THE GLOBAL IMPACT OF

GLOBALIZATION TO THE THIRD

WORLD COUNTRIES
KAREN MARIE V. DELA PASION
DEDICATION

I dedicate this project to God Almighty my creator, my strong pillar, my source of inspiration,

wisdom, knowledge and understanding. He has been the source of my strength throughout this

program and on His wings only have I soared. I also dedicate this work to my partner; Mikko

Mark Quila who has encouraged me all the way and whose encouragement has made sure that I

give it all it takes to finish that which I have started. To my parents and in laws who have been

supported me in every way. Thank you. My love for you all can never be quantified.
ACKNOWLEDGMENT

First and foremost, I wish to extend my sincere gratitude and appreciation for giving precious

contributions towards the completion of this research. To my loving partner and in laws, for their

moral and financial support and providing everything that I need. For giving me strength to reach

for the stars and continue to chase my dreams. For my parents and my siblings that deserve my

wholehearted thanks as well. To the librarian, for allowing me to make use of the available

references to understand and interpret my topic which made me finish this research work. To my

instructor, Ronel V. Portugal, for guiding me throughout my research work. And most especially

to God, for giving me the guidance and knowledge as well as good health in constructing this

research work.

To God be the Glory.

CONTENTS

ii INTRODUCTION

I. GLOBALIZATION

II. THE THIRD WORLD COUNTRIES

III. GLOBALIZATION AND INEQUALITY IN DEVELOPING COUNTRIES

IV. POVERTY, GROWTH AND GLOBALIZATION

V. MULTINATIONAL CORPORATIONS IN THE THIRD WORLD

VI. CONCLUSIONS

VII. REFERENCES
INTRODUCTION

Globalization is an irretrievable and overwhelming phenomenon. It is very famous over the

world. Globalization is transforming the world. Because of this fast change it has attracted the

attentions of intellectual all over the world. Globally it creates opportunities as well as troubles

for different peoples. Globalization has become the focus of extensive debate regarding the

“third world” that emerged in the context of half the millennium of European expansion.

Although the third world is increasingly differentiated internally, it has suffered multiple

impacts of colonialism and comparative poverty. “The history of globalization goes back to the

second half of the twentieth century, the development of transport and communication

technology led to situation where national boarders appeared to be too limiting to economic

activity.” (Economic Globalization in Developing Countries, 2002). The effects of

globalization come into question when the reality fails to meet these beneficial goals.

Globalization is a process of global economic, political and cultural integration. It has made the

world become a small village; the borders have been broken down between countries.

Globalization is playing an increasingly important role in the developing countries. It can be seen

that, globalization has certain advantages such as economic processes, technological

developments, political influences, health systems, social and natural environment factors.

Developing countries are effected positively and negatively in many aspects, from internal

affairs to external affairs. Globalization can have very drastic impacts on a country both positive

and negative. I will examine the effects both positive and negative of globalization on

developing countries economy, Trade process, education and health system. Globalization has

helped less developed countries deal with the increasing economic developed in the rest of the
world. This has solved the poverty problems in these countries. In the past, this was impossible

for less developed countries due to trade barriers. The World Bank and International

Management encourage these less developed countries to go through market reform. Many

countries began to move towards these changes by removing tariffs and free up their economies.

Fariooz Hamdi “The Impact of Globalization in the Developing Countries” Linked In June 11th

2015. Developed nations invest in less developed nations which lead to creation of jobs for poor

people in the less developed countries, this is a positive outcome of globalization. However,

globalization has had its negative effects on these less developed nations. Globalization has

increased inequality in developing nations between the rich and the poor. The benefit of

globalization is not universal. Globalization is making the rich richer and the poor poorer.

The health and education system in developing countries has benefited in a positive way due to

the contribution of globalization. Education has increased in the recent years because

globalization has created jobs that require a higher education. “Health and education are basic

objectives to improve any nations, and there are strong relationships between economic growth

and health and education systems” Fariooz Hamdi. Globalization has helped improve developing

countries rates of illiteracy living standards and life expectancy. According to the World Bank

(2004) “ With globalization, more than 85 percent of the world’s population can expect to live

for at least sixty years and this is actually twice as long as the average life expectancy 100 years

ago”. An Increase trade and travel, diseases for example HIV/AIDS, Swine Flu and a verity of

plant diseases, move easily across borders. Fairooz Mustafa Hamdi “The Impact of Globalization

in the Developing Countries” November 11th 2013. Another drawback to globalization is the

loss of highly educated and qualified professionals in developing countries due to migration to
developed countries for a better life. It is safe to say that globalization has good benefits and

negative setbacks for developing nations in the world. Globalization can be thought as a tool and

depending on how one uses the tool or how often or even in what ways it is used. Globalization

can be good for a Nation depending on the nations and the developing nations investing in it.

It has a lot of benefit on our daily life. Globalization has created a new opportunity for

developing countries. Such as, technology transfer holds out promise, greater opportunities to

access developed countries markets, growth and improved productivity and living standards.

However, it is not true that all effects of this phenomenon are positive. Because, globalization

has also brought up new challenges such as, environmental deterioration, instability in

commercial and financial markets, increase inequity across and within nations. Globalization has

contributed a lot in the development process of developing world but there cost and benefits

accompanied. The focus of this research paper is will be the consequences of globalization on the

third world countries in social, political and economic sphere whether positive or negative.

I- GLOBALIZATION

It is a spread of products, technology, information and jobs across national boarders and cultures.

In economic terms, it describes an interdependence of nations around the globe fostered through

free trade. On the upside, it can raise the standard of living in poor and less developed countries

by providing job opportunity, modernization, and improved access to goods and services. On the

downside, it can destroy job opportunities in more developed and high-wage countries as the

production of goods moves across borders. Globalization motives are idealistic, as well as

opportunistic, but the development of a global free market has benefited large corporations based
in the Western world. Its impact remains mixed for workers, cultures, and small businesses

around the globe, in both developed and emerging nations.

Globalization Advantages

Proponents of globalization believe it allows developing countries to catch up to industrialized

nations through increased manufacturing, diversification, economic expansion, and

improvements in standards of living. Outsourcing by companies brings jobs and technology to

developing countries. Trade initiatives increase cross-border trading by removing supply-side

and trade-related constraints. Globalization has advanced social justice on an international scale,

and advocates report that it has focused attention on human rights worldwide.

Economic and Trade Processes Field

Globalization helps developing countries to deal with rest of the world increase their economic

growth, solving the poverty problems in their country. In the past, developing countries were not

able to tap on the world economy due to trade barriers. They cannot share the same economic

growth that developed countries had. However, with globalization the World Bank and

International Management encourage developing countries to go through market reforms and

radical changes through large loans. Many developing nations began to take steps to open their

markets by removing tariffs and free up their economies. The developed countries were able to

invest in the developing nations, creating job opportunities for the poor people. For example,

rapid growth in India and China has caused world poverty to decrease (blogspot.com.2009). It is

clear to see that globalization has made the relationships between developed countries and

developing nations stronger, it made each country depend on another country. According to

Thirlwall (2003:13) " Developing countries depend on developed countries for resource flows
and technology, but developed countries depend heavily on developing countries for raw

materials, food and oil, and as markets for industrial goods". One the most important advantages

of globalization are goods and people are transported easier and faster as a result free trade

between countries has increased, and it decreased the possibility of war between countries.

Furthermore, the growth in the communication between the individuals and companies in the

world helped to raise free trade between countries and this led to growth economy. However,

globalization has many economy and trade advantages in the developing countries, we must also

note the many disadvantages that globalization has created for the poor countries. One reason

globalization increases the inequality between the rich and poor, the benefits globalization is not

universal; the richer are getting rich and the poor are becoming poorer. Many developing

countries do benefit from globalization but then again, many of such nations do lag behind." In

the past two decades, China and India have grown faster than the already rich nations. However,

countries like Africa still have the highest poverty rates, in fact, the rural areas of China which

do not tap on global markets also suffer greatly from such high poverty (blogspot.com.2009). On

the other hand, developed countries set up their companies and industries to the developing

nations to take advantages of low wages and this causing pollution in countries with poor

regulation of pollution. Furthermore, setting up companies and factories in the developing

nations by developed countries affect badly to the economy of the developed countries and

increase unemployment.

Education and Health Systems

Globalization contributed to develop the health and education systems in the developing

countries. We can clearly see that education has increased in recent years, because globalization
has a catalyst to the jobs that require higher skills set. This demand allowed people to gain higher

education. Health and education are basic objectives to improve any nations, and there are strong

relationships between economic growth and health and education systems. Through growth in

economic, living standards and life expectancy for the developing nations certainly get better.

With more fortunes poor nations are able to supply good health care services and sanitation to

their people. In addition, the government of developing countries can provide more money for

health and education to the poor, which led to decrease the rates of illiteracy. This is seen in

many developing countries whose illiteracy rate fell down recently. It is truth that, living

standards and life expectancy of developing countries increase through economic gains from

globalization. According to the World Bank (2004) " With globalization, more than 85 percent of

the world's population can expect to live for at least sixty years and this is actually twice as long

as the average life expectancy 100 years ago". In addition, globalization helped doctors and

scientists to contribute to discover many diseases, which spread by human, animals and birds,

and it helped them to created appropriate medicines to fight these deadly diseases. For example,

HIV/AIDS, swine flu and birds' flu whole world know about these diseases and they know how

to avoid it. By globalization, there are many international organizations, such as, Non-

governmental Organization (NGO), World Health Organization (WHO) and UNESCO, trying to

eliminate illiteracy and deadly diseases in the world and save the life. In spite of these positive

effects of globalization to the education and health fields in the developing countries. However,

globalization could have negative impacts also in these fields; globalization facilitates the spread

of new diseases in developing nations by travelers between countries. Due to increased trade and

travel, many diseases like HIV/AIDS, Swine Flu, Bird Flu and many plant diseases, are
facilitated across borders, from developed nations to the developing ones. This influences badly

to the living standards and life expectancy these countries. According to the World Bank (2004)

"The AIDS crisis has reduced life expectancy in some parts of Africa to less than 33 years and

delay in addressing the problems caused by economic". Another drawback of globalization is,

globalized competition has forced many minds skilled workers where highly educated and

qualified professionals, such as scientists, doctors, engineers and IT specialists, migrate to

developed countries to benefit from the higher wages and greater lifestyle prospects for

themselves and their children. This leads to decrease skills labour in the developing countries.

Culture Effects

Globalization has many benefits and detriment to the culture in the developing countries. Many

developing countries cultures has been changed through globalization, and became imitate others

cultures such as, America and European countries. Before globalization it would not have been

possible to know about other countries and their cultures. Due to important tools of globalization

like television, radio, satellite and internet, it is possible today to know what is happening in any

countries such as, America, Japan and Australia. Moreover, people worldwide can know each

other better through globalization. For example, today we can see clearly a heavily effect that

caused by globalization to the young people in the different poor nations, it is very common to

see teenagers wearing Nike T-Shirts and Adidas footwear, playing Hip-Hop music, using Apple

ipad and iphone and eating at MacDonald, KFC and Domino's Pizza . It is look like you can only

distinguish them by their language. One the other hand, many developing countries are

concerned about the rise of globalization because it might lead to destroy their own culture,

traditional, identity, customs and their language. Many Arab countries such as Iraq, Syria,
Lebanon and Jordan, as developing countries have affected negatively in some areas, their

cultures, Developing Country Studies www.iiste.org customs and traditional have been changed.

They wear and behave like developed nations, a few people are wearing their traditional cloths

that the used to. Furthermore, globalization leads to disappearing of many words and expressions

from local language because many people use English and French words. In addition, great

changes have taken place in the family life, young people trying to leave their families and live

alone when they get 18 years old, and the extended family tends to become smaller than before

(Kurdishglobe, 2010).

Disadvantages of Globalization

One clear result of globalization is that an economic downturn in one country can create a

domino effect through its trade partners. For example, the 2008 financial crisis had a severe

impact on Portugal, Ireland, Greece, and Spain. Globalization detractors argue that it has created

a concentration of wealth and power in the hands of a small corporate elite which can gobble up

smaller competitors around the globe. Globalization has become a polarizing issue in the U.S.

with the disappearance of entire industries to new locations abroad. It's seen as a major factor in

the economic squeeze on the middle class. For better and worse, globalization has also increased

homogenization. Starbucks, Nike, and Gap Inc. dominate commercial space in many nations.

The sheer size and reach of the U.S. have made the cultural exchange among nations largely a

one-sided affair (BEVERLY BIRD AND CAROL KOPP).

II- THE THIRD WORLD COUNTRIES

In terms of the “worlds” system, they are ranked from first world to third world. The first world

refers to the countries that are more developed and industrialized societies; in other words,
capitalist societies that aligned with the U.S. and NATO during the Cold War. This includes

North America, Japan, Western Europe and Australia. Second world countries refer to the

countries that lean more toward a socialist society, and generally were allied with the Soviet

Union during the Cold War. These countries include Russia, Poland, China and some Turk

states. Third world countries are all the other countries that did not pick a side. This includes

most of Africa, Asia and Latin America. However, this definition includes countries that are

economically stable, which does not fit the currently accepted definition of a third world country.

As a society, the term “third world country” refers to countries with high mortality rates,

especially infant mortality rates. They also have an unstable and inconsistent economy. These are

countries that contain massive amount of poverty and in some cases have fewer natural resources

than other nations throughout the world. These countries often have to rely on more

industrialized countries to aid them and help stabilize their economy. These countries usually

lack economic stability because of the lack of a functioning class system. Usually, the country

will have an upper class and a lower class. Without a middle class to fill the gap, there is almost

no way for a person to escape poverty because there is no next step for them on the economic

ladder. This also allows the wealthy to control all the money in the country. This is detrimental

to the economy of the country, and both increases and helps to sustain the poverty running

rampant throughout the country while allowing the upper class to keep their wealth to

themselves. These countries often accrue a copious amount of debt from foreign countries

because of the constant aid they need from other countries to keep their economy afloat and

provide some financial stability to the citizens of the country. The definition of a third world

country has evolved from the political meaning during the Cold War to the economic meaning of
today. Today’s meaning refers to countries that are in financial trouble and need help from other

countries to keep their economy sustainable, at least for a short time (Simon Williams). Third

world countries, which started as a vague catchall term for non-alliance countries, came to be

associated with impoverished states, while the First World was associated with rich,

industrialized countries. In addition, to being outdated, these terms are also inaccurate. There are

more than 100 countries tat fit the label of the “Third World”, but they have vastly different

levels of economic stability. Some are relatively poor, but many are not. For example, lumping

Botswana and Rwanda into the same category does not make sense because the average income

per capita in Botswana is nine times larger than Rwanda. Nowadays, social scientist sort

countries into group based on their specific levels of economic productivity. To do this, they use

the Gross Domestic Product (GDP), which measures the total output of a country, and the Gross

National Income (GNI), which measures the GDP per capita (World Bank, n.d.). Theses

distinctions point largely to racial inequality, specifically between the black and white.

According to Ritzer (2015), “At the global level, whites are disproportionately in the dominant

North, while black are primarily in the south; although this is changing with “South-to-North

migration” (p.266). In other words, the differences between the Globe North and the Globe

South are shaped by the migration and globalization. Nevertheless, the economic differences

between the wealthy Global North and poor Global South “have always possessed the racial

character” (Winant, 2001, p. 131).

Strategies of Globalization in the Third World

The great problem of liberalization is that the markets are not economically

embedded. T is is especially true in financial markets. The existing architecture of

the global financial market is largely libertarian, facilitating the rapid acquisition

of huge private benefits. Its cost can be catastrophic in terms of prosperity and jobs

in isolated or in several affected national economies. As a result, the basic rights of

people in these countries are jeopardized (Meyer and Breyer 173-74). Similarly, the

next problem of economic globalization has been evolved from the lack of political

control over extensively spreading transnational companies which are establishing

in several countries. The companies partially evade national fiscal jurisdiction by depositing their

profits in countries with more favorable tax systems. Of en companies decentralize their

production processes to such an extent that individual components are manufactured in countries

where it is most advantageous to produce them. Strategies of Globalization in the Third World

The great problem of liberalization is that the markets are not economically embedded. T is is

especially true in financial markets. The existing architecture of the global financial market is

largely libertarian, facilitating the rapid acquisition of huge private benefits. Its cost can be

catastrophic in terms of prosperity and jobs in isolated or in several affected national economies.

As a result, the basic rights of people in these countries are jeopardized (Meyer and Breyer 173-

74). Similarly, the next problem of economic globalization has been evolved from the lack of

political control over extensively spreading transnational companies which are establishing

in several countries. T e companies partially evade national fiscal jurisdiction by depositing their

prof ts in countries with more favorable tax systems. Of en companies decentralize their

production processes to such an extent that individual components are manufactured in countries

where it is most advantageous to produce them.

III- GLOBALIZATION AND INEQUALITY IN DEVELOPING COUNTRIES

One way globalization can increase inequality is through the effects of increasing specialization

and trade. A rise in trade-to-GDP ratios signifies an increase in the volume and value of trade

between countries and regions. Although trade based on comparative advantage has the potential

to stimulate economic growth and lift per capita incomes, it can also lead to a rise in relative

poverty. For example, if a country can now import cheaper steel from elsewhere, then there will

be a contraction in domestic supply and a fall in employment and real incomes in that industry.

This can lead to higher rates of structural unemployment and a decline in real living standards.

Real wages come under downward pressure and inequality can increase. GLOBALIZATION has

made the planet more equal. As communication gets cheaper and transport gets faster,

developing countries have closed the gap with their rich-world counterparts. But within many

developing economies, the story is less rosy: inequality has worsened. The Gini index is one

measure of inequality, based on a score between zero and one. A Gini index of one means a

country’s entire income goes to one person; a score of zero means the spoils are equally divided.

Sub-Saharan Africa saw its Gini index rise by 9% between 1993 and 2008. China’s score soared

by 34% over twenty years. Only in a few places has it fallen. Does globalization have anything

to do with it? Usually, economists say no. Basic theory predicts that inequality falls when

developing countries enter global markets. The theory of comparative advantage is found in

every introductory textbook. It says that poor countries produce goods requiring large amounts of

unskilled labour. Rich countries focus on things requiring skilled workers. Thailand is a big rice

exporter, for example, while America is the world's largest exporter of financial services. As

global trade increases, the theory says, unskilled workers in poor countries are high in demand;
skilled workers in those same countries are less coveted. With more employers clamoring for

their services, unskilled workers in developing countries get wage boosts, whereas their skilled

counterparts don’t. The result is that inequality falls. But the high inequality seen today in poor

countries is prompting new theories. One emphasizes outsourcing—when rich countries shift

parts of the production process to poor countries. Contrary to popular belief, multinationals in

poor countries often employ skilled workers and pay high wages. One study showed that workers

in foreign-owned and subcontracting clothing and footwear factories in Vietnam rank in the top

20% of the country's population by household expenditure. A report from the OECD found that

average wages paid by foreign multinationals are 40% higher than wages paid by local firms.

What is more, those skilled workers often get to work with managers from rich countries, or

might have to meet the deadlines of an efficient rich-world company. That may boost their

productivity. Higher productivity means they can demand even higher wages. By contrast,

unskilled workers, or poor ones in rural areas, tend not to have such opportunities. Their

productivity does not rise. For these reasons globalization can boost the wages of skilled

workers, while crimping those of the unskilled. The result is that inequality rises. Other

economic theories try to explain why inequality in developing countries has reached such

heights. A Nobel laureate, Simon Kuznets, argued that growing inequality was inevitable in the

early stages of development. He reckoned that those who had a little bit of money to begin with

could see big gains from investment, and could thus benefit from growth, whereas those with

nothing would stay rooted in poverty. Only with economic development and demands for

redistribution would inequality fall. Indeed, recent evidence suggests that the growth in

developing-country inequality may now have slowed, which will prompt new questions for
economists. But as things stand, globalization may struggle to promote equality within the

world’s poorest countries. We see this in regions of the UK for example where

deindustrialization has taken place leading to much higher rates of long-term unemployment and

a worsening of economic and social deprivation. In the United States, the share of national

income claimed by the top 1% of the population climbed from 11% in 1980 to 20% in 2014,

compared to just 13% for the entire bottom half of the population. However, one could argue that

the benefits of globalization can be used to offset this. If trade generates faster GDP growth, then

the government will see an increase in tax revenues which might then be used to fund capital

investment in public goods and merit goods and services including finance for re-training

programs and improvements to infrastructure in economically-depressed areas. Much depends on

whether a government has sufficient resources and political will to implement an active regional

and industrial policy to improve employment prospects for those negatively affected by

globalization. A third way in which globalization can create increased inequality is by increasing

the demand for and returns to higher-skilled work and lowering the expected earnings of people

in relatively low-skill and low-knowledge occupations. One of the driving forces of foreign

direct investment is that resources tend to flow where the unit cost of production is lowest. In

conclusion, it is not inevitable that globalization increases inequality of income and wealth. We

have seen big changes in the workforce and in earnings between different groups but in my view,

these are not solely the consequence of globalization. One paradox of globalization is that it has

probably reduced inequality between countries but increased it within nations. What matters is

how governments respond to the challenge of improving access to knowledge and skills and in

making sure that the benefits from cross-border trade and investment provide enough tax
revenues to pay for high quality and affordable public services. In this way, more of the positives

from globalization can be turned into a ‘public good’ rather than a ‘public bad’. That said, it

could be argued that it is technological progress – which has raised demand for skilled workers

relative to unskilled workers – rather than trade and globalization which has had most impact on

these workers. Often the people who lose jobs as a result of technology are not the ones who get

the new ones and the result can be hysteresis in the labour market with deep pockets of long-term

unemployment and hit relative poverty. Basic theory predicts that inequality falls when

developing countries enter global markets. The theory of comparative advantage is found in

every introductory textbook. It says that poor countries produce goods requiring large amounts of

unskilled labour. Rich countries focus on things requiring skilled workers. Thailand is a big rice

exporter, for example, while America is the world's largest exporter of financial services. As

global trade increases, the theory says, unskilled workers in poor countries are high in demand;

skilled workers in those same countries are less coveted. With more employers clamoring for

their services, unskilled workers in developing countries get wage boosts, whereas their skilled

counterparts don’t. The result is that inequality falls. Usually, economists say no. Basic theory

predicts that inequality falls when developing countries enter global markets. The theory of

comparative advantage is found in every introductory textbook. It says that poor countries

produce goods requiring large amounts of unskilled labour. Rich countries focus on things

requiring skilled workers. Thailand is a big rice exporter, for example, while America is the

world's largest exporter of financial services. As global trade increases, the theory says, unskilled

workers in poor countries are high in demand; skilled workers in those same countries are less

coveted. With more employers clamoring for their services, unskilled workers in developing
countries get wage boosts, whereas their skilled counterparts don’t. The result is that inequality

falls. Since 1980s, globalization has entered the vocabulary of many people but the concept has

given a variety of meanings that remains the subject of debate and controversy. There is an

argument about whether or not it is primarily a political, technological, cultural or economic or

multi-causal phenomenon; whether it 'pulls upwards' or 'pushes down'; whether it destroys

political autonomy or creates new pressures for local autonomy; whether it shrinks the public

sphere or demands its enlargement; or whether it enhances or reduces our capacities to

understand the world we live in (Mendell 203). So far to focus on economic globalization such

as integration of financial markets and other markets, internationalization of production are

concerned, from 1914 to 1950, however, the world economy experienced lower rates of growth,

a retreat from globalization, and economic divergence.' The world economy reversed its surge

toward globalization especially after 1990. A number of recent studies have examined

globalization's effect on developing countries (Andersen and Kersbergen 197). During the period

from 1973 through the 1980s, inequality rose in the North, in part due to globalization forces.

Economic theory and a few studies argue that such rise in inequality would be coupled with a

more egalitarian South. T e recent widening of wage inequalities in the United States occurred

simultaneously with a trend toward trade liberalization and the increased immigration of

unskilled workers from developing countries. Borjas has estimated that these forces have

contributed 15 to 20 percent of the relative decrease in the wages of high school graduates

compared with college graduates: trade accounting to one-third, and immigration two third. Have

these patterns resulted in stimulating the relative demand for unskilled labor in the developing

countries and thus made developing countries more egalitarian? "Adrian wood assertions are
consistent with economic theory, recent studies show that the number of countries in Latin

America and East Asia have experienced increase, not decline, in wage inequality after trade

liberalization" (qtd. in Williamson 303).However, globalization of markets has widened

economic inequality and inaugurated a competitive 'race to the bottom' as government seek to

attract mobile capital by reducing or eliminating perceived impediments to business, such as

relatively high business taxes and relatively entrenched labor rights (Tilly 28). On the other hand,

global income and real GDP have risen seven fold since the end of World War II and threefold in

per capita terms, but during that time, the gap in incomes between developed and developing

nations continued to widen. In addition, large disparities emerged among developing countries.

In this context, Sub-Sahara Africa was the poorest region in the world, where the fundamental

issue of human survival remained a grave concern. African nation’s real incomes fell or

remained stagnant from 1987 to 1994. The Latin American economies were more unequal

relative to other developing regions. Increased inequality in the region was coupled with rising

poverty. Economic recovery in the early 1990s boosted the region's growth rates, the real income

of the bottom 40 percent remained below the poverty line in most Latin American countries. In

the developing countries, large disparities in inequality and poverty can be attributed to

differences in the role of government. Government is associated with the goal of greater equality

if income and wealth were coped with the means of retributive tax and welfare policies (Mendell

203-04). However the most successful East Asian nations have placed on emphasis on poverty

alleviation rather than on reduction of inequality (Kim 307-08).

IV-POVERTY, GROWTH AND GLOBALIZATION

The majority of the poor live in rural areas. Lack of political commitment and public support

programs for rural development are major hurdles of poverty reduction in this continent. The

rural poor people experience very little access to credit, land and extension services. In Latin

America, inequality and poverty reflect the legacy of import substitution strategy. This caused

Latin American countries to embrace austerity measures in the 1980’s, which quickly increased

the numbers of critically poor, low paid underemployment and low-wage workers. In addition,

market led growth does not automatically reduce inequality and poverty. Obviously, positive

economic growth is not sufficient condition for the reduction of poverty. Moreover, inequality

has been observed in many countries. Hence, a number of studies point to a strong relationship

between inequality and growth (Kim 308). Economic theory suggest the greater openness to

world trade developing countries will reduce wage inequality. Trade liberalization raises the

relative demand for unskilled workers and therefore reduces the wage gap between the skilled

and the unskilled. When the ration of skilled to unskilled labor is lower for export than imports,

then increased openness to trade should raise the demand for unskilled workers. This

conventional wisdom postulates that increased trade liberalization in developing countries

increases the demand for the unskilled relative to skilled labor and thus reduces wage inequality.

However, the Latin American experience in the mid-1890’s and 1990’s challenges this wisdom

(Wood 316). Employment is a core issue for the issue of the welfare state for fundamental

reasons of social cohesion and individual self-esteem and for reasons of economic sustainability.

However, employment is not sufficient to define the aims of social justice. High employment

rates are, no doubt, necessary but not sufficient condition for fair equality of opportunity in
society or social inclusion as is shown by comparative figure of poverty in the working age

population (Vandenbroucke 3). Nevertheless, the major issue in welfare reform, which provides

the appropriate route out of poverty. Growing inequality both within and between nations is,

thus, driven by globalization. The rich command internationally determined rates remuneration;

companies seeks profits globally; and the unskilled-both low-waged and unemployed are faced

with a growing army of cheap labor across the globe (Mendell 203).

V- MULTINATIONAL CORPORATIONS IN THE THIRD WORLD

Multinational corporations (MNCs) engage in very useful and morally defensible activities in

Third World countries for which they frequently have received little credit. Significant among

these activities are their extension of opportunities for earning higher incomes as well as the

consumption of improved quality goods and services to people in poorer regions of the world.

Instead, these firms have been misrepresented by ugly or fearful images by Marxists and

“dependency theory” advocates. Because many of these firms originate in the industrialized

countries, including the U.S., the U.K., Canada, Germany, France, and Italy, they have been

viewed as instruments for the imposition of Western cultural values on Third World countries,

rather than allies in their economic development. Thus, some proponents of these views urge the

expulsion of these firms, while others less hostile have argued for their close supervision or

regulation by Third World governments. Incidents such as the improper use in the Third World

of baby milk formula manufactured by Nestle, the gas leak from a Union Carbide plant in

Bhopal, India, and the alleged involvement of foreign firms in the overthrow of President

Allende of Chile have been used to perpetuate the ugly image of MNCs. The fact that some

MNCs command assets worth more than the national income of their host countries also
reinforces their fearful image. And indeed, there is evidence that some MNCs have paid bribes to

government officials in order to get around obstacles erected against profitable operations of

their enterprises. Several governments, especially in Latin America and Africa, have been

receptive to the negative images and have adopted hostile policies towards MNCs. However, a

careful examination of the nature of MNCs and their operations in the Third World reveals a

positive image of them, especially as the allies in the development process of these countries. For

the greater well-being of the majority of the world’s poor who live in the Third World, it is

important that the positive contributions of these firms to their economies become more widely

known. Even as MNCs may be motivated primarily by profits to invest in the Third World, the

morality of their activities in improving the material lives of many in these countries should not

be obscured through misconceptions. The first point to recognize about MNCs is that, besides

operating under more than one sovereign jurisdiction, they are in nature very similar to local or

non-multinational firms producing in more than one state or plant. We may call such multi-plant

firms uni national corporations (UNCs). Thus, a UNC with branch plants in Alaska as well as

some other parts of the U. S. would have been known as an MNC had Alaska continued to be a

non- U.S. territory. Indeed, the experience of European countries soon to become more unified

economically or the former Soviet Union now breaking up into several sovereign or

quasisovereign states should impress us of the fact that the United States or Canada easily could

have been several independent countries, and some present UNCs would have been MNCs.

Like UNCs, MNCs are owned by shareholders who expect annual returns or dividends in

compensation for funds they make available for the firm’s production and sales activities. It is to

enable MNCs to pay such dividends that their managers seek out the most efficient workers for
the wages they pay, buy materials at the cheapest costs possible, seek to produce in countries

levying the lowest profit taxes, and sell in markets where they can earn the highest revenues after

costs. (This is no different from anyone seeking employment at the highest wage for the least

amount of tedium, the most congenial work environment and location, and the highest

employment benefits.) Perhaps the main difference between uni national and multinational

corporations is that the latter have been more successful than the former, and as a result have

expanded their activities to many more regions and sovereign states. Many do recognize UNCs

or local firms as helpful agents in the development of the communities in which they operate.

Primary in this recognition is the employment they create and the (higher) incomes earned

because of their having established in the region. These firms also rent buildings and land, or

sometimes buy them, thus generating higher incomes for their owners. For example, in the

absence of the present Japanese owners having bid for the Rockefeller Center in New York, the

price its American owners would have gotten for it would have been lower. The same applies to

the income prospects of owners of the Seattle Mariners should the sale of this club to the

Japanese buyers go through. It is precisely in similar ways that MNCs enrich labor and other

resource owners in the Third World. In their absence, the people would have had fewer or much

lower paying jobs, and the demand for land and other local resources would have been lower.

Without the operators of such hotels as the Holiday Inn, the Sheraton, the Hyatt, Four Seasons,

and the Hilton having leased or bought beach-front properties in several of the popular tourist

resorts in the Third World, their owners (individuals or government) might have received much

less for their sale. Such purchases also release the capital of resource owners for investment in

other enterprises. Some of those who recognize little positive contributions from MNCs to the
economics development of the Third World countries might, however, acknowledge that these

firms pay higher wages to local employees than they typically would receive elsewhere, and

higher rents for land and buildings. But they often argue that the wages in Third World countries

are lower than those paid by MNCs in the more developed countries, and the working conditions

are not of the same standard. However, the comparison misses several key points. For example,

the skill or educational levels of workers in the Third World and those of the more developed

countries are not the same. The amount of machinery and equipment handled by workers in the

two locations are also different. In short, the amount of output generated by a worker in the Third

World is typically smaller than that produced in the more developed world. Indeed, if MNCs

could hire enough of higher skilled workers in the more developed countries at the wages

workers are paid in the Third World, they would gladly do so. They would thus earn higher

profits while selling their goods and services at lower prices. But the fact is that the voluntary

exchange system in which MNCs operate would not permit them. Besides those working for

charity, few others would for long accept wages they consider to be less than their contribution

to an enterprise. The same explanation applies to wages paid by MNCs in the Third World.

Unless workers find it most profitable to work for MNCs at the wages they offer, they would

choose employment elsewhere. Similarly, unless MNCs can make as much profit as they can at

home, as well as compensation for the additional risks taken to invest in the Third World,

including the risk of asset confiscation by a hostile future government, they would not venture

into those parts of the world. Thus, there have to be net benefits for both parties in a transaction

(here workers and multinational corporations) for the transaction to take place, and on a

continuous basis. It may also be worthwhile to point out that research has not confirmed the
frequent assertion that foreign firms, including MNCs, make excessive or higher profits per

dollar invested than their local counterparts. On the contrary, private local firms on average earn

higher rates of profits before taxes than foreign firms (as revealed by research in India, Brazil,

Columbia, Guatemala, Ghana, and Kenya). And the simple explanation is that many Third World

governments tax the profits of their local firms at a higher rate than they do those of foreign

firms. Thus, the after-tax rates of profit are similar for foreign and private local firms in the Third

World. Furthermore, new wealth created by any firm has to cover the wages, interest, equipment,

and the rental costs of land and buildings incurred in production before profits are paid. And

much of such payments stay within the host Third World economy. It may also be worthwhile to

point out that research has not confirmed the frequent assertion that foreign firms, including

MNCs, make excessive or higher profits per dollar invested than their local counterparts. On the

contrary, private local firms on average earn higher rates of profits before taxes than foreign

firms (as revealed by research in India, Brazil, Columbia, Guatemala, Ghana, and Kenya). And

the simple explanation is that many Third World governments tax the profits of their local firms

than they do those of foreign firms. Thus, the after-tax rates of profit are similar for foreign and

private local firms in the Third World. Furthermore, new wealth created by any firm has to cover

the wages, interest, equipment, and the rental costs of land and buildings incurred in production

before profits are paid. And much of such payments stay within the host Third World economy.

If we withhold our paternalistic instincts towards poorer people in the Third World, we would

also respect their judgment to purchase products manufactured there by MNCs rather than accuse

the firms of selling inappropriate products to them. Being poor does not make one’s choice of

products less defensible or moral than the choices of the rich. And without sufficient demand for
the products, MNCs would not make profits from selling them in the Third World. In a free

trading regime, the same products might have been imported had they not been produced by

MNCs. There is thus no valid reason why Third World governments should require that MNCs

manufacture and sell only second- or third-rate quality products in those countries, as some

analysts from the more developed countries have suggested. Is there anything legitimate that

Third World governments can do about the activities of multinational corporations in their

countries? Yes; but nothing more than they legitimately and reasonably would do about local

firms, bearing in mind that excessive taxation of profits or environmental regulations reduce total

investments by both types of firms. Perhaps, MNCs may be able to offer bigger bribes than local

firms to escape restrictions imposed on them by Third World governments. If so, such

restrictions mainly work against the development of local firms. The solution ought to be a

loosening of restrictions on businesses so they may create more wealth and in the process

facilitate the development of local enterprise and lessen the incidence of corruption in

government. Adam Smith, who was also a moral philosopher, long observed that an individual

“by directing industry in such a manner as its produce may be of the greatest value, intends only

his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end

which was no part of it. By pursuing his own interest he frequently promotes that of the society

more effectually than when he really intends to promote it.” These observations apply with equal

force to the investment activities of multinational corporations in Third World countries. And it

is no accident that people in those Third World countries whose governments have been more

open to the presence of multinational corporations have experienced significant improvements in

their standard of living (e.g., Bermuda, the Bahamas, Hong Kong, South Korea, Singapore, and
Taiwan) while many in countries hostile to these firms continue to be mired in poverty. It may

not be the intent of Third World governments, but perpetuating poverty in the name of protecting

their people from alleged exploitation by MNCs has little moral justification.

VI- CONCLUSIONS

As we can see, the process of globalization has involved all the countries around the world.

Developing countries such as India, China, Africa, Iraq, Syria, Lebanon and Jordan have been

affected by globalization, and whether negatively or positively, the economies of these countries

have improved under the influence of globalization. The size of direct foreign investment has

increased and a lot of bad habits and traditions erased, but also globalization has brought many

drawbacks to these countries as well. Many customs and cultures are disappeared such as

traditions clothes and some language and expressions have changed. In addition, the violence

and drugs abuse are increased and a lot of deadly diseases have spread under the influence

of globalization. However, although globalization has many disadvantages, we believe that

globalization has brought the developing countries many more benefits than the detriments. For

example, we can see there is more and a biggest opportunity for people in both developed

countries and developing countries to sell as many goods to as many people as right now, so we

can say this is the golden age for business, commerce and trade. The development progress of the

past twenty five years has exceeded early expectations in many respects. Nonetheless about 800

million people, more than one-third of the total population of the developing world, still live in

absolute poverty. The central objectives of the international development task must be rapid

economic growth and the reduction of poverty. This report has discussed the policies and

prospects for development progress in these main areas: Sustaining rapid economic growth;
Modifying the pattern of economic growth so as to raise the productivity and incomes of the

poor; Improving the access of the poor to essential public services; Maintaining an international

environment supportive of development by improving the framework for international trade,

facilitating an expansion of lending at market terms, and expanding the volume of concessional

assistance. Rapid growth is fundamental to any development strategy. In the Low Income

countries, in particular, substantial and sustained progress in reducing poverty will be impossible

without accelerating growth rates. But growth alone is not enough. Because the poor tend to

share less than proportionately in growth, since they have only limited access to productive

assets, education, and employment, deliberate action is necessary in areas that affect the

distribution of increases in income. These include the structure of economic incentives, the

allocation of investments, and the creation of special institutions and programs to increase the

productivity of the poor and their opportunities for employment. In the Low Income countries,

with their large numbers of rural poor and heavy dependence on agriculture, the main emphasis

must be placed on raising productivity in the rural economy, particularly the productivity of

small farmers. In parts of Asia where a large potential for irrigation can be tapped, output can be

increased rapidly by stepping up irrigation investments. Changes will be necessary in the

administration and organization of agricultural support services, to assure that information is

disseminated broadly and quickly and that the services are responsive to the special needs of

small farmers. In rain fed areas, too, there is considerable scope for progress with present

knowledge. But in the drought prone areas of Sub-Saharan Africa and Asia, major technological

problems remain to be resolved if long-term agricultural growth is to be achieved. Measures to

make crop cultivation more productive should be supplemented by dairy, poultry, and fisheries
programs which are particularly important in raising the incomes of small and marginal farmers

and the landless. But even on optimistic assumptions about the growth of agriculture,

underemployment will be a growing problem in Low Income Asia, calling for greater emphasis

on creating non-farm jobs in rural areas and systematic expansion of large-scale public works

programs. Strengthening rural and urban infrastructure to support these development efforts will

be highly demanding of investment funds in industry as well as in agriculture. Capital needs to

be used more efficiently, but rapid increases in investment rates will still be essential. To achieve

the necessary levels of investment will require an increase in domestic savings, both public and

private, supplemented by large inflows of concessional capital. The uncertainty about

international trade and capital movements in the next few years poses strategic choices for the

Middle Income countries, which are more affected by changes in international economic

conditions. In most of them, efforts to sustain the growth of export earnings will have to be

supplemented by measures to achieve a more broadly based expansion of domestic demand. This

will require a more balanced growth strategy, including the acceleration of agricultural

development. Greater priority will need to be given to investments in the physical infrastructure

supporting agriculture, the creation of a more satisfactory set of incentives and relative prices,

and much improved support services. Measures to preserve the growth of foreign exchange

earnings include raising export incentives; increasing the domestic value added in manufactured

goods exports; and, particularly for the more advanced countries, exporting a more diverse range

of manufactured goods. Measures to further the growth of trade among developing countries will

also be important. 65 The poor in both the Middle Income and Low Income countries have very

inadequate access to such public services as health facilities, potable water, sanitation, and
education. Programs designed specifically to make these services accessible to the poor should

be an important part of development. In nearly all countries, there is a good deal of scope for

extending such services more widely within the same budgetary allocations, by adapting

successful experiments in low cost delivery systems, by using suitable technologies and design

standards, and by relying more heavily on the participation and selfhelp efforts of the

communities who are to benefit. Nonetheless, extending the supply of public services to the full

population will require substantial additional investments in all types of infrastructure, and large

increases in public expenditures to operate and maintain these systems. Measures to alleviate

poverty will run into social, political, and administrative obstacles which must not be

underestimated. The strength of deep-seated traditions, weaknesses in administration, and

opposition from affected groups can make it formidably difficult for even the most dedicated

governments to modify the patterns of economic growth or to alter the distribution of essential

public services. These problems are even more severe when economic growth is slow and the

resources available for investment and public services remain relatively stagnant. Serious though

these obstacles may be, they are no justification for inaction. Success is far more likely if

governments set themselves explicit targets for the growth of incomes of the poorest groups and

for the extension of basic public services, and then monitor progress regularly. The paucity of

data on incomes, nutritional deficiencies, and access to public services reflects the absence until

recently of policy concern with the poor and of anti-poverty programs with specific objectives.

The collection of data on the conditions of the poor is within the capacity of most countries and

will be vital to them in evaluating their policies, programs, and investments. However, progress

in the developing countries does not depend solely on domestic efforts. The latter must be
reinforced by international action in a number of areas. The most important of these areas is

international trade. The scope for the growth of exports from developing to industrialized

countries is likely to be much more limited for the next decade than it was in the last two. The

main reasons for this are the faltering pace of economic recovery in the industrialized countries

and the rise of protectionist pressures. A coordinated approach to the demand management

problems of industrialized countries is essential if they are to avoid a protracted period of slow

growth, with its extremely adverse consequences for the growth of trade, including an increase in

import barriers. In considering how to accelerate growth in industrialized countries, the

importance of links with the developing countries should be recognized. With more purchasing

power, the developing countries can help to stimulate demand further. The international

community faces a long period of shifting comparative advantage, and it is essential that

countries be ready to accept and facilitate the changes in industrial structures that this will

involve. A few countries have undertaken studies of the direction these changes are likely to take

over the longer run. Others should do the same since such information is necessary for framing

and implementing appropriate adjustment policies. The developing countries, too, face problems

in adjusting to changing international trade patterns. The more advanced of them need to step up

programs to diversify the product composition and markets of their manufactured exports. To

promote trade among developing countries will require changes in industrial incentive structures,

reduction of trade barriers, and strengthening of the institutional infrastructure in transport,

communications, and credit. In addition, countries must move jointly to strengthen the

international framework governing trade relations so as to assure that the barriers to trade, which

exist in both industrialized and developing countries, will be gradually dismantled, and that
explicit criteria are established for those barriers which must be imposed to deal with temporary

difficulties. As international specialization increases, active participation by developing countries

in international trade discussions will become more and more important to offset protectionist

pressures and progressively reduce the impediments to the growth of trade. For countries that

still depend heavily on exports of a few primary commodities, action to reduce fluctuations of

prices and to improve the systems which compensate for temporary declines in earnings is of

great importance. Even with a steady expansion of earnings from trade, the resources available to

the developing countries must be supplemented by an adequate inflow of external capital. In this

area, too, there are uncertainties. Additional concessional resources would permit both a higher

rate of growth and greater progress in dealing with poverty. The large investments necessary to

accelerate growth in agriculture and expand public services require an increased flow of

concessional capital to the Low Income and to the poorer of the Middle Income countries.

Although at particular times, in individual countries, there may be temporary problems of

absorptive capacity, there is no doubt that additional resources could be used effectively.

Additional external resources cannot guarantee either accelerated growth or success in dealing

with poverty, but the absence of adequate resources greatly increases the probability of failure.

The high ratio of gross to net lending has the potential for serious instability. More general

difficulties might arise if the trade regime were to deteriorate further, since this would affect

countries' export earning capacity and hence their capacity to service debt. The willingness of

private institutions to lend might also be affected by the regulatory environment in the capital

exporting countries and by their governments' attitudes to lending to developing countries. Some

actions designed to assure the stability of the banking system in the capital exporting countries
could, by abrupt changes in the availability of finance to the developing countries, trigger the

sort of debt crises that they are intended to prevent. International lending institutions are the

principal source of long-term capital for the developing countries. Their declining share in the

total supply of capital is reflected in the deteriorating maturity profile of the debt of Middle

Income countries. The achievement of a better balance between medium-term lending from

private sources and long-term lending from the international institutions crucially depends on the

capacity of the latter to increase their lending. This requires early agreement to expand the

capital of these institutions. Action to do this is now under consideration. Increased lending by

the international financial institutions not only helps to improve the maturity structure of debt but

also provides assurance to private lenders either through co financing activities or indirectly

about the quality of investment programs and debt management in the developing countries. The

World Bank has begun to provide financing for this purpose, and plans to expand such

operations in association with private capital. Other international institutions are considering

similar programs. Such programs ought to be expanded rapidly and governments should consider

whether expanded insurance and guarantee provisions could augment the flow of private capital.

The above discussion of the areas in which international action is needed has emphasized their

importance for the prospects of developing countries. But it should be obvious that the

industrialized countries too have a large stake in the rapid growth of the volume of trade in a

liberal, nondiscriminatory trading environment and in more stable commodity prices. While their

rate of economic growth is not as sensitive to short-term changes in international trade, exports

play a major role in their economies, and the developing countries are increasingly important

markets for export industries. The maintenance of a liberal, non-discriminatory trading system
facilitates the continued growth of labor productivity and helps to ease inflationary pressures.

Increasing the supply of energy and food to meet growing demand from both industrialized and

developing countries is of vital importance to both. The developing countries not only are

important customers for the exports of industrialized countries; they are an important element in

the world capital markets, and have helped to invest the vastly expanded supply of savings

productively. The interdependence between the developing and the industrialized countries is not

a new phenomenon it has been growing in importance for decades. But it is perhaps not yet fully

understood how far the process has come, nor how much further it will go in the next decades. At

present, there is concern with the short-term disruptions caused by shifts in trade patterns, rather

than recognition of the vital contribution of trade to long-run growth in productivity; concern

with the growing indebtedness of some developing countries, rather than emphasis on

strengthening institutional capacity for financial inter mediation in line with global needs; fear

about the implications of shifting economic strengths, rather than acknowledgment of the

benefits of accelerated progress in the developing countries. But the current need to adjust is not

a transient problem: it reflects a continuing, long-term, structural shift. It is important, therefore,

that the implications and benefits of global interdependence be fully recognized. It will be to the

advantage of all countries to sustain an international environment that supports the efforts of

developing countries to sustain rapid growth and alleviate poverty as rapidly as possible.
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economies", (7th ed). Palgrave Macmillan: New York.

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http://www.worldbank.org/unite nations (August 28, 2011)

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Crossing the Border: International Journal of Interdisciplinary Studies ISSN 2350-8752(P)

Volume 1; Number 1; 15 December 2013 ISSN 2350-8922 (O)

The Economics of Developing Countries (third edition) E. WAYNE NAFZIGER

Managing in Developing Countries -Strategic Analysis and Operating Techniques JAMES E.

AUSTIN