Question

It is difficult for less developed countries (LDCs) to obtain the factors that are important for long term sustainable growth. Why?

How can LDCs use foreign investment to help with this problem? What is the potential downfall with using foreign investment?

Answer 1

For long term sustainable growth, it is important to invest in clean and green technologies, invest in capital goods production and prevent pervasive incentives in the economy while going for the environment and natural resource conservation. Though, it is not possible for the less developed nations, as they spend more money on consumption goods, give pervasive incentives to increase the production of agricultural items and never stop from over exploitation of resources. Afterwards, they have less money to spend on capital goods. Hence, LDC nations are unable to achieve long term sustainable growth.

LDC nations can use foreign investments to build infrastructure, capital intensive projects and other development initiatives, that can create jobs and help people stop the excessive use of natural resources. With increase in income, country can invest more in capital goods and can come out from the clutches of poverty.

Though there are potential downfalls for it as follows:

1. Exploitation of resources by the foreign firms

2. Tendency to develop economic rent culture and infighting

3. Lack of regulatory framework in LDC nations, may not deliver the benefits as expected

4. The beginning of the economic slavery