Role of Developing Countries in the Global Economy

While economic conditions in many developing countries are quite difficult, as a group developing countries play a number of significant roles in the global economy and in the worldwide markets in which all countries are active.  For example, a large majority of the world’s potential consumers live in developing countries and their share promises to continue to increase based on projected population growth around the world.  Obviously, since income levels in developing countries are much lower than in the industrialized world the effective consumer demand in developing countries as well as their share of the global “economic pie” is proportionally lower; however, growth rates in developing countries have been exceeding those of developed countries and rising incomes in developing countries have made them prime targets for exports from the US, Western Europe and Japan.  Moreover, it is inevitable that developing countries actively participate in global trading markets as buyers given that they lack local sources for key items such as food, machinery, manufactured goods, fuels, chemicals and other raw materials.  Developing countries are also important suppliers to countries in the industrialized world and countries like the US have long relied on developing countries for imports of fuel, agricultural products and raw materials.  In recent years, imports from developing, albeit large and rapidly industrialized countries in Asia, have had a significant impact on US and European domestic markets as firms from developing countries have risen to become global challengers and competitors in sophisticated, technology-based manufacturing industries such as automobiles.  Finally, developing countries have been a significant factor in global capital markets for decades—first as “capital users” and beneficiaries of large amounts of bank lending, official assistance from international aid organizations such as the World Bank and direct private investment, and then as investors in their own rights (e.g., the large amount of US government debt instruments held by the Chinese and direct investments by foreign firms in the US to establish and grow local manufacturing and sales activities).

In addition to their roles as buyers, suppliers, competitors and capital users, developing countries are linked to other countries, and thus into the global economy, in several other ways.  For example, many developing countries have special economic links to one or more industrialized countries due to geographic proximity (e.g., Mexico and the US) or mutual interest in products such as oil or other relatively rare natural resources.  In fact, economic linkages have become increasingly important in both the developed and developing worlds over the last few decades as regional trading blocs have emerged and expanded.  Linkages among countries based on political, cultural and religious considerations are also common and countries located in close physical proximity inevitably experience movement of workers across borders that can have both positive and negative effects.  Finally, developing countries participate in global discussions on key issues through their membership in multilateral organizations and agreement such as the United Nations and the World Trade Organization.

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