubai Holding, and the Abu Dhabi’s International Petroleum Investment Co. (IPIC)” (United Arab Emirates 2007, 2007, p.76). In fact, the reason for the large increase in the UAE domestic investment is because globalization has entitled UAE to deal with developed countries like the USA and the UK and learn from them that savings and investments are the shortcuts toward a faster growth rate. Someone might argue that more savings and investments results in less resources available to produce consumption goods; therefore, this will benefit the UAE economy at the expense of its citizens. However, more savings and investments today will increase the production of consumer goods in the future. In other words, although there is a trade-off between present and future consumption due to savings and investments, the UAE will enjoy a higher living standard in the future if it invests and saves more in the present (Mankiw, 2004). For example, “Abu Dhabi alone plans to invest over Dh555 billion in the coming five year; Dh320 billion will go to the construction sector, Dh 120 billion for development and expansion of the tourism sector, and Dh80 billion will be spent on expanding the oil and gas sector. Also, the UAE economy has invested heavily in hydrocarbon industries so as to use their revenues to create other income sources that are less dependent on gas and oil.” (United Arab Emirates 2007, 2007, p.81) In my opinion, investment is the road toward a bright future although it might affect us in the present because we always look for long run outcomes.

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Furthermore, globalization is the main reason for the promotion of free trade between the UAE and other countries. Free trade has benefited UAE a lot because it allows it to import goods at a lower cost than producing them domestically. In fact, one might criticize that importing foreign goods hurts domestic producers because of the decline in the demand on their goods. Consequently, they will lay-off some workers to compensate for that decrease in demand. Therefore, unemployment rate will increase (Mankiw, 2004). However, importing some goods has created more working opportunities in other UAE industries, as the UAE economy has concentrated more on producing goods that are more profitable; such as oil, gas, and petrochemicals. In other words, the UAE economy can produce on its production possibilities frontier (PPF) which is the combination of outputs that the UAE can produce at a fixed level of technology and resources; while enjoying consumption beyond its PPF (Mankiw, 2004).  Therefore, those who have been laid-off can easily switch to other firms that need workers. Additionally, buying goods at a lower cost than producing them domestically has helped UAE government to save some money and use it in improving roads, cleaning the environment, helping the poor, and increasing wages. In fact, the UAE has implemented the concept of free trade very well, as it imposes no tariff (tax) on exported goods and five percent tariff on imported goods, not to mention that “It has signed several free trade agreements and embarked on negotiations either individually or through the GCC.” (United Arab Emirates 2007, 2007, P.98) From my point of view, if the UAE keeps trading at this rate, it will not need to trade with other countries in the future since it has begun to produce many goods at a lower cost than before.

 

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In conclusion, globalization has positively influenced the UAE economy because it has increased foreign investments, has encouraged domestic investments, and has promoted free trade between UAE and other countries. According to last statistics “UAE impressive economic performance during the year led to a GDP growth rate of 26.3 percent at current prices while real GDP growth is estimated at 8.2 percent” (United Arab Emirates 2007, 2007, P.76). However, it is important to mention that in addition to improving the UAE economy, globalization has had a great role in developing the UAE infrastructure, media, education, and social relations. In other words, globalization has turned UAE into a developed country in many fields. Finally, I believe that if the UAE continues to follow these economic strategies, it will secure a prominent position in the world.

 

References:

James Bennett. 2007. Dubai’s foreign licences surge forward. Retrieved May 2, 2007, from http://www.arabianbusiness.com/index.

 

United Arab Emirates 2007. 2007. London: Trident Press Ltd

 

Mankiw. 2004. Principles of economics (3rd ed). United States of America: Natorp Boulevard

 

 

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