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Obstacles to Development Income and Demographic Change, 1980–2004 Fig. 9-19: Per capita GDP has increased more in MDCs than in LDCs during this period, while population growth and infant mortality have declined more rapidly in MDCs than in LDCs. How can LDCs develop more rapidly? • LDCs need to increase per capita GDP more rapidly and use the additional funds to make more rapid improvements in people’s social and economic conditions. • LDCs chose one of two models to promote development 1. Emphasizes international trade 2. Advocates self-sufficiency Development Through Self-Sufficiency • Most popular approach for most of 20th century – Used in India and China 1. Country would invest equally-sectors and region 2. Isolates businesses from international competition 3. Sets barriers to limit the number of foreign goods 4. Businesses are discouraged from producing goods to be exported Problems with the Self-Sufficiency Alternative 1. Inefficiency – Companies protected from international competition do not feel pressure to keep abreast of rapid technological changes 2. Large bureaucracy – Complex administrative system encouraged abuse and corruption Development through International Trade • A country can develop economically by concentrating scarce resources on expansion of its distinctive local industry. The income from these products would bring funds into the country that can be used to finance other development. • Pioneering advocate for this approach was W.W. Rostow • Rostow’s model was implemented in several countries during the 1960s Rostow’s Development Model • According to the international trade model, each country is in one of these five stages of development. 1. The traditional society. 2. The preconditions for takeoff. 3. The takeoff. 4. The drive to maturity. 5. The age of mass consumption. • The model assumes that less developed countries will achieve development by moving along from an earlier to a later stage. Examples of International Trade Approach • Two groups of countries chose the international trade approach during the mid-twentieth century. – Arabian Peninsula – Four Asian Dragons Problems with the International Trade Alternative • Three problems have hindered countries outside the Persian Gulf and the four Asian dragons from developing through the international trade approach: 1. Uneven resource distribution 2. Market stagnation 3. Increased dependence on MDCs Recent Triumph of the International Trade Approach • Despite problems with the international trade approach, it has been embraced by most countries as the preferred alternative for stimulating development. • Countries converted from self-sufficiency to international trade during the 1990s for one simple reason: overwhelming evidence that international trade better promoted development. World Trade Organization • The WTO works to reduce barriers to international trade in two principal ways. 1. countries negotiate reduction or elimination of international trade restrictions on manufactured goods. 2. promotes international trade by enforcing agreements. WTO Critics • Liberal critics say the WTO is antidemocratic because their decisions are made behind closed doors and they promote the interest of large corporations rather than the poor • Conservative critics say the WTO threatens the sovereignty of nations because it can order changes in taxes and laws it deems unfair. • Protesters routinely gather in the streets outside high-level meetings of the WTO. Financing Development • Regardless of model used, LDCs need money to finance development • International Monetary Fund (IMF) • The World Bank – International Development Association – International Bank for Reconstruction and Development • What is the theory behind borrowing money? • What are the problems with loans? Fair Trade • A variation of the international trade model • Fair Trade: products are made and traded according to standards that protect workers and small businesses in LDCs. • Producer Standards • Worker Standards