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Chapter 30
Growth and the LessDeveloped Countries
• Key Concepts
• Summary
• Practice Quiz
• Internet Exercises
©2002 South-Western College Publishing
1
What is one way to
compare the wellbeing of one country
to another?
GDP per capita
2
What is GDP per capita?
The value of final goods
produced (GDP) divided
by the total population
3
What are industrially
advanced countries ?
High-income nations
that have market
economies based on
large stocks of
technologically
advanced capital and
well-educated labor
4
Who are the IACs?
The United States,
Canada, Australia, New
Zealand, Japan, and most
of the countries of
Western Europe
5
What are lessdeveloped countries?
Economies based on
agriculture which are
lacking large stocks of
technologically
advanced capital and
well-educated labor
6
Who are the LDCs?
Most countries of Africa,
Asia, and Latin America
7
What are problems
in comparing
GDPS per capita?
• Measurement errors
• Income distribution
• Fluctuations in exchange rates
• Differences in living standards
8
Is GDP per capita
correlated with
other measures of
quality of life?
Yes
9
What are quality of
life indicators?
• Life expectancy
• Adult literacy
• Daily calorie supply
• Energy consumption
per capita
10
What factors come
together to produce a
country’s growth?
• Natural resources
• Investment in capital
• Investment in human capital
• Low population growth
• Infrastructure
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80
70
60
50
40
30
20
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Exhibit 4
Economics Growth
Manufactured Goods
Q
PPC2
PPC1
Agricultural Goods
100
200
300
Q
400 500
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Economics
Growth
Growth in resources or
technological advance
13
What is infrastructure?
Capital goods usually
provided by the
government, including
highways, bridges,
waste and water
systems, and airports
14
What is a major
problem for LDCs?
They find themselves in
a vicious cycle of
poverty
15
What is the vicious
circle of poverty?
The trap in which countries
are poor because they
cannot afford to save and
invest, but they cannot
save and invest because
they are poor
16
What are the political
factors favorable for
economic growth?
• Law and order
• Infrastructure
• International trade
17
Economic growth and development
Natural
resources
endowment
Human
resources
development
Capital
investment
Technological
Political
progress
environment
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What is foreign aid?
The transfer of money
or resources from one
government to another
for which no
repayment is required
19
What is the Agency for
International
Development?
AID is the agency of
the U.S. State
Department that is in
charge of U.S. aid to
foreign countries
20
What is the
World Bank?
The lending agency that
makes long-term lowinterest loans and
provides technical
assistance to lessdeveloped countries
21
What is the
International Monetary
Fund (IMF)?
The lending agency that
makes short-term
conditional low-interest
loans to developing
countries
22
What is the New
International Economic
Order (NIEO)?
A series of proposals made
by LDCs calling for
changes that would
accelerate the economic
growth and development
of the LDCs
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Key Concepts
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Key Concepts
• What is GDP per capita?
• What are industrially advanced countries
(IACS)?
• What are less-developed countries (LDCS)?
• What are quality of life indicators?
• What factors come together to produce a
country’s well being?
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Key Concepts cont.
• What is the vicious circle of poverty?
• What are the political factors favorable for
economic growth?
• What is foreign aid?
• What is aid?
• What is the World Bank?
• What is the IMF?
• What is the NIEO?
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Summary
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GDP per capita provides a
general index of a country’s
standard of living. Countries with
low GDP per capita and slow
growth in GDP per capita are less
able to satisfy basic needs for
food, shelter, clothing, education,
and health.
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Industrially advanced countries
(IACs) are countries in which GDP
per capita is high and output is
produced by technologically
advanced capital. Countries that
earn high income without
widespread industrial development,
such as the oil-rich Arab countries,
are not included in the IAC list.
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Less-developed countries
(LDCs) are countries with low
production per person. In these
countries, output is produced
without large amounts of
technologically advanced capital
and well-educated labor. The
LDCs account for about threefourths of the world’s population.
30
The Four Tigers of the Pacific
Rim are Hong Kong, Singapore,
South Korea, and Taiwan. These
newly industrialized countries
have achieved high growth rates
and standards of living
approaching those of many of
the IACs.
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GDP per capita comparisons are
subject to four problems: (1) the
accuracy of LDC data is
questionable, (2) GDP per capita
ignores the degree of income
distribution, (3) changes in
exchange rates affect gaps
between countries, and (4) there is
no adjustment for the cost-of-living
differences between countries.
32
Economic growth and economic
development are related, but
somewhat different, concepts.
Economic growth is measured
quantitatively by GDP per capita,
while economic development is a
broader concept.
33
In addition to GDP per capita,
economic development includes
quality-of-life measures, such as life
expectancy at birth, adult literacy
rate, and per capita energy
consumption.
34
Economic growth and development
are the result of a complex process
that is determined by five major
factors: (1) natural resources, (2)
human resources, (3) capital, (4)
technological progress, and (5) the
political environment. There is no
single correct strategy for economic
development, and a lack of strength
in one or more of the five areas
does not prevent growth.
35
The vicious circle of poverty is a
trap in which the LDC is too poor to
save and therefore it cannot invest
and shift its production possibilities
curve outward. As a result, the LDC
remains poor.
36
One way for a poor country to gain
savings, invest, and grow is to use
funds from external sources, such
as foreign private investment,
foreign aid, and foreign loans.
Borrowing by many LDCs led to the
debt crises of the 1980s, which was
resolved by writing off and
restructuring the loans.
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Low income
Low productivity
Low savings
Low investment
38
END
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