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    Globalization and Pakistan

    By

    S.HUSNAIN RAZA

    FA08-BBA-077

    DEPARTMENT OF MANGEMENT SCIENCES

    Comsats Institute of Information Technology

    ISLAMABAD CAMPUS

    MAY 19,2011

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    Globalization and Pakistan

    Globalization refers to the shift towards the more integrated and interdependent world

    economy.For a developing and underdeveloped country globalization is good.through

    Globalization profit margin has increased. For a country like pakistan Globalization is very

    imported because in order to increase there profit margin.

    Historical brief background of Globalization and Pakistan:-

    Globalization is an historical process that began with the first movement of people out of Africa

    into other parts of the world. Traveling short, then longer distances, migrants, merchants, and

    others have always taken their ideas, customs, and products into new lands. The melding,

    borrowing, and adaptation of outside influences can be found in many areas of human life.

    Globalization in the mirror of History:-

    1. Global Governance.

    2. Ideas travel the globe.3. Globalization of Foods and plants.

    4. Globalization of television supply chains.

    A fundamental shift is occurring in the world economy. We are moving away from a world in

    which national economies were relatively self-contained, isolated from each other by barriers to

    cross-border trade and inverstment; by distance, time zones, and language; and by nationaldifferences in government regulations, culture and business systems. And we are moving

    towards a world in which barriers to cross border trade and inverstment are declining; perceived

    distance is shrinking due to advance in transportation and telecommunication technology;

    material culture is starting to look similar the world over; and national economies are merginginto an independent; integrated global economic systems. The process by which this is occurring

    is commonly reffered to as Globalization

    The most global markets currently are not markets for consumer products- where national

    differcnces in tastes and preferences are still ofthen important enough to act as a brake onGlobalization. But markets for industrial goods and materials that need a universal need the

    world over. These includes the markets for commodities such as aluminnium, oil, and wheat, the

    markets for industrial products such as microproceesors, Drams, computer memory chips andcommercial jet air craft, and markets for computer softwares and the markets for thew financial

    assets .

    Historically there are two Components of Globalization in the perspective of Pakistan:-

    Globalization of the markets.

    Globalization of the production.

    Globalization of the markets:-

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    The Globalization of the markets refers to the merging of the historically distinct and separate

    national markets into huge global market place. Falling barriers to cross border trade have made

    it easier to sell internationally. It has been argued for some times that the tastes and thepreferences of the consumers in different nations are beginning to converge on some global

    norms there by helping to create a global market.

    Globalization of the production:-

    Globalization of production refers to the sorcing of goods and services from the locations aroundthe globe to take advantage of the national differences. In the cost and quality of factors of

    production(such as land, labour, capital and energy). By doing this, companies hope to lower

    there overall cost structure and or improve the quality of functionality of the product offerings

    therby allowing them to compete more effectively.

    Question(s) and hypothesis:-

    Core Question of my project:

    Does Globalization helps pakistan in the development of the country?

    Supporting questions:

    1. Does Globalization helps pakistan to overcome there trade and inverstment barriers?2. Does Globalization helps pakistan to cope with the technological change through

    globalization?

    Primary hypothesis that needs to be empirically tested:-

    If globalization facilities are provided in abundance in pakistan then pakistan will prosper.

    Literature review:-

    The world is growing smaller day by day as powerful forces of politics and economics have

    sped-up the globalization of markets.

    On the economic side, technology is the driver; the relative cost of ocean, air, and road

    transportation continues to fall, removing an obstacle to cross border merchandise transactions.

    The revolution in information and communication technology has even more dramatic impact on

    trade in services.

    The improved availability of information and declining transaction costs has further stimulatedinternational flows of capital, labor and technology. None of this would have been possible, of

    course in the absence of political decision to pursue policies consistent with globalization.

    Governments should remove overt and hidden barriers to international commerce and trade.

    They should abolish exchange controls and liberalize capital account transactions. Governments

    should also accelerate domestic capacity to produce for foreign markets and to make their

    economies an attractive destination for foreign investments. Globalization is further to go, in the

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    fully globalized world where the probability of purchasing goods and service from domestic and

    foreign suppliers was the same and the countrys trade should be the main source of its income.

    We are clearly away from this benchmark of globalization, the people of developed country

    place a much higher proportion of their savings in domestic assets rather to invest in the under

    developed country. Real interest rates and capital/ labor ratios continue to diverge acrosscountries, despite the incentive for capital to flow from where it is abundant, to where it is cheap,

    and from where real rates are low, to where they are high.

    The point of these observations is that the globalization is unlikely to roll back and that it has

    considerably further to go. It is the big fact that technology marches only in one direction and

    that is forward. Further technological progress will deliver further reduction in the cost of

    acquiring information and communications and transaction across the distances and in other

    countries.

    This electronic revolution in the way we live and work is both a cause of and a response to a

    series of converging and unstoppable trends. The trends now are of developing technology,

    which gets faster, lighter and more powerful flow of information and including rising customer

    expectations and finally the business change encompassing a more competitive climate. This e

    revolution is already radically changing business irrevocably. Experts are consistently warning

    that any company which thinks it can wait until new concepts or applications are more developed

    runs a great risk of being left far behind. It is quite likely that organizations that fail to keep up

    with the opportunities of new technology will almost certainly see their market position

    surpassed by faster-moving competitors.

    The decision to move into new technology is a strategic one. You need to be satisfied that. It falls

    into with overall business objectives & strategy. It will work as an integrated part of your

    business objectives. You have the resources to meet any new demand you generate. Research is

    an integral part you need to understand how the technology works and how you can work with it.

    Getting up to speed on all this and beginning to implement new systems can seem a daunting

    task. But the acceleration is the main source of promoting globalization and economic growth.

    Theory Guided research:

    Certain theories of globalization are there which we can apply in order to more clarify our

    project. These theories include:

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    1. Mercantilism.2. Absolute advantage theory.3. Comparative advantage theory.4. Factors proportionate theory.5. Product life cycle theory.6. Theory of country size.

    Mercantilism:-Mercantilism is the first theory of globalization international trade. In thosedays the gold and silver were the medium of exchange. A country could earngold and silver by exporting the products and importing goods resulting in anoutput of gold and silver.

    The main principle of merchantilism was that it was in the best interest ofthe nation to exports goods and then imports goods in order to maintain atrade surplus. By doing so a country can accumulate gold and silver andconsequently increase national wealth. So in those days government

    therefore interfere to achieve a favouable balance of trading by importingtax quotas on goods imported and subsidizing export goods.

    Mercantilism is the economic doctrine that says government control offoreign trade is of

    paramount importance for ensuring the prosperity and security of a state. In particular, it

    demands a positive balance of trade. In thought and practice it dominatedWestern Europe from

    the 16th to the late-18th century. Mercantilism was usually a cause of frequent European wars in

    that time. It also was a motive for colonial expansion. Mercantilist theory varied in sophistication

    from one writer to another and evolved over time

    Absolute advantage theory:-

    What DoesAbsolute Advantage Mean?

    The ability of a country, individual, company or region to produce a good or service at a lower

    cost per unit than the cost at which any other entity produces that good or service.

    The main concept of absolute advantage is generally attributed toAdam Smith for his 1776

    publicationAn Inquiry into the Nature and Causes of the Wealth of Nations in which he

    countered mercantilistideas. Smith argued that it was impossible for all nations to become rich

    simultaneously by following mercantilism because the export of one nation is another nationsimport and instead stated that all nations would gain simultaneously if they practiced free trade

    and specialized in accordance with their absolute advantage.[7] Smith also stated that the wealth

    of nations depends upon the goods and services available to their citizens, rather than their gold

    reserves.[10] While there are possible gains from trade with absolute advantage, the gains may not

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    be mutually beneficial. Comparative advantage focuses on the range of possible mutually

    beneficial exchanges.

    Comparative advantage theory:-

    In economics, the law of comparative advantage says that two countries (or other kinds ofparties, such as individuals or firms) can both gain from trade if, in the absence of trade, they

    have differentrelative costsfor producing the same goods. Even if one country is more efficient

    in the production of all goods (absolute advantage), it can still gain by trading with a less-

    efficient country, as long as they have different relative efficiencies.

    For example:-

    if, using machinery, a worker in one country can produce both shoes and shirts at 2 per hour,

    and a worker in a country with less machinery can produce either 2 shoes or 4 shirts in an hour,

    each country can gain from trade because their internal trade-offs between shoes and shirts aredifferent. The less-efficient country has a comparative advantage in shirts, so it finds it more

    efficient to produce shirts and trade them to the more-efficient country for shoes. Without trade,

    its cost per shoe was 2 shirts; by trading, its cost per shoe can reduce to as low as 1 shirt

    depending on how much trade occurs (since the more-efficient country has a 1:1 trade-off). The

    more-efficient country has a comparative advantage in shoes, so it can gain in efficiency by

    moving some workers from shirt-production to shoe-production and trading some shoes for

    shirts. Without trade, its cost to make a shirt was 1 shoe; by trading, its cost per shirt can go as

    low as 1/2 shoe depending on how much trade occurs.

    Origin of the theory:-

    Comparative advantage was first described byRobert Torrens in 1815 in an essay on the Corn

    Laws. He concluded it was to England's advantage to trade with Portugal in return for grain,

    even though it might be possible to produce that grain more cheaply in England than Portugal.

    However, the concept is usually attributed to David Ricardowho explained it in his 1817

    bookOn the Principles of Political Economy and Taxation in an example involving England and

    Portugal.[4] In Portugal it is possible to produce both wine andcloth with less labor than it would

    take to produce the same quantities in England. However the relative costs of producing those

    two goods are different in the two countries. In England it is very hard to produce wine, and only

    moderately difficult to produce cloth. In Portugal both are easy to produce. Therefore while it is

    cheaper to produce cloth in Portugal than England, it is cheaper still for Portugal to produce

    excess wine, and trade that for English cloth. Conversely England benefits from this trade

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    because its cost for producing cloth has not changed but it can now get wine at a lower price,

    closer to the cost of cloth. The conclusion drawn is that each country can gain by specializing in

    the good where it has comparative advantage, and trading that good for the other.

    Factors proportionate theory:-

    Recall that we are trying to explain who exports whatto whom .

    Adam Smith took the first shot at an answer, suggesting that I export to you the things that i'm

    good at making and you are poor at making.

    Ricardo realized that I could be worse than you (as measured by productivity) in every activitybut nevertheless I could still export to you the things that I am relatively less bad at, i.e. those

    things in which I have a comparative advantage. This is probably in the Top 5 Economic Insights

    of All Time list.

    The problem with this work it is not very satisfying explanation. For instance, Canada is one of

    the world's largest suppliers of newsprint. Why? Well, because it has a comparative advantage in

    newsprint production. But why? Because relative to other nations Canada has a lower

    opportunity cost of devoting resources to making newsprint. But why ?

    Over the next three lectures we will explore three different types of explanation for the source of

    comparative advantage.

    Factor endowments.

    Diamond or Agglomeration Effects.

    Plant-level scale economies.

    Central Proposition

    FPT predicts that countries will be net exporters of goods that use their relatively abundant

    factors intensively.

    Relative supplies of general factors--Land (forest, pasture, agricultural, mineral), Labor(skilled,

    illiterate, scientific, artistic), and maybe Capital--Drive Trade.

    Goods:-tradeable commodities and services

    Factors:-

    the people and things which--when combined--create goods. Typically factors are

    assumed to be

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    1. raw or primary ( in the sense of not being manufactured from something

    else)

    electricity is not a factor.

    the rivers which give a country the capacity to generate hydroelectric power would be.

    2. general use: part of the production process for many goods.

    3. not mobile across countries (or much less mobile than goods)

    Product life cycle theory:-

    The product life-cycle theory is an economic theory that was developed by Raymond Vernon in

    response to the failure of the Heckscher-Ohlin model to explain the observed pattern

    ofinternational trade. The theory suggests that early in a product's life-cycle all the parts and

    labor associated with that product come from the area in which it was invented. After the product

    becomes adopted and used in the world markets, production gradually moves away from the

    point of origin. In some situations, the product becomes an item that is imported by its original

    country of invention.[1] A commonly used example of this is the invention, growth and

    production of thepersonal computerwith respect to the United States.

    The model applies to labor-saving and capital-using products that (at least at first) cater to high-

    income groups.

    In the new product stage, the product is produced and consumed in the US; no export trade

    occurs. In the maturing product stage, mass-production techniques are developed and foreign

    demand (in developed countries) expands; the US now exports the product to other developed

    countries. In the standardized product stage, production moves to developing countries, which

    then export the product to developed countries.

    The model demonstrates dynamic comparative advantage. The country that has the comparative

    advantage in the production of the product changes from the innovating (developed) country to

    the developing countries.

    There are five stages in a product's life cycle:

    introduction

    growth

    maturity

    saturation

    decline

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    The location of production depends on the stage of the cycle.

    Stage 1:

    Introduction

    New products are introduced to meet local (i.e., national) needs, and new products are first

    exported to similar countries, countries with similar needs, preferences, and incomes. If we also

    presume similar evolutionary patterns for all countries, then products are introduced in the most

    advanced nations. (E.g., the IBM PCs were produced in the US and spread quickly throughout

    the industrialized countries.)

    Stage 2:

    Growth

    A copy product is produced elsewhere and introduced in the home country (and elsewhere) to

    capture growth in the home market. This moves production to other countries, usually on the

    basis of cost of production. (E.g., the clones of the early IBM PCs were not produced in the US.)

    The Period till the Maturity Stage is known as the Saturation Period.

    Stage 3:

    Maturity

    The industry contracts and concentratesthe lowest cost producer wins here. (E.g., the many

    clones of the PC are made almost entirely in lowest cost locations.)

    Stage 4:

    SaturationThis is a period of stability. The sales of the product reach the peak and there is no further

    possibility to increase it. this stage is characterised by:

    1. Saturation of sales

    2. It continues till substitutes enter into the market.

    3. Market must try to develop new and alternative uses of product.

    Stage 5:

    DeclinePoor countries constitute the only markets for the product. Therefore almost all declining

    products are produced in developing countries. (E.g., PCs are a very poor example here, mainly

    because there is weak demand for computers in developing countries. A better example is

    textiles.)

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    Note that a particular firm or industry (in a country) stays in a market by adapting what they

    make and sell, i.e., by riding the waves. For example, approximately 80% of the revenues of H-P

    are from products they did not sell five years ago. the profits go back to the host old country.

    Theory of country size:-

    Absolute and comparative advantage theories do not consider the impact of country size on trade

    patterns. This is discussed ahead. A. Variety of Resources: Large countries are apt to have

    greater variety in climate and natural resources, making them more selfsufficient than smaller

    countries. B. Transport Costs: Large countries tend to face larger transportation costs in serving

    their markets domestically. It may be cheaper to buy imports simply if you live near the border

    than to have domestically produced cheaper goods shipped from across the country. C. Size of

    Economy and Production Scales: For products that can be produced more efficiently en masse,

    small countries will tend to export more, while large countries may be able to achieve economiesof scale simply by producing for their domestic market.

    See below for more information.

    Theory of country size says that:

    It says that the size of the country decides how much and what type of products to

    trade in

    Larger countries have varied climates and natural resources

    It makes them self sufficient, due to which they import and export less

    In these countries, transportation is costlier to larger expanse of land, compared tosmaller countries

    Since transport cost is less in smaller countries (due to less distance in production units

    and end markets), they have an advantage in international trade

    Toward a Theory of Country Size

    It is well known that following consolidation, during which it might have looked as if countries

    were destined to combine into a few supercountries, we entered a period of secession anddisintegration, with the number of countries growing. One puzzle associated with this is whythere are so many federations. What follows is the beginning of a theory of size and

    confederation - and I look forward to comments before putting this in the form of a full-blown

    theory.

    My starting point is that resources are not spread evenly across regions, so that when one part of

    a country is rich (as from salt deposits (long ago) or natural harbors or oil reserves), it will preferto be on its own in order not to share its wealth with a larger group. But of course these pockets

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    of wealth will be vulnerable to attack (trade wars and embargos for starters, but then military

    invasions too) if they are on their own and not in reliable alliances. "Optimal" country size is

    thus about compromising security (which is positively correlated with size) with the cost ofsharing valuable resources. Risk averse people might agree on a large country size if they did not

    know whether they would be rich or poor, but once they discover regional wealth, that region can

    be expected to be exploited.At the same time, large scale and central control creates a monopoly on power and that can bebad for everyone. A federation can be seen as a kind of compromise. The central government

    provides security against outsiders, and to a degree manages competition among the member

    states or regions. The members are left with enough power to enjoy some of their regionalwealth, and they are in the business of competing with one another for mobile citizens, outside

    investment, and so forth. It is as if the region, or province, buys security and some insurance

    (because it might be resource poor in the future) in return for some ability to enjoy its wealth and

    to gain from the competition among jurisdictions within the federation.

    If invasion comes to be seen as politically or even morally unacceptable, or international

    organizations spring up that succeed in reducing international grabs, then we should expect moreindependence movements and more sovereign states because there is less need for mutual

    security. I am tempted to say that this is where we are in history, except that it is also true thatservices and human capital have become increasingly important in the creation of wealth. If

    immobile natural resources are less important than in the past, then we might find less of a drive

    to smaller states. Smaller states will continue to provide more competition among jurisdictions,and that is good in the market for political power and policies, but there will likely be less of a

    gain in terms of excluding outsiders from making tax or ownership claims on valuable

    resources. If so, and other things (especially the threat of invasions) constant, we should expectanother phase of consolidation.

    Methodology

    Qualitative method:-

    The Perils of Globalization:

    An Interview with Jerry Mander

    Jerry Mander is regarded as one of today's most articulate and outspoken critics of technology

    and economic globalization. His books includeFour Arguments for the Elimination of

    Television,In the Absence of the Sacred, andThe Case Against the Global Economy (co-edited

    with Edward Goldsmith). In this interview, Mander makes a forceful case against economic

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    globalization, arguing that we need to examine the hidden costs of free trade and deregulation

    and search for more enlighened economic models to guide us into the twenty-first century.

    Scott London: The case, as it's usually presented, is that the globalized economy is a good thing

    that will secure jobs, allow us to remain competitive, and promote democracy abroad. Isn't there

    some truth to that?

    Jerry Mander: The people who are making that case are the people who are promoting

    globalization corporations and banks and governments. They are saying that globalization can

    solve the world's problems, that it's going to give people something to eat and so on. They are

    redesigning an economy that they say works. But it doesn't work.

    We've had globalization for quite a while, it's just being accelerated right now. Wherever the

    rules of free trade and economic globalization are followed, you have economic and ecological

    disasters immediately thereafter. You've got the complete destruct ion of small, traditional

    farming in Africa and elsewhere; you've got the complete devastation of nature all around the

    world; you've got people shoved off their lands to make way for giant dams and agri-business

    and so on, who then become part of the mil lions and millions of people roaming the land and

    going into cities looking for impossible-to-find jobs, all in competition with each other, and

    violent and angry. And then people are angry with them, because who needs more people

    around? So you've set in to motion a global disarray and nonfunctionalism that would not have

    been achieved certainly not at the same level and with the same speed without this

    emphasis on global development.

    However poorly people lived in terms of material wealth in traditional societies, there was much

    that they retained. They retained a fair amount of local control. They retained some degree of

    traditional culture. Even in societies that had already been im pacted, like India, you had a lot of

    cultural identity and a history of relationships to scale that were really different. It was an

    economy of small-scale institutions. That has been wiped out by economic globalization with the

    invasion of franchises and giant institutions that have taken over the land.

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    Quantitative methods:-

    World wide survey on Globalization:-

    This major research initiative will survey opinion leaders and individuals, as stakeholder

    panelists from around the world, working in senior positions within the NGO, government, andthe private sector. Enlisting stakeholder panelists in a way that ensures a representative

    perspective is key to this initiative. The GSP aims to be a balanced platform through which

    world citizens from all geographic and economic perspectives can vocalize and define prominentissues.

    The results of each survey will be communicated to as many people as possible, reporting how

    each sector and each segment of society views globalization and governance. The findings willbe freely available to all multi-lateral organizations, national governments, NGOs, businesses,

    and academic organizations, as well as any individual interested in the process of globalization

    and capacity building.

    Economic and Political Responses to Global Market:-

    Globalization the growth in world trade, investment, and immigration has provoked strong

    and varied responses from firms, workers, labor unions, and activist groups. Some have

    supported trade liberalization and the removal of restrictions on cross-border flows of capital and

    labor.

    Others have lobbied for new government regulations that would limit trade, investment, and

    immigration. Some have supported private forms of governance aimed at addressing social andenvironmental issues raised by globalization without government intervention.

    Impact of Globalization On Pakistan's Economy:-

    The term 'globalization' is multi-dimensional. It has economic, social, cultural and political

    connotations. It is defined as a process of rapid economic integration among countries driven by

    the liberalization of trade, investment and capital flows, as well as technological change [Torres,

    R (2001)]. Globalization has become a hotly debated subject in recent years. Althoughglobalization is generally understood to have emerged out of the Uruguay Round of GATT, it is

    rather an old concept. O'Rourke and Williamson (2000) point out that the world economy even

    by the late 20th century standard was well integrated in the beginning of the twentieth century[Kemal (2001)]. The tendency towards globalism could be seen during the period of liberalism

    of the 19Th century, the relative stability after the First World War and the golden years of the

    1950s and 1960s. The WTO (World Trade Organization) was formed essentially asareincarnation of the ITO (International Trade Organization) which was born prematurely after

    the Second World War. With it, the principles of liberalism, multilaterlism and

    nondiscriminations were achieved. This then shows a tendency towards globalism [Katsuni

    Sugiura (1999)].

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    The objective of this paper is to help improve understanding of the effects of the gradual and

    selective approach to globalization in terms of trade, wages,employment and social progress in

    Pakistan.

    Sample Interview Transcription:-

    Question:- What shall be the impact of Globalization on Pakistan relations with other

    countries?

    Answer:-Well, I think that though the Globalization brought serious concerns for policy

    makers in countries like pakistan. There is a deeper concern of Globalization in pakistanabout the exercise and the methodologies with fall important concers for pakistan.

    Citing an Interview in Paper:-According to an interview my thinking is that though the Globalization we take our country indevelopmental projects. There is a deeper concern among the residents of pakistan who tookadvantage of Globalization in pakistan and made there lives more prosperious.

    Bibliography:-Primary sources:-

    Interviews:-

    I took an interview of a person name mr.athar he gives me clear understanging of howGlobalization affects pakistan economy and leads pakistan towards properity.He also portrays

    important features of Globalization and gives clear understanding of how the theories of

    international trade towards globalization apply to practical life.

    Reports of governments, semi-governmental bodies:-

    DECRG Policy Research Report:-

    Contrary to popular perceptions, globalization renders governments and civil society more, not

    less, important as actors for managing its associated risks and opportunities. The development

    process in general, and globalization in particular, fundamentally and necessarily changes both

    civil society and its relations with government, but this transformation need not entailconformity, coercion, or cultural homogenization: convergence on performance indicators

    (outcomes) can be associated with a variety of institutional forms.

    Survey results:-When asked whether their business has been directly impacted by the current global financialcrisis, the respondents were split, with 45 percent saying they were affected, and 55 percent

    saying they have not been affected to date. However, regional results show that members from

    companies in North and South America have seen a greater impact to their businesses. The

    survey also included questions about members' recent experiences in trying to raise capital andwhether they have noticed a difference in the demand for their services or tools attributable to the

    financial crisis.

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    Secondary Sources:-

    Books:-I consult International business book by june hill and mike hikk for my research papers.

    Journal articles:-

    I consult following articles for my project:-

    Balasubramaniam K. Heads-TNCs win: tails-South loses or The GATT/WTO/TRIPS

    Agreement. Penang, Consumers International, Regional Office for Asia and the Pacific,

    April 1998.

    Bale HE. Patent protection and pharmaceutical innovation. New York University Journal

    of International Law and Politics, 1997.

    Newspapers reports/editorials/articles:-

    Two news papers which I consult are the News and Dawn.