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Chapter 25W The Economics of Developing Countries Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 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 LO1 25W-2 Classifications LO1 25W-3 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 LO1 25W-4 Growth, Decline and Income Gaps • Some developing countries have grown considerably • China, Malaysia, Chile, Thailand • Some developing countries have become highincome • Singapore, Greece, Hong Kong • Income gap has widened • Developing countries must grow faster to reduce the gap LO1 25W-5 Human Realities of Poverty Selected Socioeconomic Indicators of Development LO1 25W-6 Obstacles to Development • The path to economic development • Use existing resources more efficiently • Expand available supplies of resources • Simple generalizations are not possible LO2 25W-7 Obstacles to Development • Natural Resources • Shortage of land, resources, power • Tropical climates hinder labor, lead to disease • Difficult to solve LO2 25W-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 25W-9 Obstacles to Development LO2 25W-10 Obstacles to Development LO2 25W-11 Obstacles to Development • Capital accumulation • This is key for economic development • Domestic capital formation • Savings potential • Capital flight • Investment obstacles • Lack of infrastructure LO2 25W-12 Obstacles to Development • Technological advance • Borrowed technology • Socio-cultural obstacles • Institutional obstacles • Land reform LO2 25W-13 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 25W-14 Role of Government LO4 • 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 25W-15 Role of Government • Public sector problems • Misadministration • Bribery • Corruption LO4 25W-16 Role of Government LO4 25W-17 Role of Advanced Nations • • • • LO5 Expanding trade Admitting temporary workers Discouraging arms sales Foreign aid • Direct aid • The World Bank group 25W-18 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 LO5 25W-19 Role of Advanced Nations LO5 25W-20 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 25W-21
