After reading this chapter, you should be able to: Describe how the World Bank distinguishes between industrial advanced countries (high-income nations) and developing countries (middle-income and low-income nations), list some of the obstacles to economic development, explain the vicious circle of poverty that afflicts low-income nations, discuss the role of government in promoting economic development within low-income nations.
22W TheEconomicsofDeveloping Countries McGrawưHill/Irwin Copyrightâ2012byTheMcGrawưHillCompanies,Inc.Allrightsreserved Classifications Industrially advanced countries • High income nations • Well-developed market economies • Per capita income $37,665 in 2008 • Developing countries • Middle income nations • Low income nations • Wide variation in income per capita LO1 22W-2 Classifications 22W-3 Comparisons • U.S GDP $14.6 trillion • Combined GDP of DVCs $15.6 trillion • U.S has 4.5% of population but • • LO1 produces 25.1% of world’s output U.S per capita GDP is 150 times that of Sierra Leone Walmart’s annual revenue is greater than all but 23 nations’ GDP 22W-4 Growth, Decline and Income Gaps • Some developing countries have • • LO1 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 22W-5 Human Realities of Poverty Selected Socioeconomic Indicators of Development LO2 22W-6 Obstacles to Development • The path to economic development • Use existing resources more • LO2 efficiently • Expand available supplies of resources Simple generalizations are not possible 22W-7 Obstacles to Development • LO2 Natural Resources • Shortage of land, resources, power • Tropical climates hinder labor, lead to disease • Difficult to solve 22W-8 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 LO2 22W-9 Obstacles to Development • Capital accumulation • This is key for economic development • Domestic capital formation • Savings potential • Capital flight • Investment obstacles • Lack of infrastructure LO2 22W-10 Obstacles to Development • Technological advance • Borrowed technology • Socio-cultural obstacles • Institutional obstacles • Land reform LO2 22W-11 The Vicious Circle of Poverty LOW PER CAPITA INCOME LOW PRODUCTIVITY RAPID POPULATION GROWTH LOW LEVEL OF SAVING LOW LEVEL OF DEMAND LOW LEVELS OF INVESTMENT IN PHYSICAL AND HUMAN CAPITAL LO3 22W-12 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 LO4 22W-13 Role of Government • Public sector problems • Misadministration • Bribery • Corruption LO4 22W-14 Role of Government LO4 22W-15 Role of Advanced Nations • Expanding trade • Admitting temporary workers • Discouraging arms sales • Foreign aid • Direct aid • The World Bank group LO5 22W-16 ... 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 22W-5 Human Realities of Poverty... The Vicious Circle of Poverty LOW PER CAPITA INCOME LOW PRODUCTIVITY RAPID POPULATION GROWTH LOW LEVEL OF SAVING LOW LEVEL OF DEMAND LOW LEVELS OF INVESTMENT IN PHYSICAL AND HUMAN CAPITAL LO3 22W-12 Role of Government... peace with neighbors LO4 22W-13 Role of Government • Public sector problems • Misadministration • Bribery • Corruption LO4 22W-14 Role of Government LO4 22W-15 Role of Advanced Nations • Expanding