Chapter 22W
Economic Growth in the Less Developed Countries (LDCs)
Lectures

22Wa Economic Growth in the Less Developed Countries

SEE REVIEW PAGE BY CLICKING HERE

FOR ONLINE LECTURE SEE: http://www.harpercollege.edu/mhealy/eco212i/lectures/ch22w-18.htm

 

I. The Rich and the Poor

A. The Industrially Advanced Countries (IACs)

B. The Less Developed Countries

(I prefer the term "less developed countries" or LDCs. the authors of our textbook use the term "developing countries" or DVCs.)

1. middle income countries
annual per capita output in 2004: $826 to $10,065 per capita (average: of $2,190)

2. low income countries
annual output per capita in 2004: up to $825 (average: $510 )

 

C. International Distribution of Income

  • the richest 20 percent of the world’s population receives more than 80 percent of the world’s income;
  • the poorest 20 percent receives less than 2 percent.
  • The poorest 60 percent receives less than 6 percent of the world’s income.
  • 63 % of the world's population has never used a telephone
  • http://www.globalpolicy.org/socecon/inequal/inctab.htm

    [http://kauai.net/centralscrutinizer/Global.gif]

 

  • Comparisons highlight income disparities:
    • U.S. 2004 GDP (almost $12 trillion) was more than the total output of all of the DVCs combined ($5.5 trillion).
    • The U.S. has 5 percent of the population but produces 31 percent of the world's output.
    • U.S. per capita GDP is almost 207 times greater than that of Sierra Leone, one of the world's poorest nations.
    • The largest U.S. corporations have sales greater than most DVC nations' output.
      • General Motors had sales (2001?) greater than the output value of all but 21 nations of the world.
      • Wal-Mart''s annual world revenue greater than the GDPs of all but 19 countries

     

D. Where do most of the People Live? [wwpopden] [top10pop.htm]

1. over 60% of the world's population live in LDCs

2. WHERE?

 

 

World's 10 Most Populous Countries

 

 

 

 

 

http://www.internetworldstats.com/stats8.htm

II. Characteristics of the LDCs: Measures of Economic Development: [list]
For a good online review see:
http://www.harper.cc.il.us/~mhealy/g101ilec/intro/eco/ecomea/ecomeafr.htm

The title of chapter 22W is "The Economics of Developing Countries". WHAT are LDCs ?

A. From the textbook: Developing countries (DVCs) are:
  • unindustrialized nations heavily committed to agriculture.
  • They have low rates of literacy,
  • high unemployment,
  • rapid population growth,
  • and their exports are largely agricultural or raw materials.
  • Capital equipment is scarce,
  • production technologies are primitive,
  • and productivity is low

B. My list: Measures of Economic Development

LDC's have:

1. low GDP per capita [wbgnpmap] [gnppctab.htm] [2002 data]
  • This is the most used measure of economic development
  • Problems with Using GDPpc as a measure [see chapter 7]

2. rapid Population Growth rates[wrpopgr] [hispopgr] [demotran]

3. Occupational Structure of the Labor Force [types] [wraglab]: high % in agriculture

  • PRIMARY ACTIVITIES are those that directly remove resources from the earth. Generally they include AGRICULTURE, MINING, fishing, and lumbering.

     

  • SECONDARY ACTIVITIES involve converting resources into finished products. These are the MANUFACTURING activities.

     

  • TERTIARY ACTIVITIES comprise the SERVICE sector of the economy. The tertiary activities include retailing, transportation, education, banking, etc.

 

4. Low Urbanization [wrurban]

5. Low Consumption per capita

6. Poorly developed Infrastructure [wwtrans]

7. Poor Social Conditions

  • high literacy rates [wwlitrt]
  • low life expectancy [wwlifexp]
  • lacking health care
  • low caloric intake
  • high infant mortality [wwinfmrt]
  • other

C. Websites with world data:

III. Growth, Decline, and Income gaps

A. Growth in some, Decline in others
  • Several previous DVCs, such as South Korea, Singapore, and Hong Kong have achieved IAC status.
  • DVCs such as China, Malaysia, Chile, and Thailand have achieved high annual growth rates in their GDPs in recent decades.
  • But many DVCs, such as those in sub-Saharan Africa, have experienced declining GDPs per capita.

B. Growing Absolute Gap between the rich and the poor
http://www.globalpolicy.org/socecon/inequal/inctab.htm

  • The absolute income gap between rich and poor nations has been widening.
  • For example,
    • LDC: if per capita income is $400 a year in a DVC, a 2% growth rate means an $8 increase in income.
    • IAC: Where per capita income is $20,000 per year in an IAC, the same 2% growth rate translates into a $400 increase in income.

 

IV. Obstacles to Econoimc Development

A. Natural Resources
  • Natural resources must be used more efficiently and their supplies expanded.
  • Resource distribution is very uneven as is evidenced by the wealth of the OPEC countries.
  • Often ownership of natural resources is an issue if they belong to corporations in industrially advanced countries.
  • However, weak resource bases are not necessarily impossible to overcome, as Switzerland, Israel, and Japan have shown.

B. Human Resources

  • rapid population growth --- overpopulated ???????
    WHY IS IT AN OBSTACLE TO DEVELOPMENT?

 

  • standard of living = consumer (food) goods / population
    but if food production increases then population tends to grow more
  • large families make it more difficult to save, this then make investment more difficult
  • productivity may fall as the amount of capital per worker falls
  • overuse of limited resources
  • urban problems (disease, pollution, crime, etc.)

 

  • BUT:
    • high population density does not mean poverty
    • population growth rates are decreasing
    • population growth may be a CONSEQUENCE of poverty, NOT A CAUSE (demographic transition view)

 

  • unemployment and underemployment are widespread

 

  • labor productivity is low

C. Capital Accumulation

  • increasing the stock of capital goods increases labor productivity
  • a DVC must save in order to invest (domestic capital formation)
    • too poor to save OR not?
    • capital (money) flight
    • investment obstacles (lack of entrpreneurs and lack of incentives)

D. Technological Advance

E. Sociocultural and Institutional Factors

VI. The Vicious Circle: They are poor because they are poor!

A. Poverty makes it difficult to grow. The obstacles to development listed in this chapter seem to arise from poverty.

B. How can a country break the cycle of poverty? Increasing the rate of capital accumulation may help, but only if the rate of population growth is somehow slowed at the same time.

 

VII. The Role of Government

A. Positive Role
1. law and order
2. lack of entrepreneurship
3. infrastructure
4. forced saving and investment
5. socio-institutional problems

B. Public Sector Problems

VIII. Role of the Advanced Countries (IACs)

 

 

A. Expanding Trade
1. Expanding trade may be the simplest way to benefit DVCs, and IACs can lower trade barriers against DVC products.

2. However, many countries need basic capital and assistance to produce export.

B. Foreign Aid [aidquiz]

What fraction of the U. S. federal government's budget is spent on FOREIGN AID?

1%

5%

10%

15%

20%

25%

ANSWER

HOW MUCH AID DO WE GIVE?

The US compared to other MDCs: foraidg.gif

C. Private Capital Flows