The World Trade Organization (WTO) is the outcome of the Generalized Agreement on Tariffs and Trade (GATT). In order to help developing countries to promote international trade, Generalized System of Preferences (GSP) was the extension programs by developed countries to imports with preferential tariffs form those countries. After that, in continuation to assist developing countries, including the least developed countries, in 2005 the WTO sat up the aid‐for‐trade (AfT) Initiative to improve the infrastructure of international trade and for future expansion. All previous international trade agreements play a vital role to bring and increase globalization. The effect of globalization among developing countries differs according to economic, financial and institutional quality infrastructure, and human capital accumulation in each country, which allow those countries to benefit from globalization. For example, if we look at economic and financial infrastructures, investors look for higher returns and better diversification opportunities in international holdings. Due to lack of disclosure of information as well as transaction costs across countries, which cannot easily be developed by domestic policies, international investors transfer their business to better environments. Following that, financial channels are more vulnerable towards economic and financial crises as the magnitude of international spillovers of international shocks, fiscal affairs, and other conditions are significantly elevated by financial linkages.
Developing countries with strong infrastructure of institutional quality, such as property rights protection, have a higher frequency to benefit from globalization. However, developing countries with a fragile financial system are not likely to benefit from globalization, because of the low level of regulatory quality. Additionally, in some countries institutional quality would unlikely to be improved as they could have bribes and corruption, where political power is controlled by small elites that impeded prosperity and democracy. It could be attributed to evidence demonstrating that several number of developing countries, particularly in the Middle East, North Africa, and South Asia that were colonized went through a period of instability following independence. Besides that, dictatorship and internal political instability were adversely affecting institutional quality. Those described factors might decrease the benefit of globalization in developing countries.
High level of human capital accumulation increases the benefits of globalization in developing countries, in addition to that human capital with higher level of education and technology fosters the benefits of globalization. Lately, India has made an enormous growth in the rate of startups as the government represented by Ministry of Commerce and Industry have promoted and supported startups.
Asia-Pacific Economic Cooperation indicated that trade facilitation, which represents any policy that reduces the transaction costs of international trade, is highly significant in promoting export diversification in developing countries. However, again human capital accumulation with high level of education, besides the institutional quality factors play a vital role in letting developing countries benefit from globalization and most importantly, to shift the economy of a country from developing level to be higher than that over time.
