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Economic Development Read Chapter 19 pages 394- 412 I The Nature and Challenge of Economic Development A) Much of the world’s population live in very poor countries with very poor medical care. B) Rich and Poor Nations 1) A developing country is a country that is not among the high-income nations of the world. 2) Two techniques for classification a) World Bank’s International Comparison Program (ICP) ranks countries based on purchasing power of income. b) Simple conversion of per capita GDP based on exchange rate. C) Characteristics of Low-Income Countries 1) Income Inequality is more extreme as indicated by the Lorenz curves. 2) Health and Education levels are low. 3) Unemployment rates are very high. 4) Economies rely on Agriculture. D) Economic Development is a process that produces sustained and widely shared gains in per capita real GDP. United Nations Indexes. 1) Human Development Index (HDI) 2) Gender Development Index (GDI) 3) Human Poverty Index (HPI) II Population Growth and Economic Development A) Population Growth is relatively rapid in developing countries. B) Per capita income growth = Aggregate income growth – population growth. C) High rates of population growth do not necessarily imply low rates of growth in per capita income. D) The Malthusian Trap and Demographic Transition. 1) The Malthusian trap is a point at which the world is no longer able to meet the food requirements of the population and starvation becomes the primary check to population growth. 2) Thankfully the Malthusian trap has not come to pass. 3) Furthermore, demographers have identified a process of demographic transition in which population growth rises with a fall in death rtes and then falls with a reduction in birth rates. III Keys to Economic Development A) Domestic Policy and Economic Development 1) Market Economies and Development 2) The Rule of Law and Development 3) Investment and Saving B) International Economic Issues in Development 1) Dependency Theory and Trade Policy. a) Dependency theory concludes that poverty in developing countries is the result of their dependence on high-income nations. b) Suggests curtailing free trade and forcing economic independence. 2) Import Substitution Strategies and ExportLed Development a) Import substitution is a strategy of blocking most imports and substituting domestic production of those goods. b) Has not been a successful strategy. 3) Development and International Financial Markets. C) Development Successes – Asia and parts of Latin America 1) Embraced market economies. 2) Low levels of government intervention.