Chapter 2

Linkage between developed and developing countries

How Are We Linked?

(2 hours)

Global Village Environment

Rivers and winds Groundwater

Population Migration/immigration Debt Jobs Education

Trade and TransitValue of lifeTourismPolitics and peaceTerrorismSupranational institutes

Developed and Developing Countries Linked in many ways

1. Global village

Information and communicationComputer, Internet, Social Media, Holoportation

TransportationConcord, supersonic planes, bullet train

Events in a part of the globe affects other parts, hence, like a village.

For effects of Globalization on LDCs: http://unohrlls.org/UserFiles/File/LDC%20Documents/Background%20paper.pdf

2. EnvironmentGlobal warming: 3 ° to 5° by 2100? Limit to 2°?Green house gasesSea level rising: 23 inches by 2100?Snowless Alps and Himalayas by 2050?Ozone depletionNatural resources (e.g., Rain forests)Acid rainWindRiverWildlifeDesertification

3. PopulationPeople migrate due to problems related to •Poverty and inequalities•Education•Food•Health•Environment

4. Debt Development Assistance (Foreign

Aid)

• one-fifth of global aid is actually going to the world's poorest countries, say humanitarian agencies.

• They say up to 40% of aid is "tied", forcing developing countries to buy overpriced goods from donor countries.

• The targets were set in 2000, as part of the UN Millennium Development Goals, to reduce global poverty by 2015.

What Motivates the Donors to Give Aid?• Political/Strategic

Motivations• Economic Motivations

(for the recipient country’s benefit)

• Economic Motivations (Donor’s self- interest)

• Moral and Humanitarian Motivations

5. Jobs/Outsourcing

Global job market has made us linked togetherLDCs are providing cheap labor forceDeveloped countries are in need of HUMAN ResourceDeveloped countries have become the point of attractions for professionals of the LDCs

6. Education

• The need for quality education and access to the educational institutes around the world has linked the countries and the people all around the world.

• The British College• The Lincoln School• Nepalese entrepreneurs opening colleges

in UK, Australia

Imports and exports of raw materials Supplies and manufactured products Transfer of capital and labors (unskilled and

knowledge workers). There are implications for the developed

countries if developing countries do not do well economically (Reverse to the argument that if developed countries do not support the developing ones, the latter would face adverse consequences).

7. Trade and Transit

Dependence of the US on developing nations: For the imports of 80% of its fuel, 26% of industrial supplies, 25% of capital goods, 53% of consumer goods. Likewise 40% of US exports go to LDCs. US$1b export sustains approx. 25,200 American jobs.

Developing countries are expected to absorb 70% of the growth in the world imports over the next 25 years

Private Foreign Direct Investment

• Private FDI by multinational companies (MNCs) whose objective is to maximize their return on capital.

• MNCs are mainly from North America, Europe, Japan, and NICs such as South Korea, Taiwan, Brazil.

• 90% of global FDI goes to other industrial countries and the fast growing LDCs/MDCs.

• There is rapidly increasing trend of FDI, huge chunk (60%) of which goes to Asia.

Arguments in support of FDI

FDI as a way of filling in gaps between the domestically available supplies of savings, forex, govt revenue, technologies and human capital skills, and desired level of these resources necessary to achieve growth and development target.

Arguments against FDI -They may lower domestic savings:

Repatriation of their profits; Generating domestic savings for low saving income groups; Worsening the situation for indigenous firms by importing the intermediate products from overseas affiliates

Potential thesis topic: Impact of FDI in Hydropower development of Nepal.Impact of FDI in construction industries in Nepal.Strengths and weaknesses of FDI provisions in Nepal.Technological and socio-environmetnal impacts of FDI in Nepal

Nepal’s Risk Assessment (Provided by Coface)Country rating: D – •A high-risk political and economic situation and an often very difficult business environment can have a very significant impact on corporate payment behavior. Corporate default probability is very high. Business Climate rating: D - The business environment is very difficult. Corporate financial information is rarely available and when available usually unreliable. The legal system makes debt collection very unpredictable. The institutional framework has very serious weaknesses. Intercompany transactions can thus be very difficult to manage in the highly risky environments rated D. Strengths•Private transfers sustaining household consumption, the main driver of growth •Strong services sector, particularly tourism •Financial and technical support from India and China •International solidarity Weaknesses •Heavily dependent on the agricultural sector and vulnerable to climatic vagaries •Isolation and difficulties of access to many of the country’s regions •Economy strongly affected by the earthquakes of April and May 2015 •Weak productivity of the secondary sector Poor infrastructure, recurrent shortages of electricity and fuel •Absence of a political consensus, leading to fear of worsening social and political tensions

http://globaledge.msu.edu/countries/nepal/memo (2016)

When this is the international perception, FDI is difficult to materialize.

8. Value of lifePeople at one corner is deprived of minimum human need and the people at other corner is enjoying each and every luxury available in the world. Extreme disparity between haves and have-nots breeds resentment and turmoil in society, which creates fear and lack of harmony. To address this issue, countries cooperate with each other.

The Poverty Alleviation Project in Nepal is an example.

9. Peace and politics

• The world is linked for peace and politics is responsible for peace and prosperity of the world around us.

• Egypt, Libya, Syria, …

10. Terrorism

• Probably this has been the new and most significant issue for us to fight with or to live with.

Political Interdependence

Socio-economicInterdependence

EnvironmentalInterdependence

Population

Debt

Global Village

EnvironmentJob

Value of Life

Terrorism

Peace and Politics

Immigration

Education

Interdependence of Developed and Developing Countries: A Model?

• If US sneezes the whole world catches pneumonia.

• The world is like a human body, if a part aches whole body suffers

End of this chapter

Test yourself. Answer them using different resources.

Chapter 2: Linkage between developed and developing countries• How has the development in transportation and information-

communication technology changed the level of linkage between developed and developing countries? Explain with examples.

• The foreign direct investment (FDI) is increasing linkage between developed and developing countries. Explain, with reference of Nepal, how can developing countries minimize negative impacts and maximize positive impacts of FDI in developing countries?

• Developing countries like Nepal, India, Bangladesh and Philippines are exporting thousands of its trained and un-trained human resources in developed countries every year, and enjoying increase in remittance. Which type of country (developed or developing) benefits more from this type of linkage between developed and developing country?

• Discuss the different ways the developed and the developing countries are linked with each other.

Test yourself. Answer them using different resources.

Chapter 2: Linkage between developed and developing countries• Discuss the sources of linkages between the developed and the

developing countries. Can, and should, these links be broken? • Can a particular country choose to run its entire activities in

complete isolation, with no link to other any countries? Discuss with specific examples.

• Discuss the socio-economical, political, and environmental interdependence of the developed and the developing countries. Is interdependence of the developing and the developed countries increasing, or decreasing? Explain with specific examples.

• How does the interdependence between developing and the developed countries influence the construction project management in a developing country? Explain with specific examples.