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Growth and the Less-Developed Countries

Growth and the Less-Developed Countries. Key Concepts Summary. ©2005 South-Western College Publishing. What will I learn in this chapter ?. Is there a difference between economic growth and economic development? Why are some countries rich and others poor?

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Growth and the Less-Developed Countries

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  1. Growth and the Less-Developed Countries • Key Concepts • Summary ©2005 South-Western College Publishing

  2. What will I learn in this chapter ? • Is there a difference between economic growth and economic development? • Why are some countries rich and others poor? • Is trade a better “engine of growth” than foreign aid and loans?

  3. What is one way to compare the well-being of one country to another? GDP per capita

  4. What is GDP per capita? The value of final goods produced (GDP) divided by the total population

  5. What are industrially advanced countries ? High-income nations that have market economies based on large stocks of technologically advanced capital and well-educated labor

  6. Who are the IACs? The United States, Canada, Australia, New Zealand, Japan, and most of the countries of Western Europe

  7. What are less-developed countries? Economies based on agriculture which are lacking large stocks of technologically advanced capital and well-educated labor

  8. Who are the LDCs? Most countries of Africa, Asia, and Latin America

  9. What are problems in comparing GDPS per capita? • Measurement errors • Income distribution • Fluctuations in exchange rates • Differences in living standards

  10. Is GDP per capita correlated with other measures of quality of life? Yes

  11. What are quality of life indicators? • Life expectancy • Adult literacy • Daily calorie supply • Energy consumption per capita

  12. What factors come together to produce a country’s growth? • Natural resources • Investment in capital • Investment in human capital • Low population growth • Infrastructure

  13. Q Exhibit 4 80 Economics Growth 70 PPC2 60 50 Manufactured Goods 40 PPC1 30 20 10 Q Agricultural Goods 100 200 300 400 500

  14. Economics Growth Growth in resources or technological advance

  15. What is infrastructure? Capital goods usually provided by the government, including highways, bridges, waste and water systems, and airports

  16. What is a major problem for LDCs? They find themselves in a vicious cycle of poverty

  17. What is the vicious circle of poverty? The trap in which countries are poor because they cannot afford to save and invest, but they cannot save and invest because they are poor

  18. What are the political factors favorable for economic growth? • Law and order • Infrastructure • International trade

  19. Economic growth and development Natural resources endowment Human resources development Capital investment Technological progress Political environment

  20. What is foreign aid? The transfer of money or resources from one government to another for which no repayment is required

  21. What is the Agency for International Development? AID is the agency of the U.S. State Department that is in charge of U.S. aid to foreign countries

  22. What is theWorld Bank? The lending agency that makes long-term low-interest loans and provides technical assistance to less-developed countries

  23. What is the International Monetary Fund (IMF)? The lending agency that makes short-term conditional low-interest loans to developing countries

  24. What is the New International Economic Order (NIEO)? A series of proposals made by LDCs calling for changes that would accelerate the economic growth and development of the LDCs

  25. Key Concepts

  26. What is GDP per capita? • What are industrially advanced countries (IACS)? • What are less-developed countries (LDCS)? • What are quality of life indicators? • What factors come together to produce a country’s well being?

  27. What is the vicious circle of poverty? • What are the political factors favorable for economic growth? • What is foreign aid? • What is aid? • What is the World Bank? • What is the IMF? • What is the NIEO?

  28. Summary

  29. GDP per capita provides a general index of a country’s standard of living. Countries with low GDP per capita and slow growth in GDP per capita are less able to satisfy basic needs for food, shelter, clothing, education, and health.

  30. Industrially advanced countries (IACs) are countries in which GDP per capita is high and output is produced by technologically advanced capital. Countries that earn high income without widespread industrial development, such as the oil-rich Arab countries, are not included in the IAC list.

  31. Less-developed countries (LDCs) are countries with low production per person. In these countries, output is produced without large amounts of technologically advanced capital and well-educated labor. The LDCs account for about three-fourths of the world’s population.

  32. The Four Tigers of the Pacific Rim are Hong Kong, Singapore, South Korea, and Taiwan. These newly industrialized countries have achieved high growth rates and standards of living approaching those of many of the IACs.

  33. GDP per capita comparisons are subject to four problems: (1) the accuracy of LDC data is questionable, (2) GDP per capita ignores the degree of income distribution, (3) changes in exchange rates affect gaps between countries, and (4) there is no adjustment for the cost-of-living differences between countries.

  34. Economic growth and economic development are related, but somewhat different, concepts. Economic growth is measured quantitatively by GDP per capita, while economic development is a broader concept.

  35. In addition to GDP per capita, economic development includes quality-of-life measures, such as life expectancy at birth, adult literacy rate, and per capita energy consumption.

  36. Economic growth and development are the result of a complex process that is determined by five major factors: (1) natural resources, (2) human resources, (3) capital, (4) technological progress, and (5) the political environment. There is no single correct strategy for economic development, and a lack of strength in one or more of the five areas does not prevent growth.

  37. The vicious circle of poverty is a trap in which the LDC is too poor to save and therefore it cannot invest and shift its production possibilities curve outward. As a result, the LDC remains poor.

  38. One way for a poor country to gain savings, invest, and grow is to use funds from external sources, such as foreign private investment, foreign aid, and foreign loans. Borrowing by many LDCs led to the debt crises of the 1980s, which was resolved by writing off and restructuring the loans.

  39. Low income Low productivity Low savings Low investment

  40. END

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