EXPLAIN HOW DEVELOPING COUNTRIES DIFFER FROM DEVELOPED COUNTRIES [12]

Developed countries are a small group of rich and highly industrialised countries like the
USA, Canada, France, Italy, Germany, the UK and Japan. These countries are also often
called First World Countries. Developing countries are generally relatively poor countries
often in Asia, Africa and Latin America. Sometimes they are called Third World Countries.
Within this bloc, there are some countries like Singapore, South Korea and Mexico that are
called emerging economies because they are growing fast to become Developed economies.
There are some characteristics like population growth, income distribution and economic
structure that can be used to differentiate developing countries with developed countries.
The first aspect that differs between both types of countries is population growth.
Generally, in developing countries, the birth rates (the number of live births per thousand of
population per year), death rates (the number of deaths per thousand of population per
year) and infant mortality rate (number of deaths per thousand live births of children under
one year of age) are relatively high leading to high population growth. In developed
countries, all the aforementioned rates are relatively slower which cause a slow rate of
population growth. As countries develop, health and education services improve, leading to
lower birth rate, death rate and infant mortality rate. In addition, migration plays a part in
determining population growth also. In many developing countries, there is often a net
outflow emigration of people seeking employment and higher standards of living in other
countries, whereas in countries such as the UK, there is a net inflow due to its developed
economy.
The second factor that can be used is income distribution. Income distribution is very
important in showing whether there is a huge disparity between the rich and poor in the
country. In developed countries, income will be relatively evenly distributed. This is because
they have implemented effective progressive tax systems and provided good benefits to the
poor in order level the economic disparity that exist within the country. However, in
developing countries, income will be relatively unevenly distributed as it is not easy for
them to redistribute income due to rising national debt in certain countries and lack of law
enforcement in some countries that allow the rich to run away from taxes. For example, the
gini coefficient of the UK was 0.33 in 2018 while of Botswana was 0.61 in the same year
proving that developed countries has more evenly distributed income than developing
countries.
Moreover, the economic structure of the countries can also be used to differentiate
between countries. The basic rule is that as countries develop, the primary sector become
less important in terms of contribution to GNP and employment while the secondary and
tertiary sectors become more important. Therefore, developing countries will have
relatively high proportion of income from the primary sector. As they develop, they become
more and more industrialised and less dependent on their primary sector. On the other
hand, developed nation rely on secondary and mainly tertiary sectors as the biggest
contributors for their GNP. In many western industrialised countries, tertiary sectors have
continued to boom while secondary sectors have declined. 77% of the UK GNP originates
from the tertiary sector and more than 80% of their employment are in this sector also.
In conclusion, the three aspects discussed above can be used to differentiate between
developed and developing countries. Overall, developing countries have high population
growth with high birth, death and infant mortality rates due to poor education and health
services. Developing countries also have unevenly distributed income which cause high
disparity between the rich and the poor of the country. Lastly, developing countries are
highly dependent on primary sector as their main source of GNP which will shift to
secondary and tertiary as they become more industrialised.
ASSESS THE EXTENT TO WHICH A MULTINATIONAL COMPANY’S INVESTMENT IN A
DEVELOPING COUNTRY LEADS TO ECONOMIC GROWTH [13]
Foreign Direct Investment (FDI) are investments made by one country in another country.
They usually involve establishing operations or acquiring tangible assets, including market
stakes in other businesses. Multinational corporations (MNC) are the companies in charge of
making FDI possible in other countries. MNCs expand into economically less developed
countries as these countries often have cheap labour and vast untapped natural resources.
FDIs in form of MNCs are very important to developing countries as they help those
countries to achieve economic growth.
FDI may be seen as advantageous to developing countries as they bring about more jobs
and raise employment levels. As this happens, the income gained by household as a whole
will increase, which gives them higher purchasing power which will allow them to consume
more of domestic products. As these companies produce products in developing countries,
those goods can be exported as well. Both of these impacts will increase the GDP of the
developing countries which indicates economic growth. Besides, MNCs often bring about
new technology that helps to raise the productive capacity of the economy (potential
output). This allows for potential economic growth from the higher quality and quantity of
resources made available.
The most significant way MNCs help the economic growth of developing countries is by
stimulating their investment (a direct component of AD) in the country. Usually, developing
countries will have their interest rate high in order to attract FDIs to boost their investment.
When there is a change in autonomous expenditure like investment, the AD will rise. With
an increase in injection, the positive multiplier effect takes place such that the increase in
national income is greater than the increase in injection, in this case, investment. The
multiplier is the multiple of the change in national income as a result of change in
investment. The multiplier is assumed to be more than one. Therefore, the investment will
generate more economic growth than what it cost. If the multiplier, K, is 3, this means that
an increase in injection by $1 will lead to an increase in national income by $3 (3 times). The
formula to calculate K is as follows:
K = Change in National Income / Change in Autonomous Expenditure (Investment)
= 1 / (1-MPC) , MPC = Marginal Propensity to Consume
As we understand, the greater the multiplier of investment, the greater the national income
it will generate from investments of MNCs, which also means greater economic growth. The
factor that determines the magnitude of the multiplier is the magnitude of Marginal
Propensity to Consume of the country. The higher the MPC, the higher the multiplier.
Therefore, the extent that MNCs helps developing countries to achieve economic growth is
dependent on the MPC of the country itself. They will benefit more if it is higher.