Globalisation

Economic Impact – Developing Countries

A developing country is one in which a strong system of infrastructure is not yet in place. In general these countries will have a lower standard of living, and significantly lower levels of personal income. Many countries in South America and Africa, and some countries in South East Asia are considered developing countries.

The precise impact on a developing country will vary – soon we will look at two case studies which will help to make this situation clearer for you. In the meantime, we will consider some general advantages and disadvantages.

Job Creation: Many people argue that as a result of globalisation workers in developing countries have been given access to jobs. Multi-national corporations use labour in low wage countries to complete jobs that need not be done in their home country. For example, Nike assembles shoes in Indonesia. However, others would argue that this is not really an advantage at all….
Exploitation: There are many people around the world who refuse to purchase products from certain companies because they believe that those companies are exploiting workers in other countries. For example, General Motors Holden has closed certain plants in the United States, and now operates the same production lines in Mexico. They pay the workers in Mexico much less than they were paying the workers in the US to complete the same tasks. It is important that you stop to think about this next time you buy a product from a country which works in the developing world in this way; is this fair?
Resource Allocation: There are two issues worth considering under this heading. First, the labour resource is being allocated differently. People who may have worked on farms are now working in factories; is this more efficient? And secondly, to open these factories a lot of land has been cleared. Some have suggested that forest land has been cleared in Central America so that beef cattle can graze there. When we are looking at production on a global scale, we must consider the “big picture” in regards to resource allocation.
Pollution: It has also been argued that big manufacturers used developing countries because their rules in regards to pollution are not as strict. This means that pollutants can be pumped into the atmosphere without consequence; this would not happen in a developing country. If true, this is one of the factors which would help to minimise costs for multi-national companies.
Legal Consequences: Earlier in your study of Economics, you will have seen that the World Trade Organisation can sometimes be dominated by larger countries. As a result they tend to be the countries that still benefit from high levels of protection. This can work against developing countries. For example, in Kenya they grow sugar. The quality is high, and the cost is low. However, there is almost no market for their sugar in Europe, because the market is protected. Developing countries have been forced to lower their own trade barriers (due to conditions attached to loans from the International Monetary Fund), but they have not been given access to new markets.

With these factors in place, you might start to believe that globalisation is an incredibly inequitable process! However, as is often the case in Economics, there is far more to the story. In particular, we will need to examine what has been happening behind the scenes to try and overcome these problems, and the domestic factors which exist in the developing countries which might be contributing to the situation.

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