Chapter 22W: The Economics of Developing Countries

The Economics of Developing CountriesMcGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.ClassificationsIndustrially advanced countriesHigh income nationsWell-developed market economiesPer capita income $37,665 in 2008Developing countriesMiddle income nations Low income nationsWide variation in income per capitaLO1ClassificationsComparisonsU.S. GDP $14.6 trillionCombined GDP of DVCs $15.6 trillionU.S. has 4.5% of population but produces 25.1% of world’s outputU.S. per capita GDP is 150 times that of Sierra LeoneWalmart’s annual revenue is greater than all but 23 nations’ GDPLO1Growth, Decline and Income GapsSome developing countries have grown considerablyChina, Malaysia, Chile, ThailandSome developing countries have become high-incomeSingapore, Greece, Hong KongIncome gap has widenedDeveloping countries must grow faster to reduce the gapLO1Human Realities of PovertyLO2Selected Socioeconomic Indicators of DevelopmentThe path to economic developmentUse existing resources more efficientlyExpand available supplies of resourcesSimple generalizations are not possibleLO2Obstacles to DevelopmentObstacles to DevelopmentNatural ResourcesShortage of land, resources, powerTropical climates hinder labor, lead to diseaseDifficult to solveLO2Obstacles to DevelopmentHuman resourcesLarge populations Reduced standard of living Less saving and investment Lower productivity Overuse of land resources Urban problems QualificationsUnemployment and underemployment LO2Obstacles to DevelopmentCapital accumulationThis is key for economic developmentDomestic capital formationSavings potentialCapital flightInvestment obstaclesLack of infrastructureLO2Technological advanceBorrowed technologySocio-cultural obstaclesInstitutional obstaclesLand reformObstacles to DevelopmentLO2The Vicious Circle of PovertyRAPIDPOPULATIONGROWTHLOW LEVELOF DEMANDLOWPRODUCTIVITYLOW LEVELS OFINVESTMENT INPHYSICAL ANDHUMAN CAPITALLOWPER CAPITAINCOMELO3LOW LEVELOF SAVINGRole of GovernmentA positive roleEstablishing the rule of lawBuilding infrastructureEmbracing globalizationBuilding human capitalPromoting entrepreneurshipDeveloping credit systemsControlling population growthMaking peace with neighborsLO4Role of GovernmentPublic sector problemsMisadministrationBriberyCorruptionLO4Role of GovernmentLO4Expanding tradeAdmitting temporary workersDiscouraging arms salesForeign aidDirect aidThe World Bank groupLO5Role of Advanced Nations