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Chapter 19 Developing Countries most people in the world live in developing countries They are countries that the average GNP is a fraction of that of developed countries Most are in Africa, Asia, and Latin America Most have many problems including civil war and poverty Other countries around the world want these countries to be successful Many believe it is their duty to help them Assistance to these countries help insure a stable supply of raw materials Plus, the developing countries provide markets for products of industrial nations Over 1.2 billion people in the world have an income of less than $1 a day Most of them are in Africa and Asia The gap between industrialized countries and developing countries is huge It is getting bigger every day Obstacles to Development Obstacles: 1) population growth Less developed countries population grows much quicker Partly because of high birthrate Partly because of longer life expectancy 2) natural resources and geography Many less developed countries have unproductive land and harsh climates Have a shortage of natural and energy sources Some can make up for this with international trade However, if a country is landlocked, it is harder Most all of the developed countries have a long coastline and access to major trade routes 3) education and technology Most developing countries do not have a high literacy rate Do not have technical skills Most don’t have money to train people Most can’t provide free public education Those that can, many kids have to work to help feed their families 4) religion Some countries or people may not be interested in economic growth because of religious beliefs In India, many Hindus, and in China, many Buddhists try and reject the material world As a result, many are not interested in consumer goods or material well-being 5) External debt Many developing nations have huge debt Borrowed from foreign banks and governments May never be able to pay it back Some have a larger debt than GNP Bulgaria, Ethiopia, Jordan and Tanzania Angola’s debt is THREE TIMES its GDP Some can’t even pay the interest on their loans They are on the verge of default 6) capital flight The legal or illegal export of a country’s currency and foreign exchange Happens because people lose faith in gov’t or economy Then businesses and the gov’t face a cash shortage Can’t invest in the economy 7) corruption Sometimes on a small scale – bribing local officials Sometimes on a massive scale – bribing or threatening federal officials Scamming money from the nation’s treasury 8) war and its aftermath Many developing nations experienced civil war in late 1900’s Some are still in war Devastating impact on lives, property, infrastructure and economy Effects can last decades after the war is over International Agencies Two agencies help developing nations solve their problems 1) International Monetary Fund (IMF) Gives advice to all nations on monetary and fiscal policies Helps support currency of countries by giving loans so they can compete & attract foreign investors 2) World Bank Makes loans and financial assistance and advice to developing countries Owned by IMF member nations Has funded projects to develop inland water transportation in Bangladesh Financed desert locust control in East Africa Stages of Economic Development There are several stages to economic development 1) primitive equilibrium No formal economic organization No money system No investments No countries like this today 2) transition Break from primitive Doesn’t grow economically during this stage But old traditions begin to fall People begin to try new living patterns 3) takeoff Not reached until barriers of primitive equilibrium are broken People now want new and better way to do things Have begun to do new things other people have brought in An industrial nation may be providing aid and education Country begins to save and invest more Industries begin to develop and grow 4) semidevelopment National income grows faster than population This leads to higher per capita income Core industries are firmly established Technological advancements are made Gov’t invests in economy 5) high development Efforts to obtain food, shelter, and clothing are MORE than successful Most people have basic needs and wants met Attention is given to services and consumer goods like TV, washing machines, etc No longer an emphasis on industrial production Nation increases is services and provides more public goods Priorities for Industrialized Nations World Bank has a list of recommendations for industrialized countries 1) trade barriers need to be reduced or eliminated this would generate c. $50 billion in exports for developing countries 2) industrialized countries need to reduce budget deficits, lower interest rates and stabilize inflation This would help their economy grow It also means they would trade more with developing nations 3) they need to provide more financing to developing countries 4) they need to support the economic development of developing countries b/w ½ and 2/3 of all US foreign aid is used for military supplies or training Development with Internal Funds For developing countries to build industries that have a comparative advantage, they need capital. Also need capital to build roads and ports for trade Money is hard to get unless a country is somewhat financially stable For a country to have money, they must produce more than they consume This is easier in a capitalist economy than in a command economy Development with External Funds Since it is hard for developing country to have internal funds, they must get external funds 3 ways to do this: 1)get capital from foreign investors who may be interested in the country’s natural resources This happened in several countries in the Middle East 2) borrowing from foreign governments The US, Canada and some Western European countries give foreign aid to some developing countries 3) get a loan from an international agency World Bank IMF Countries that are particularly hard hit can get soft loans Loans that might never be paid back Regional Cooperation Some countries have joined together to form free-trade areas = two or more countries agree to reduce trade barriers and tariffs among themselves Others form customs unions = two or more countries abolish trade barriers among them and adopt uniform tariffs for nonmember countries The European Union Most successful regional cooperative group in the world No tariffs between countries Citizens of EU countries have common passports Can vote in European elections Can travel anywhere in the EU to work, shop and invest Have a single currency – the Euro ASEAN Formed in 1967 – Indonesia, Malaysia, Singapore, Thailand and the Philippines original members Now have 10 member countries Work to promote regional peace and stability and economic growth Free trade area OPEC Some oil-producing nations have formed a cartel = group of producers or sellers who agree to limit the production or sale of a product to control prices. Formed in 1960 They control oil prices Have made trillions from industrialized nations War and instability in the Middle East have hindered economic growth
