Construction Management in Developing Countries, Lecture 2, Linkage and interdependence between developed and developing countries

1. Chapter 2
Linkage between developed and
developing countries
How Are We Linked?
(2 hours)

2.  Global Village
 Environment
 Rivers and winds
 Groundwater
 Population
 Migration/immigration
 Debt
 Jobs
 Education
Trade and Transit
Value of life
Tourism
Politics and peace
Terrorism
Supranational institutes
Developed and Developing Countries Linked
in many ways

3. 1. Global village
 Information and communication
Computer, Internet, Social Media, Holoportation
 Transportation
Concord, 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

4. 2. Environment
Global warming: 3 ° to 5° by 2100? Limit to
2°?
Green house gases
Sea level rising: 23 inches by 2100?
Snowless Alps and Himalayas by 2050?
Ozone depletion
Natural resources (e.g., Rain forests)
Acid rain
Wind
River
Wildlife
Desertification

7. 3. Population
People migrate due to problems related
to
•Poverty and inequalities
•Education
•Food
•Health
•Environment

8. 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.

9. 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

10. 5. Jobs/Outsourcing
Global job market has made us linked together
LDCs are providing cheap labor force
Developed countries are in need of HUMAN
Resource
Developed countries have become the point of
attractions for professionals of the LDCs

11. 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

12.  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

13.  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

14. 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.

16. 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.

17. 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

18. 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.

19. 8. Value of life
People 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.

20. 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, …

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

22. Political
Interdependence
Socio-economic
Interdependence
Environmental
Interdependence
Population
Debt
Global Village
EnvironmentJob
Value of Life
Terrorism
Peace and
Politics
Immigration
Education
Interdependence of Developed and Developing Countries: A Model?

23. • 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

24. 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.

25. 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.