The Economics Of Developing Countries

1. 16 WEB The Economics Of Developing Countries

2. Chapter Objectives • In this chapter you will learn: • How the World Bank distinguishes between industrial advanced countries (high-income nations) and developing countries (middle-income and low-income nations). • Some of the obstacles to economic development. • About the vicious cycle of poverty that afflicts low-income nations. • The role of government in promoting economic development within low-income nations. • How industrial nations attempt to aid low-income countries.

3. The Rich and the Poor • Classifications • Industrially Advanced Countries (IACs) • High Income Nations • Developing Countries (DVCs) • Low Income Nations • Middle Income Nations

4. The Rich and the Poor • 2004 Comparisons: • U.S. GDP $12 Trillion • All DVCs $5.5 Trillion • U.S. has 5% of Population but Produces 31% of World’s Output • U.S. Per Capita GDP Many Times Greater than DVCs • Wal-Mart Sales Greater Than All But 19 Nations

5. The Rich and the Poor • Growth, Decline, and Income Gaps • Differences in Ability to Improve Positions Over Time • Some Increase and Reach IAC Status • Some Decline • Income Gap is Widening Between Rich and Poor • Human Realities of Poverty

6. Obstacles to Economic Development • DVCs Must Use Existing Supplies of Resources More Efficiently • DVCs Must Expand Their Available Supplies of Resources • Natural Resources • Human Resources

7. Consumer Goods (Food) Production Standard Of Living = Population Obstacles to Economic Development • Overpopulation • Standard of Living • Saving and Investment • Productivity • Resource Overuse • Urban Problems

8. Obstacles to Economic Development • Qualifications • Demographic Transition View • Unemployment • Underemployment • Low Labor Productivity • Brain Drain

9. Capital Accumulation • Domestic Capital Formation • Savings Potential • Capital Flight • Investment Obstacles • Infrastructure

10. Capital Accumulation • Technological Advance • Capital-Saving Technology • Capital-Using Technology • Sociocultural and Institutional Factors • The Will to Develop • Capricious Universe View • Land Reform

11. O 16W.1 The Vicious Circle The Vicious Circle of Poverty LOW PER CAPITAINCOME LOW PRODUCTIVITY RAPIDPOPULATIONGROWTH LOW LEVEL OF SAVING LOW LEVEL OF DEMAND LOW LEVELS OF INVESTMENT IN PHYSICAL AND HUMAN CAPITAL

12. Role of Government • A Positive Role • Law and Order • Lack of Entrepreneurship • Infrastructure • Forced Saving and Investment • Social-Institutional Problems • Public Sector Problems • Corruption

13. GLOBAL PERSPECTIVE Role of Government The Corruption Perception Index Corruption Index Value, 2005 0 1 2 3 4 5 6 7 8 9 10 Finland New Zealand Denmark United States China India Moldova Madagascar Ecuador Russia Azerbaijan Cameroon Paraguay Nigeria Haiti Bangladesh 9.6 9.6 9.5 7.6 3.2 2.9 2.9 2.8 2.5 2.4 2.2 2.2 2.1 1.9 1.8 1.7 Source: Transparency International

14. Role of Advanced Nations • Expanding Trade • Foreign Aid • Direct Aid • The World Bank Group • Foreign Harm • Dependency and Incentives • Bureaucracy and Centralized Government • Corruption and Misuse • The Decline in Foreign Aid • Flows of Private Capital • Direct Foreign Investment

15. GLOBAL PERSPECTIVE Role of Advanced Nations Development Assistance as a Percentage of GDP Percentage of GDP, 2003 0 .20 .40 .60 .80 1.00 Netherlands Sweden France United Kingdom Germany Canada Japan United States .80 .79 .41 .34 .28 .24 .20 .15 Source: U. N. Human Development Report, 2006

16. Where From Here? • DVC Policies for Promoting Growth • Establishing and Implementing the Rule of Law • Opening Economies to International Trade • Controlling Population Growth • Encouraging Foreign Direct Investment • Building Human Capital

17. Where From Here? • DVC Policies for Promoting Growth • Making Peace With Neighbors • Establishing Independent Central Banks • Establishing Realistic Exchange-Rate Policies • Privatizing State Industries

18. IAC Policies for Fostering DVC Growth • Directing Foreign Aid to the Poorest DVCs • Reducing Tariffs, Import Quotas, and Farm Subsidies • Providing Debt Forgiveness to the Poorest DVCs • Admitting in Temporary Workers and Discouraging Brain Drains • Discouraging Arms Sales to the DVCs

19. Famine in Africa Last Word • Root Causes – Both Natural and Human Causes • Droughts • Lack of Rainfall • Overuse of Land • Civil Strife • Rebellions, Civil Wars, Wars with Neighbors, Anarchy • Population Growth • Ecological Degradation

20. Famine in Africa Last Word • Public Policies • Neglected Agriculture for Military Uses • Channeling Aid to Military and Ignoring Civilians • Setting Agricultural Prices Low Decreasing Incentive to Grow • Land Seizures that Collapsed the Food Supply • External Debt • Required Austerity

21. industrially advanced countries (IACs) developing countries (DVCs) demographic transition view underemployment brain drain capital flight infrastructure capital-saving technology capital-using technology the will to develop capricious universe view land reform vicious circle of poverty corruption World Bank direct foreign investment Key Terms

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