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39W The Economics of Developing Countries McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Classifications • Industrially advanced countries • High income nations • Well-developed market economies • Per capita income $37,665 in 2008 • Developing countries • Middle income nations • Low income nations • Wide variation in income per capita LO1 39-2 Classifications 39-3 Comparisons • U.S. GDP $14.6 trillion • Combined GDP of DVCs $15.6 trillion • U.S. has 4.5% of population but • • LO1 produces 25.1% of world’s output U.S. per capita GDP is 150 times that of Sierra Leone Walmart’s annual revenue is greater than all but 23 nations’ GDP 39-4 Growth, Decline and Income Gaps • Some developing countries have • • LO1 grown considerably • China, Malaysia, Chile, Thailand Some developing countries have become high-income • Singapore, Greece, Hong Kong Income gap has widened • Developing countries must grow faster to reduce the gap 39-5 Human Realities of Poverty Selected Socioeconomic Indicators of Development LO2 39-6 Obstacles to Development • The path to economic development • Use existing resources more • LO2 efficiently • Expand available supplies of resources Simple generalizations are not possible 39-7 Obstacles to Development • LO2 Natural Resources • Shortage of land, resources, power • Tropical climates hinder labor, lead to disease • Difficult to solve 39-8 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 39-9 Obstacles to Development LO2 39-10 Obstacles to Development LO2 39-11 Obstacles to Development • Capital accumulation • This is key for economic development • Domestic capital formation • Savings potential • Capital flight • Investment obstacles • Lack of infrastructure LO2 39-12 Obstacles to Development • Technological advance • Borrowed technology • Socio-cultural obstacles • Institutional obstacles • Land reform LO2 39-13 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 39-14 Role of Government • 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 LO4 39-15 Role of Government • Public sector problems • Misadministration • Bribery • Corruption LO4 39-16 Role of Government LO4 39-17 Role of Advanced Nations • Expanding trade • Admitting temporary workers • Discouraging arms sales • Foreign aid • Direct aid • The World Bank group LO5 39-18 Role of Advanced Nations • Foreign harm? • Dependency and incentives • Bureaucracy and centralized • • LO5 government • Corruption and misuse Current level of foreign aid Flows of private capital 39-19 Role of Advanced Nations LO5 39-20 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 LO5 39-21
