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Why does the world economy growth shifted toward developing countries

Updated on October 20, 2015

Why does the world economy growth shifted toward developing countries?

Worldwide, the global economy has seen a change in growth pattern. From the ever growing economies in the developed countries to the fastest growing economies in the developing countries. In the past few decades, the global investment shifts from the prosperous developed countries in the west to the fastest developing economies in the east. The fastest economic growth can be seen in most Asian, African, and Latin American countries. Major developing countries economics superpower now includes China, India, Brazil, Mexico, most countries in South East Asia, Middle Eastern nation, South Africa, and Russia are the examples of countries undergoing rapid economic growth. In fact, now most investor worldwide are largely came from the developing nation. So why the world economy does shifted position from the developed nation to developed nation? These are some explanation on the reason of this shifting paradigm:

a) Larger market

Countries such as China, India, Thailand, and Philippines which have large population presents a good opportunity for business ventures among all companies worldwide. Not only because the potential market is large, but also the recent change of economic growth in those countries had made business growth possible in those countries, not forgetting of the ever changing lifestyle among people from the developing world. Nowadays, many large multinational companies from developed nations are shifting more of its capital investment to developing world for its large market share and potential profit.

b) Economic stagnation in developed nation

The sub-prime mortgage crisis in the United States plus economic crisis in the European Union are some proof of the stagnation of economic growth in the developed world which has been previously at high level prior to economic crisis. Inability for companies from the developed countries to attain profit and growth in their business in the developed nation, means that the more rapid growing and ever more prosperous developing countries are now the main source of profit for these past decade, which seen more foreign direct investment into developing countries compared to developed countries.

c) Lower cost of business

Whether it is domestic industry or foreign investment in developing country, one the main factor of its growth is often the lower cost of doing business. This is strengthen by the fact that not only the currency value in the developed world is getting more expensive, but also the cost of starting a business in developing countries is relatively cheaper than in developed countries. In some cases, the ease of procedure prior to setting up foreign firm business in developing countries is also the strengthening factor in inducing ease of doing business. Cheaper and easier means of setting up business by foreign firm are the key of ever growing economy in the developing countries.

d) Lower cost of labour

Many foreign firm are taking advantages of the rapid economic growth in the developing countries primarily of the cheap cost of labour advantage they can enjoy. Most labour can be hired at a lower and cheaper cost compared to labour in developed countries, which prompted foreign firm to shift their business focus to the developing world. This trend however has negative effects too, with concerns of labour discrimination, and child labour problems highlighted by world organization and by concern parties.

e) Cheaper product and service sources

The products and services markets from the developing countries are traded more than the products and services from developed world. Factors influenced this increasing trend include cheap cost, free trade, and globalization trend. (Will be discussed later) It is no surprise that goods and services produced from developing world has dominated the global market nowadays considers the shifting economic cycle globally other than factors mentioned above. Also intensive promotion of products and services worldwide by the firm from developing countries also helps to fueled up the trading globally.

f) Globalization

Globalization or world without borders affects everything lifestyle of mankind including internet access, cultural crossing, world trade, and international travel. With the emergence of globalization, developing countries now had larger access to global markets and trade that were once dominated by developed countries. This creates the rapid economic growth shifted towards the developing countries such as China, India, ASEAN, and Latin American countries, since the development model in the developed nation are now used in developing countries for their economic growth.

g) New emerging markets

In recent history, more and more emerging markets emerged after years of oppressive leadership rule. This can be seen in countries such as Myanmar and Cuba. Myanmar emerged from a pariah state to a democratic state in 2011, and since then economic development in the countries are in the rapid growth combined with increased foreign direct investment. For Cuba, following improved Cuba-United States relations in 2015, the opportunity for economic growth in Cuba are promising and there are signs that many countries are taking advantage of the Cuban Thaw in terms of foreign investment and trade.

How much the developing country benefits your firm investment?

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