The Economics of Developing Countries

Chapter 25W

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Classifications

• Industrially advanced countries• High income nations• Well-developed market economies• Per capita income $38,745 in 2010

• Developing countries• Middle income nations • Low income nations• Wide variation in income per capita

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Comparisons

• U.S. GDP $14.6 trillion• Combined GDP of DVCs $20 trillion• U.S. has 4.5% of population but produces

23.1% of world’s output• U.S. per capita GDP is 127 times that of

Democratic Republic of the Congo• Walmart’s annual revenue is greater than all

but 23 nations’ GDP

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Growth, Decline and Income Gaps

• Some developing countries have grown considerably• China, Malaysia, Chile, Thailand

• Some developing countries have become high-income• Singapore, Greece, Hong Kong

• Income gap has widened• Developing countries must grow faster to

reduce the gap

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Human Realities of Poverty

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Selected Socioeconomic Indicators of Development

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• The path to economic development• Use existing resources more efficiently• Expand available supplies of resources

• Simple generalizations are not possible

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Obstacles to Development

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• Natural Resources• Shortage of land, resources, power• Tropical climates hinder labor, lead to

disease• Difficult to solve

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Obstacles to Development

• Human resources• Large populations• Reduced standard of living• Less saving and investment• Lower productivity• Overuse of land resources• Urban problems• Qualifications

• Unemployment and underemployment

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Obstacles to Development

• Capital accumulation• This is key for economic development• Domestic capital formation• Savings potential• Capital flight• Investment obstacles• Lack of infrastructure

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• Technological advance• Borrowed technology

• Socio-cultural obstacles• Institutional obstacles• Land reform

Obstacles to Development

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The Vicious Circle of Poverty

RAPIDPOPULATION

GROWTH

LOW LEVELOF DEMAND

LOWPRODUCTIVITY

LOW LEVELS OFINVESTMENT INPHYSICAL AND

HUMAN CAPITAL

LOWPER CAPITA

INCOME

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LOW LEVELOF SAVING

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Role of Government

• A positive role• Establishing the rule of law• Building infrastructure• Embracing globalization• Building human capital• Promoting entrepreneurship• Developing credit systems• Controlling population growth• Making peace with neighbors

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Role of Government

• Public sector problems• Misadministration• Bribery• Corruption

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• Expanding trade• Admitting temporary workers• Discouraging arms sales• Foreign aid• Direct aid• The World Bank group

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Role of Advanced Nations

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Role of Advanced Nations

• Foreign harm?• Dependency and incentives• Bureaucracy and centralized government• Corruption and misuse

• Current level of foreign aid• Flows of private capital

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Famine in Africa

• Root causes – natural and human • Droughts – Lack of rainfall• Civil strife – Rebellions and civil wars• Population growth• Ecological degradation• Public policies• External debt

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