External barriers
Forces outside the country's control.
Commodity dependence. Many developing countries depend on a few primary commodities (oil, copper, cocoa, coffee) for export earnings.
- Volatile prices → fluctuating revenue.
- Long-run terms of trade decline (Prebisch-Singer): primary products lose value relative to manufactures.
- Single-commodity risk: collapse in price = budget crisis.
Multinational corporations (MNCs).
Potential benefits:
- FDI brings capital, jobs, technology, management know-how.
- Tax revenue.
- Linkages to local suppliers (supply chain development).
- Access to global markets.
Potential costs:
- Transfer pricing: shifting profits to low-tax jurisdictions, reducing host-country tax revenue.
- Extraction without development: extractive industries take resources but build little local industry.
- Political influence: large MNCs can capture regulators, distort policy.
- Environmental damage in countries with weak enforcement.
- Race to the bottom: countries compete to attract MNCs by lowering taxes, labour, environmental standards.
Capital flight. Wealthy nationals move money offshore to safer assets (US Treasuries, Swiss banks, property in London).
- Estimated >$1 trillion left Africa over decades.
- Drains funds that could finance domestic investment.
- Often follows political instability or expectations of devaluation.
Trade policies of advanced countries.
- Agricultural subsidies (EU CAP, US Farm Bills) make subsidised exports undercut developing-country farmers.
- Tariff escalation: low tariffs on raw materials, higher tariffs on processed goods — discourages developing countries from moving up the value chain.
- Non-tariff barriers: technical standards developing countries struggle to meet.
- Restrictions on labour migration prevent workers from earning higher wages abroad.
External debt. Many developing countries owe foreign creditors (governments, IMF, World Bank, private bond holders).
- Interest payments drain government revenue.
- HIPC (Heavily Indebted Poor Countries) initiative provided relief for some.
- Modern concerns: Chinese lending to Africa; some countries in distress (Zambia, Sri Lanka).
Climate change. Hits developing countries hardest:
- Most depend on rain-fed agriculture vulnerable to drought/flood.
- Coastal areas at risk from sea-level rise (Bangladesh, Pacific islands).
- Limited resources to invest in adaptation.
- Have contributed LEAST to emissions but pay the highest price.
- "Loss and damage" mechanism at COP27 (2022) acknowledges this.
Conflict and instability.
- Civil war destroys physical and human capital.
- Refugee flows strain regional resources.
- Investment dries up.
- Post-conflict reconstruction takes decades.
Solutions to external barriers often require:
- International cooperation (reduce advanced-country trade barriers).
- Debt relief.
- Climate finance from developed to developing.
- Stronger MNC regulation (e.g. OECD Pillar 2 minimum corporate tax).
- Commodity dependence: volatility + ToT decline.
- MNCs: mixed effects.
- Capital flight drains funds.
- Advanced-country trade policy harms developing.
- Climate change hits developing hardest.