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H3/15/12
Obstacles for Less
Developed Countries
(Ch. 9.4 – pp. 294-305)
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Human Development Index
Figure 9-1
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Progress Toward Development
Figure 9-26
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Intro
• Two (2) major approaches to development:
– 1. self-sufficiency
• self-sufficiency most common model in 20th C.
• China, India, Africa & Eastern Europe in immediate
post-WWII era
• not as common today
– 2. international trade
• more common recently (beginning in 1990s)
• often based on a natural resource or one industry
bringing in more capital for development
4
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I. Development through Self-Sufficiency
• A. Elements of Self-Sufficiency Approach
• modest pace of development
• even distribution of development
– goal is to spread development equally over all sectors
– shared economic benefits; urban & rural advance equally
– Barriers are established to protect local
business
• Three most common barriers
– (1) tariffs
– (2) quotas
– (3) restricting the number of importers
• Two major problems with this approach:
– Inefficient businesses are protected
– A large bureaucracy is developed
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II. Development through International Trade
A. Rostow’s model of development
– 5 major stages
• 1. traditional society
– focus on agric.; little capital generated
• 2. preconditions for takeoff
– Elite group introduces innovations
– New technologies & infrastructure
– Some investments in transportation & water supply
• 3. takeoff
– Rapid growth in limited economic areas
– Often in textiles or food
– Little spread to other areas of economy
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II. Development through International Trade
A. Rostow’s model of development (cont.)
• 4. drive to maturity
– Modern technology diffuses to many industries
– Rapid growth similar to early takeoff industries
– More skilled workers developed
• 5. mass consumption
– Economy shifts from production of heavy industry to
consumer goods
– Most MDCs are in stages 4 or 5
– Most LDCs are in one of lower stages (1-3)
– Countries often succeed on Rostow’s model
through finding foreign markets
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II. Development through International Trade
– Two major factors:
• 1. Southern & Eastern Europe along w/ Japan served
as models for Rostow’s example
– other countries thought they could also follow
• 2. many raw materials in LDCs
– Could sell raw materials to MDCs and generate capital
– Critics of Rostow
• Not all countries follow model
• Often skip stages; not necessary to follow each stage
• development often uneven
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II. Development through International Trade
• B. Examples of international trade approach
– The “four Asian dragons”
• South Korea, Taiwan, Singapore, Hong Kong
– Few natural resources
– Focused on manufacturing – clothing, electronics
– Low labor costs
– Petroleum-rich Arabian Peninsula states
• Saudi Arabia, Kuwait, Bahrain, Oman, U.A.E.
– Oil was main focus
– Use oil profits to pay for large scale projects
– Three major problems:
• Uneven resource distribution
• Increased dependence on MDCs
• Market decline
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III. International Trade Approach Triumphs
A. Overview
– The path most commonly selected by the end of
the twentieth century
• Countries convert because evidence indicates that
international trade is the more effective path toward
development – 4% vs. 1% growth
• Many saw self-sufficiency as inefficient
• India switched and saw tremendous growth
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III. International Trade Approach Triumphs
B. World Trade Organization (WTO)
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•
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•
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Established in 1995
Goal is to reduce international trade restrictions
Increase int’l banking opportunities
Has some enforcement powers, esp. w/ trade
Critics on left (liberal) and right (conservative)
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III. International Trade Approach Triumphs
C. Foreign Direct Investment (FDI)
• promotes trade & investment by companies in other
countries
• Transnational, or multinational, companies (TNC or
MNC) important
• grew rapidly in 1990s
• briefly hurt by tech bubble & recession of 2000, but
returned to previous high
• Uneven flow of investments – still weighted toward
MDC
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Triumph of International Trade Approach
Figure 9-28
Figure 9-27
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Foreign Direct Investment
Figure 9-30
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IV. Financing Development
– LDCs require money to fund development
– Two sources of funds: loans & SAP’s
• A. Loans
– World Bank – generally given for development w/ a focus
on investment & projects
» IBRD (Int’l Bank for Reconstruction & Development)
» IDA (Int’l Development Ass’n)
– International Monetary Fund (IMF) – often given to stabilize
economy & helps w/ national financial troubles
– Began as part of Bretton Woods Agreement (end of WWII)
– Want to avoid int’l problems of Great Depression & WWII
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IV. Financing Development
– B. Structural Adjustment Programs (SAP)
• to continue foreign direct investment from
transnational corporations & countries, LDCs must
explain their SAP
• SAP must include economic goals, strategies &
financing
• many believe poverty increases during development
– esp. through cuts in health, education & social services
• others argue poverty can only end through
development
• debate continues today
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Debt as a Percentage of Income
Figure 9-31
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V. Fair Trade Approach
– Products are made and traded in a way that
protects workers and small businesses in LDCs
– Two sets of standards
• 1. Fair trade producer standards
– often cooperatives
– locals learn leadership & organizational skills
– greater profits for co-ops & workers b/c no middleman
• 2. Fair trade worker standards
– paid fair local wage
– can form union
– safety standards
– Producers and workers usually earn more
– Consumers usually pay higher prices
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Core and Periphery Model
Figure 9-32
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The End.
Up next: Agriculture
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