Characteristics of Developing Countries

1. SECTION 5: DEVELOPMENT ECONOMICS Characteristics of Developing Countries Blink & Dorton, 2007, p314-320

2. COMMON CHARACTERISTICS OF DEVELOPING COUNTRIES • The development economist, Michael P Todora, produced a list of the common characteristics of developing nations:

3. COMMON CHARACTERISTICS OF DEVELOPING COUNTRIES • Low Standards of Living, characterized by low incomes, inequality, poor health and inadequate education • Low Levels of Productivity • High Rates of Population Growth & Dependency Burdens • High & Rising Levels of Unemployment & Underemployment • Substantial Dependence on Agricultural Production & Primary Product Exports • Prevalence of imperfect markets & limited information. • Dominance, Dependence and Vulnerability in International Relations.

4. 1. Low Standards of Living • Low Standards of living tend to be experienced by the majority of the population. • The main indicators of these low living standards are high poverty levels (i.e very low incomes), high levels of inequality, very poor housing, low standards of health, high infant mortality rates, high levels of malnutrition and a lack of education.

5. 2. Low Levels of Productivity (output per person) • The main causes are low education standards within the countries, the low level of health among workers, lack of investment in physical capital and lack of access to technology.

6. 3. High Rates of Population Growth & Dependency Burdens • Developing countries tend to have crude birth rates that are on average more than double the rates in developed countries. • The crude birth rate is annual number of live births per 1,000 of the population. • The world average in 2005, was 20.15, but in some developing countries, it can be as high as 50 per thousand.

7. 3. High Rates of Population Growth & Dependency Burdens • The high crude birth rates in developing countries tend to be transformed into high dependency ratios. • The high crude birth rate means that there are lot of young people under the age of 15 in developing countries. • Those of working age, usually assumed to be 15 to 64, have to support a much larger proportion of children than does the work force in developing countries.

8. 3. High Rates of Population Growth & Dependency Burdens Dependency Ratio • The dependency ratio is the percentage of those who are non-productive, usually those who are under 15 and over 64, expressed as a percentage of those of working age, usually 15 to 64. • The equation would be: Dependency Ratio = (% of population under 15) + (% of population over 64) (% of population 15 to 64)

9. 4. High & Rising Levels of Unemployment & Underemployment • Developing countries tend to have relatively high levels of unemployment, typically between 9% and 16% of the labour force. • In addition, to the official unemployment statistics, there are three more groups that need to be considered: 1. Hard Core: Those that have been unemployed for so long that they have given up searching for a job and no longer appear as unemployed.

10. 4. High & Rising Levels of Unemployment & Underemployment • Hidden Unemployed : - those who work for a few hours aday on the family farm or in a family business or trade. • Underemployed: Those who would like full-time work but are only able to get part- time employment, often on an informal basis

11. 4. High & Rising Levels of Unemployment & Underemployment • It is when all the groups previously mentioned are put together that the full extent of unemployment in developing countries can be really understood. • It is impossible to be accurate, but it would be fair to say that in many developed countries, the true rate of unemployment is over 40%.

12. 5. Substantial Dependence on Agricultural Production & Primary Product Exports • The problem of over-dependence on agricultural commodities was examined in the context of the Terms of Trade.

13. 6. Prevalence of Imperfect Markets & Limited Information • The trend in developing countries in the last 20 years has been towards a more market-oriented approach to growth. • This has sometimes been promoted or encouraged by international bodies such as the IMF and the World Bank. • However, this is possibly problematic, since while market-based approaches may work well in economies that are efficiently functioning , many developing countries face imperfect markets and imperfect knowledge.

14. 6. Prevalence of Imperfect Markets & Limited Information • Developing countries may lack many of the necessary factors that enable markets to work efficiently. • They may lack a functioning banking system, which enables and encourages savings and then investment. • They lack a developed legal system, which ensures that business takes place in a fair and structured manner. • They lack adequate infrastructure, especially in terms of transport routes of all types, which would enable raw materials, semi-finished products and final goods to more around the country, and to be moved out of the country , efficiently and at low cost. • They lack accurate information systems for both producers and consumers, which often leads to imperfect information, the misallocation of resources and misinformed purchasing decisions.

15. 7. Dominance, dependence & vulnerability in International Relations • In almost all cases, developing countries are dominated by developed countries because of the economic and political power of the developed countries. • In addition, they are dependent upon them for many things, such as trade, access to technology, aid and investment • It is not really possible for economically small, developing countries to isolate themselves from world markets.

16. 7. Dominance, dependence & vulnerability in International Relations • Developing countries are vulnerable on the international stage, and are dominated by, and often harmed by the decisions of developed countries over which they have no control. • Some would argue that what is needed is for the developing countries to act as a bloc, to gain more power in trade negotiations.

17. DIVERSITY AMONG DEVELOPING COUNTRIES • No two developing countries are the same. • Developing countries display notable diversity in a number of areas. • Resource Endowment • Historical Background • Geographic & Demographic Factors • Ethnic & Religious Breakdown • The Structure of Industry • Political Structure.

18. DIVERSITY AMONG DEVELOPING COUNTRIES1. Resource Endowment • There is a tendency to assume that developing countries must be poorly endowed with resources, both physical and human. • However, this is not necessarily the case. • While it is common for human resources to be undernourished and poorly educated and thus low skilled (low levels of human capital), endowment in terms of physical resources can very immensely between developing countries. • Angola possess oil and diamonds and yet is still very much a developing country.

19. DIVERSITY AMONG DEVELOPING COUNTRIES1. Resource Endowment • Chad had been a country that lacked physical resources, but the discovery of oil and subsequent production since 2003 may make a large difference to the country. • Bangladesh, in contrast, is a poorly endowed with physical resources. • As a consequence synthetic products have now replaced, the one major resource they did have – jute.

20. DIVERSITY AMONG DEVELOPING COUNTRIES1. Resource Endowment • It should be remembered that a lack of physical resources does not necessarily mean that a country cannot be successful. • Japan is not well endowed with physical resources and Singapore has almost literally none. However, both countries have created “economic miracles” in the last 50 years.

21. DIVERSITY AMONG DEVELOPING COUNTRIES2. Historical Background • A large proportion of developing countries were once colonies of the developed countries. • However, the extent to which this has affected these countries varies greatly. • Much depends upon for how long these countries were colonized and whether the independence was given freely or whether it had to be fought.

22. DIVERSITY AMONG DEVELOPING COUNTRIES2. Historical Background • It could be argued that countries gained some positive outcomes from colonization, such as Singapore and Hong Kong and some countries did not, such as Vietnam and Angola. • Colonized or not, there is no doubt that whatever developing countries we consider, there will be marked historical differences that will set the countries apart from each other socially, politically and economically.

23. DIVERSITY AMONG DEVELOPING COUNTRIES3. Geographic & Demographic Factors • Developing countries differ hugely in terms of geographical size and also in terms of population size. • Some developing countries are very large, such as China, Brazil, and India and Democratic Republic of the Congo, where others are very small in terms of land mass, such as Swaziland, Jamaica and Nauru.

24. DIVERSITY AMONG DEVELOPING COUNTRIES3. Geographic & Demographic Factors • In terms of population, it is a common mistake to assume that all developing countries have large populations. • Developing countries range from China (1.4 billion) to East Timor an Fiji with less than 1 million people.

25. DIVERSITY AMONG DEVELOPING COUNTRIES4. Ethnic and Religious Breakdown • Developing countries have a wide range of ethnic and religious diversity. • High levels of ethnic and religious diversity within a country make it more likely that there will be political unrest and internal conflict. • This has been evident in Rwanda, Sri Lanka, Ethiopia and Angola in the last 20 years. • Examples of countries that more religiously homogenous would be Morocco and Jamaica.

26. DIVERSITY AMONG DEVELOPING COUNTRIES5. The Structure of Industry • It is widely assumed that all developing countries depend upon the production and exporting of primary products. • While this may be true of many developing countries, many are reliant on basic manufactured products for exports. (eg: Bangladesh) • Others such as Cape Verde and Maldives are actually mainly exporters of services in the form of tourism.

27. DIVERSITY AMONG DEVELOPING COUNTRIES6. Per Capita Income Levels • Although it is often assumed that all developing countries have very low levels of income per capita, we should be aware that there are marked differences between per capita income from developing country to developing country. • Venezuela has a high GDP per capita, but it is still very much a developing country.

28. DIVERSITY AMONG DEVELOPING COUNTRIES7. Political Structures • Developing countries have very different political structures from each other. • Democracies such as Brazil, Indonesia & Mexico • Monarchies such as Brunei and Tobago • Military Rule, such as Myanmar & Pakistan. • Single Party Rule, such as China, Cuba & Syria • Transitional Political Systems, where a country is in transition often caused by conflict and civil war and cannot be classified (eg: Somalia)

29. DIVERSITY AMONG DEVELOPING COUNTRIES7. Political Structures • Within each structure, there are of course many substructures. • Eg: Democracies may be presidential systems, semi-presidential systems, parliamentary republics or constitutional monarchies. • The main point is that with developing countries being so diverse in their systems or government, it is very difficult to establish one-size-fits all solutions to developmental problems.

30. DIVERSITY AMONG DEVELOPING COUNTRIES • To conclude, we can say that while there are some common characteristics that are held by developing countries to a some degree, there are also several significant differences. • One must be very cautious in making generalizations that imply that all developing countries are the same.

31. EXAMINATION QUESTIONSEssay Questions 1a. Explain two measures of economic development (10 marks) 1b. To what extent could it be argued that all developing countries share the same set of characteristics? (15 marks)