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C hapter 33

C hapter 33. The Economic Problems of Less-Developed Economies. Economic Principles. Poverty in the less-developed countries (LDCs) Economic dualism The big-push strategy for economic development. Economic Principles. The unbalanced growth strategy for economic development

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C hapter 33

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  1. Chapter 33 The Economic Problems of Less-Developed Economies

  2. Economic Principles • Poverty in the less-developed countries (LDCs) • Economic dualism • The big-push strategy for economic development Gottheil - Principles of Economics, 4e

  3. Economic Principles • The unbalanced growth strategy for economic development • Foreign investment in the LDCs. • Economic aid to the LDCs. Gottheil - Principles of Economics, 4e

  4. Confronting National Poverty Beginning in the 1950s economists began seeing the economies of Asia, Africa, and Latin America as something more than trading posts for our raw materials. Gottheil - Principles of Economics, 4e

  5. Confronting National Poverty Complete the sentence: In the 1960s economists dropped the terms _____ and _____ in favor of newly developing countries or less-developed countries. Gottheil - Principles of Economics, 4e

  6. Confronting National Poverty Complete the sentence: In the 1960s economists dropped the terms backwardness and underdevelopment in favor of newly developing countries or less-developed countries. Gottheil - Principles of Economics, 4e

  7. Confronting National Poverty “Backwardness” and “under-development” were seen as being much too prejudicial. Gottheil - Principles of Economics, 4e

  8. Less-Developed Countries (LDCs) Less-developed countries (LDCs) • The economies of Asia, Africa, and Latin America. Gottheil - Principles of Economics, 4e

  9. Less-Developed Countries (LDCs) True or false: Decade after decade, the economies of LDCs have been stalled, generating at best only subsistence-level incomes. • False. The economies of some LDCs have grown and modernized, while others have languished. Gottheil - Principles of Economics, 4e

  10. EXHIBIT 1 PER CAPITA INCOME, PER CAPITA INCOME GROWTH RATE, AND POPULATION GROWTH RATE IN SELECTED LDCs: 1990–2001 Source: The World Bank, World Bank Atlas, 2003 (Washington, D.C.: World Bank, 2003).

  11. Exhibit 1: Per Capita Income, Per Capita Income Growth Rate, and Population Growth Rate in Selected LDCs: 1990-2001 1. Which of the following upper-middle-income LDCs has experienced the most rapid growth in per capita income between 1990 and 2001? a. Algeria b. Venezuela c. Brazil Gottheil - Principles of Economics, 4e

  12. Exhibit 1: Per Capita Income, Per Capita Income Growth Rate, and Population Growth Rate in Selected LDCs: 1990-2001 1. Which of the following upper-middle-income LDCs has experienced the most rapid growth in per capita income between 1990 and 2001? a. Algeria b. Venezuela c. Brazil Gottheil - Principles of Economics, 4e

  13. Exhibit 1: Per Capita Income, Per Capita Income Growth Rate, and Population Growth Rate in Selected LDCs: 1990-2001 2. Which of the following LDCs had the lowest per capita income growth rate between 1990 and 2001? a. Democratic Republic of the Congo b. Ghana c. Syria Gottheil - Principles of Economics, 4e

  14. Exhibit 1: Per Capita Income, Per Capita Income Growth Rate, and Population Growth Rate in Selected LDCs: 1990-98 2. Which of the following LDCs had the lowest per capita income growth rate between 1990 and 2001? a. Democratic Republic of the Congo b. Ghana c. Syria Gottheil - Principles of Economics, 4e

  15. EXHIBIT 2 PERCENTAGE OF POPULATION UNDER 15 YEARS OF AGE FOR SELECTED COUNTRIES: 2001 Source:Statistical Abstract of the United States, 2002 (Washington, D.C.: U.S. Department of Commerce, 2002), p. 827. Gottheil - Principles of Economics, 4e

  16. Exhibit 2: Percentage of Population Under 15 Years of Age for Selected Countries: 2001 1. Which of the following countries had the highest percentage of its population under 15 years of age in 2001? a. Ethiopia b. Philippines c. Germany Gottheil - Principles of Economics, 4e

  17. Exhibit 2: Percentage of Population Under 15 Years of Age for Selected Countries: 2001 1. Which of the following countries had the highest percentage of its population under 15 years of age in 2001? a. Ethiopia b. Philippines c. Germany Gottheil - Principles of Economics, 4e

  18. Exhibit 2: Percentage of Population Under 15 Years of Age for Selected Countries: 2001 2. Do countries with low population growth rates tend to have a high percentage of their population under 15 years of age? • No. Gottheil - Principles of Economics, 4e

  19. Exhibit 2: Percentage of Population Under 15 Years of Age for Selected Countries: 2001 2. Do countries with low population growth rates tend to have a high percentage of their population under 15 years of age? • In countries with low population growth rates, such as Germany, France, and the Netherlands, typically less than 25 percent of the population is under 15 years of age. Gottheil - Principles of Economics, 4e

  20. Exhibit 2: Percentage of Population Under 15 Years of Age for Selected Countries: 1997 2. Do countries with low population growth rates tend to have a high percentage of their population under 15 years of age? • In contrast, in countries with high population growth rates, such as Nigeria and Kenya, typically more than 40 percent of the population is under 15 years of age. Gottheil - Principles of Economics, 4e

  21. LDC Per Capita Incomes 1. How is per capita income growth related to income growth and population growth? • Per capita income growth is equal to income growth divided by population growth. Gottheil - Principles of Economics, 4e

  22. LDC Per Capita Incomes 2. What happens to per capita income if population grows faster than income? • Since per capita income growth is equal to income growth divided by population growth, if population grows faster than income, then per capita income must fall. Gottheil - Principles of Economics, 4e

  23. LDC Per Capita Incomes 3. What is the vicious cycle of poverty? • People are poor because they can’t invest in capital goods, and they can’t invest in capital goods because they are poor. Gottheil - Principles of Economics, 4e

  24. LDC Per Capita Incomes 4. Why is the vicious cycle of poverty more likely to occur in countries that have a large percentage of their population under 15 years of age? • Most people under age 15, and particularly those under 10, are unable to produce enough to meet their own consumption needs. Gottheil - Principles of Economics, 4e

  25. LDC Per Capita Incomes 4. Why is the vicious cycle of poverty more likely to occur in countries that have a large percentage of their population under 15 years of age? • If almost one-half of a country’s population consumes more than it produces, there are few resources that can be shifted from producing consumer goods to producing capital goods. Gottheil - Principles of Economics, 4e

  26. EXHIBIT 3 THE VICIOUS CIRCLE OF POVERTY Gottheil - Principles of Economics, 4e

  27. Exhibit 3: The Vicious Cycle of Poverty What is the consequence of Ethiopia producing at point a rather than point b in Exhibit 3? • Slower economic growth rates and lower per-capita incomes in the future. Gottheil - Principles of Economics, 4e

  28. Human Capital Human capital • The investment in workers’ health and knowledge, acquired through education, training, and/or experience that enhances their productivity. Gottheil - Principles of Economics, 4e

  29. Other Indicators of the LDCs’ Lack of Economic Well-Being 1. True or false: The capital investments that yield the highest payoffs in an economy are those made in machinery and factories. • False Gottheil - Principles of Economics, 4e

  30. Other Indicators of the LDCs’ Lack of Economic Well-Being 1. True or false: The capital investments that yield the highest payoffs in an economy are those made in machinery and factories. • Investments in human capital—in the form of education and health care—rank among the most important of the capital goods contributing to national economic growth. Gottheil - Principles of Economics, 4e

  31. Other Indicators of the LDCs’ Lack of Economic Well-Being 2. Which of the following best describes the timeframe between investment in human capital and the realization of payoffs in the form of improvements in a person’s working efficiency? a. Immediate b. Brief c. Relatively long Gottheil - Principles of Economics, 4e

  32. Other Indicators of the LDCs’ Lack of Economic Well-Being 2. Which of the following best describes the timeframe between investment in human capital and the realization of payoffs in the form of improvements in a person’s working efficiency? a. Immediate b. Brief c. Relatively long Gottheil - Principles of Economics, 4e

  33. EXHIBIT 4LIFE EXPECTANCY, INFANT MORTALITY, PEOPLE PER PHYSICIAN, PERCENTAGE OF CHILDREN IN SCHOOL, AND PERCENTAGE OF PEOPLE WITH SAFE WATER FOR SELECTED COUNTRIES: 2001 OR LATEST YEAR AVAILABLE Source: Ruth Leger Sivard, World Military and Social Expenditures, 1966 (Washington, D.C.: World Priorities, 1966), pp. 30–52, and The World Bank, World Bank Atlas, 2003 (Washington, D.C.: World Bank, 2003).

  34. Exhibit 4: Life Expectancy, Infant Mortality, People Per Physician . . . 1. What is the relationship between per capita income and life expectancy? • Life expectancy tends to be directly related to per capita income. Gottheil - Principles of Economics, 4e

  35. Exhibit 4: Life Expectancy, Infant Mortality, People Per Physician, . . . 2. Do low-income LDCs tend to have more people per physician than higher-income LDCs? • Yes. With a few exceptions, there are usually many thousands of people per physician in low-income LDCs. Gottheil - Principles of Economics, 4e

  36. Exhibit 4: Life Expectancy, Infant Mortality, People Per Physician, . . . 3. Based on the percentage of children in school, how well is Ethiopia doing at investing in human capital when compared to Botswana and South Africa? • Very poorly. Gottheil - Principles of Economics, 4e

  37. Exhibit 4: Life Expectancy, Infant Mortality, People Per Physician, . . . 3. Based on the percentage of children in school, how well is Ethiopia doing at investing in human capital when compared to Botswana and South Africa? • Fewer than one-half of the children in Ethiopia is receiving a school education, while this figure exceeds 90 percent in Botswana and South Africa. Gottheil - Principles of Economics, 4e

  38. Exhibit 4: Life Expectancy, Infant Mortality, People Per Physician, . . . 4. Are people in low-income LDCs very much more likely to risk exposure to waterborne diseases such as dysentery and cholera than in higher-income LDCs? • In general as per capita income rises, the percentage of people with access to safe water also rises. Gottheil - Principles of Economics, 4e

  39. Economic Dualism True or false: While conditions in low-income LDCs are poor, there is a high degree of equality in these societies, and all people bear a roughly equal share of the burden of poor living conditions. • False. Gottheil - Principles of Economics, 4e

  40. Economic Dualism True or false: While conditions in low-income LDCs are poor, there is a high degree of equality in these societies, and all people bear a roughly equal share of the burden of poor living conditions. • Many LDC doctors, lawyers, merchants, accountants, and exporters and importers, among others, have access to safe water, hospitals, education, and decent housing. Gottheil - Principles of Economics, 4e

  41. Economic Dualism Economic dualism • The coexistence of two separate and distinct economies within an LDC; one modern, primarily urban, and export-driven, the other traditional, agricultural, and self-sustaining. Gottheil - Principles of Economics, 4e

  42. EXHIBIT 5 ECONOMIC DUALISM Gottheil - Principles of Economics, 4e

  43. Exhibit 5: Economic Dualism 1. What are the characteristics of the labor market in the traditional sector of an LDC economy? • The labor market for the traditional sector is shown in panel a. Gottheil - Principles of Economics, 4e

  44. Exhibit 5: Economic Dualism 1. What are the characteristics of the labor market in the traditional sector of an LDC economy? • The labor market in the traditional sector features a relatively low and flat demand curve. Gottheil - Principles of Economics, 4e

  45. Exhibit 5: Economic Dualism 1. What are the characteristics of the labor market in the traditional sector of an LDC economy? • The relatively low opportunity costs associated with traditional labor produce a relatively flat supply curve for labor. Gottheil - Principles of Economics, 4e

  46. Exhibit 5: Economic Dualism 1. What are the characteristics of the labor market in the traditional sector of an LDC economy? • As a result, the labor market in the traditional sector of an LDC economy yields low wages. Gottheil - Principles of Economics, 4e

  47. Exhibit 5: Economic Dualism 2. What are the characteristics of the labor market in the modern sector of an LDC economy? • The labor market for the modern sector is shown in panel b. Gottheil - Principles of Economics, 4e

  48. Exhibit 5: Economic Dualism 2. What are the characteristics of the labor market in the modern sector of an LDC economy? • The labor market in the modern sector features a higher and steeper demand. Gottheil - Principles of Economics, 4e

  49. Exhibit 5: Economic Dualism 2. What are the characteristics of the labor market in the modern sector of an LDC economy? • The higher opportunity costs associated with skilled workers in this sector generates a steeper supply curve. Gottheil - Principles of Economics, 4e

  50. Exhibit 5: Economic Dualism 2. What are the characteristics of the labor market in the modern sector of an LDC economy? • As a result, the equilibrium wage rate in the modern sector is considerably higher than in the traditional sector. Gottheil - Principles of Economics, 4e

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