Before discussing the effect of globalization, it seems relevant that two terms described first. The first of these terms is Least Developed Countries (LDCs). Those countries, which are described poor, un-industrialized and whose economy based on the export of commodities fall into this category (Crump, p.155). United Nations had put 24 countries into the category of LDC in its 1968 conference on Trade and development.
Second term is Globalization. Globalization is the process of expanding global preferences in cultural, environmental, political, social and economical issues. The key economic characteristic of globalization is the free movement of goods throughout the world (Schaeffer, p.1).
Authors of “The Least Developed Countries 1999 report”, released by United Nation Conference of Trade and Development (UNCTAD), stated in the introduction, “Whilst the 1980s were dubbed the ‘lost decade’ for developing countries in general and LDCs in particular, the 1990s have become, for LDCs, the decade of increasing marginalization, inequality, poverty and social exclusion. The violence and social tension which afflict several LDCs are caused, in part at least, by increasing deprivation and inequality” (The Least Developed Countries 1999 report, p. 3).
Globalization has affected every country but it particularly affected the LDCs in a negative way. It is the name of economic challenges like collapse of commodities market, debt crisis and structural adjustment policies for LDCs, which ultimately tightened the international poverty trap for them.
Collapse of commodities market was the outcome of poor economic policies of 1980, which ultimately resulted in debt crisis, as LDCs had tried to expand commodity production and economic growth and had borrowed large sums of money. Banks then insisted on readjustment of interest rates on new and existing loans and LDCs agreed. At that moment, globalization compelled them to decline commodity prices. Commodities were the main source of income for LDCs, so it became more and more difficult for them to reduce or pay their debts, which ultimately caused unemployment in many commodity sectors.
In order to repay their debts, LDC tried to adopt IMF’s Structural Adjustment Program (SAP) to obtain funds from IMF. The strategy behind SAP program was to export more than import and produce hard cash to pay for the imports and direct the surplus towards debts. Although SAP was imposed for the betterment of economic condition of LDCs, but it did not work as it was planned. SAP created de-industrialization in LDCs and compelled them to again rely on export of their commodities. Selling of public assets to foreign investors also created unemployment.
Globalization made traders disappears, which in the past, worked as bridge between buyer and seller. Now big companies with shipping and warehousing facilities can buy commodities directly from the farmer. This need more sophisticated technology and human skills, and companies of developed countries have clear advantage in all these respects.
There is a huge digital gap between developed countries and LDCs. It has been estimated that there are more phones in the New York alone than the whole rural area of Africa and almost 80% of the world population has never made a phone call (World Bank). It has also estimated that there are more Internet Connections in London alone than the whole Africa and only 1% of the Internet users live in Africa, if we exclude South Africa then the number of Internet users is less than 100,000 in whole Africa, which is only .02% of the global Internet content (Africa). This digital gap made it almost impossible for LDCs to compete with developed countries and get their even share in present world trade.
Thus, in the light of above discussion, it can easily be concluded that globalization had slumped the economies and trade of Least Developed countries as they have to face the crises like collapse of commodity markets, increased debts and SAP.