Globalisation for LEDCs

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Positives of Globalisation for LDCs

Globalisation has had a mixed impact on less-developed countries (LDCs). Here are some positive impacts:

Globalisation leads to higher FDI flows; which increases aggregate demand (AD) and this leads to higher real GDP (positive multiplier, creates employment, income, tax receipts).
The flow FDI and multinational corporation (MNC) operations can also lead to the transfer of skills and technology, shifting the LRAS curve and PPF for that country outwards.
- The impact of obtaining cheap technology that has been built from other countries, rather than using scarce resources domestically, could be significant for LDCs.

In 2017, China became the largest FDI investor in Africa.
- China has purchased mineral mines in Congo, Ethiopia has received investment in its dams and roads.
- In 2017, Kenya launched its own $3.8 billion China-funded train line linking Nairobi to Mombasa. The Chinese built a dam in Zambia.
This kind of FDI is vital for LDCs to boost their infrastructure, improve geographic mobility (in the case of trains) and efficiency.

Globalisation has allowed for countries with a small domestic market to export their products abroad and so benefit from foreign demand.
Globalisation allows for export-led growth and an export-led positive multiplier.

According to the Harrod-Domar model, one of the main constraints on economic growth and development is a lack of investment.
A key reason for a lack of investment is a lack of access to finance.
Globalisation has allowed financial markets to become more global which now means LEDCs have access to a much wider choice of finance from investors from abroad.
- E.g. LEDC firms and governments can issue international bonds to raise money.
- Kenya's $3.8bn train line was funded largely by Chinese funds.

LDCs benefit particularly from technology transfers (and goods such as medical drugs) because these can be bought from abroad much more cheaply than they can be produced domestically.

Globalisation has had a mixed impact on less-developed countries (LDCs). Here are some negative effects:

Some LDCs may fall victim to dumping. This is where developed countries sell products at below cost onto LDC markets.
Over half of the anti-dumping cases brought to World Trade Organisation (WTO) are from LDCs complaining about more-developed countries (MDCs.)

Brain drain describes the phenomenon of skilled workers moving abroad in search of higher wages - it is a particular problem for LDCs.
Brain drain in the short term could be costly to LDCs who may be losing their key workers in healthcare or education, which could have disastrous consequences for future long term economic growth; although, in the long-term remittances could add to GDP.

In a bid to attract the big MNCs, who will create jobs in their economy, governments may compete.
Having lower health and safety standards for workers, lower corporate tax rates, easier labour laws can bring jobs to a country, but increase hazards for workers in the workplace.
- E.g. Primark paid over $10m to victims of a factory collapse in Bangladesh; over 100 people died.
However, MNCs may create jobs for workers who would earn less or be unemployed otherwise.

MNCs often extract natural resources in less developed nations.
These countries may have less regulations or lower environmental standards.
This can result in environmental degradation and negative externalities in the country.