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Rich and Poor
Obstacles to
Economic
Development
Capital
Accumulation
Vicious Circle of
Poverty
Role of
Government
Role of Advanced
Nations
Where from
Here?
IAC Policies for
Fostering DVC
Growth
Last Word
Key Terms
16
WEB
The Economics
Of Developing
Countries
End Show
16W-1
Copyright 2008 The McGraw-Hill Companies
Chapter Objectives
Rich and Poor
Obstacles to
Economic
Development
Capital
Accumulation
Vicious Circle of
Poverty
Role of
Government
Role of Advanced
Nations
Where from
Here?
IAC Policies for
Fostering DVC
Growth
Last Word
Key Terms
End Show
16W-2
• In this chapter you will learn:
• How the World Bank distinguishes
between industrial advanced
countries (high-income nations) and
developing countries (middleincome and low-income nations).
• Some of the obstacles to economic
development.
• About the vicious cycle of poverty
that afflicts low-income nations.
• The role of government in
promoting economic development
within low-income nations.
• How industrial nations attempt to
aid low-income countries.
Copyright 2008 The McGraw-Hill Companies
The Rich and the Poor
Rich and Poor
Obstacles to
Economic
Development
Capital
Accumulation
Vicious Circle of
Poverty
Role of
Government
Role of Advanced
Nations
Where from
Here?
IAC Policies for
Fostering DVC
Growth
Last Word
Key Terms
End Show
16W-3
• Classifications
–Industrially Advanced
Countries (IACs)
• High Income Nations
–Developing Countries
(DVCs)
• Low Income Nations
• Middle Income Nations
Copyright 2008 The McGraw-Hill Companies
The Rich and the Poor
• 2004 Comparisons:
Rich and Poor
Obstacles to
Economic
Development
Capital
Accumulation
Vicious Circle of
Poverty
Role of
Government
Role of Advanced
Nations
Where from
Here?
IAC Policies for
Fostering DVC
Growth
Last Word
Key Terms
End Show
16W-4
–U.S. GDP $12 Trillion
–All DVCs $5.5 Trillion
–U.S. has 5% of Population
but Produces 31% of
World’s Output
–U.S. Per Capita GDP Many
Times Greater than DVCs
–Wal-Mart Sales Greater
Than All But 19 Nations
Copyright 2008 The McGraw-Hill Companies
The Rich and the Poor
Rich and Poor
Obstacles to
Economic
Development
Capital
Accumulation
Vicious Circle of
Poverty
Role of
Government
Role of Advanced
Nations
Where from
Here?
IAC Policies for
Fostering DVC
Growth
Last Word
• Growth, Decline, and
Income Gaps
–Differences in Ability to
Improve Positions Over Time
–Some Increase and Reach
IAC Status
–Some Decline
–Income Gap is Widening
Between Rich and Poor
• Human Realities of Poverty
Key Terms
End Show
16W-5
Copyright 2008 The McGraw-Hill Companies
Rich and Poor
Obstacles to
Economic
Development
Capital
Accumulation
Vicious Circle of
Poverty
Role of
Government
Role of Advanced
Nations
Where from
Here?
IAC Policies for
Fostering DVC
Growth
Last Word
Key Terms
End Show
16W-6
Obstacles to Economic
Development
• DVCs Must Use Existing
Supplies of Resources
More Efficiently
• DVCs Must Expand
Their Available Supplies
of Resources
–Natural Resources
–Human Resources
Copyright 2008 The McGraw-Hill Companies
Rich and Poor
Obstacles to
Economic
Development
Capital
Accumulation
Vicious Circle of
Poverty
Role of
Government
Role of Advanced
Nations
Where from
Here?
IAC Policies for
Fostering DVC
Growth
Last Word
Obstacles to Economic
Development
• Overpopulation
• Standard of Living
–Saving and Investment
–Productivity
–Resource Overuse
–Urban Problems
Standard
Of Living
Key Terms
End Show
16W-7
=
Consumer Goods (Food) Production
Copyright 2008 The McGraw-Hill Companies
Population
Rich and Poor
Obstacles to
Economic
Development
Capital
Accumulation
Vicious Circle of
Poverty
Role of
Government
Role of Advanced
Nations
Where from
Here?
IAC Policies for
Fostering DVC
Growth
Last Word
Key Terms
End Show
16W-8
Obstacles to Economic
Development
• Qualifications
–Demographic Transition
View
• Unemployment
• Underemployment
• Low Labor Productivity
• Brain Drain
Copyright 2008 The McGraw-Hill Companies
Capital Accumulation
Rich and Poor
Obstacles to
Economic
Development
Capital
Accumulation
Vicious Circle of
Poverty
Role of
Government
Role of Advanced
Nations
Where from
Here?
IAC Policies for
Fostering DVC
Growth
Last Word
Key Terms
End Show
16W-9
• Domestic Capital
Formation
–Savings Potential
–Capital Flight
–Investment
Obstacles
•Infrastructure
Copyright 2008 The McGraw-Hill Companies
Capital Accumulation
• Technological Advance
Rich and Poor
Obstacles to
Economic
Development
Capital
Accumulation
Vicious Circle of
Poverty
Role of
Government
Role of Advanced
Nations
Where from
Here?
IAC Policies for
Fostering DVC
Growth
Last Word
Key Terms
End Show
16W-10
–Capital-Saving
Technology
–Capital-Using
Technology
• Sociocultural and
Institutional Factors
–The Will to Develop
–Capricious Universe
View
–Land Reform
Copyright 2008 The McGraw-Hill Companies
The Vicious Circle
The Vicious Circle of Poverty
Rich and Poor
Obstacles to
Economic
Development
Capital
Accumulation
Vicious Circle of
Poverty
Role of
Government
Role of Advanced
Nations
Where from
Here?
IAC Policies for
Fostering DVC
Growth
Last Word
Key Terms
LOW
PER CAPITA
INCOME
RAPID
POPULATION
GROWTH
LOW
PRODUCTIVITY
LOW LEVEL
OF SAVING
LOW LEVEL
OF DEMAND
LOW LEVELS OF
INVESTMENT IN
PHYSICAL AND
HUMAN CAPITAL
End Show
O 16W.1
16W-11
Copyright 2008 The McGraw-Hill Companies
Role of Government
• A Positive Role
Rich and Poor
Obstacles to
Economic
Development
Capital
Accumulation
Vicious Circle of
Poverty
Role of
Government
Role of Advanced
Nations
Where from
Here?
IAC Policies for
Fostering DVC
Growth
Last Word
–Law and Order
–Lack of Entrepreneurship
–Infrastructure
–Forced Saving and
Investment
–Social-Institutional
Problems
• Public Sector Problems
Key Terms
–Corruption
End Show
16W-12
Copyright 2008 The McGraw-Hill Companies
Role of Government
GLOBAL PERSPECTIVE
Rich and Poor
Obstacles to
Economic
Development
Capital
Accumulation
Vicious Circle of
Poverty
Role of
Government
Role of Advanced
Nations
Where from
Here?
IAC Policies for
Fostering DVC
Growth
Last Word
Key Terms
End Show
The Corruption Perception Index
Corruption Index Value, 2005
0
Finland
New Zealand
Denmark
United States
China
India
Moldova
Madagascar
Ecuador
Russia
Azerbaijan
Cameroon
Paraguay
Nigeria
Haiti
Bangladesh
1
2
3
4
5
6
7
8
9
10
9.6
9.6
9.5
7.6
3.2
2.9
2.9
2.8
2.5
2.4
2.2
2.2
2.1
1.9
1.8
1.7
Source: Transparency International
16W-13
Copyright 2008 The McGraw-Hill Companies
Role of Advanced Nations
Rich and Poor
Obstacles to
Economic
Development
Capital
Accumulation
Vicious Circle of
Poverty
Role of
Government
Role of Advanced
Nations
Where from
Here?
IAC Policies for
Fostering DVC
Growth
Last Word
Key Terms
• Expanding Trade
• Foreign Aid
–Direct Aid
–The World Bank Group
–Foreign Harm
• Dependency and Incentives
• Bureaucracy and Centralized
Government
• Corruption and Misuse
–The Decline in Foreign Aid
–Flows of Private Capital
• Direct Foreign Investment
End Show
16W-14
Copyright 2008 The McGraw-Hill Companies
Role of Advanced Nations
GLOBAL PERSPECTIVE
Rich and Poor
Obstacles to
Economic
Development
Capital
Accumulation
Vicious Circle of
Poverty
Role of
Government
Role of Advanced
Nations
Where from
Here?
IAC Policies for
Fostering DVC
Growth
Last Word
Development Assistance as a
Percentage of GDP
Percentage of GDP, 2003
0
.20
.40
Netherlands
United Kingdom
Germany
Canada
Key Terms
Japan
End Show
United States
.80
1.00
.80
.79
Sweden
France
.60
.41
.34
.28
.24
.20
.15
Source: U. N. Human Development Report, 2006
16W-15
Copyright 2008 The McGraw-Hill Companies
Where From Here?
Rich and Poor
Obstacles to
Economic
Development
Capital
Accumulation
Vicious Circle of
Poverty
Role of
Government
Role of Advanced
Nations
Where from
Here?
IAC Policies for
Fostering DVC
Growth
Last Word
Key Terms
End Show
16W-16
• DVC Policies for
Promoting Growth
–Establishing and
Implementing the Rule of
Law
–Opening Economies to
International Trade
–Controlling Population
Growth
–Encouraging Foreign Direct
Investment
–Building Human Capital
Copyright 2008 The McGraw-Hill Companies
Where From Here?
Rich and Poor
Obstacles to
Economic
Development
Capital
Accumulation
Vicious Circle of
Poverty
Role of
Government
Role of Advanced
Nations
Where from
Here?
IAC Policies for
Fostering DVC
Growth
Last Word
Key Terms
• DVC Policies for
Promoting Growth
–Making Peace With
Neighbors
–Establishing Independent
Central Banks
–Establishing Realistic
Exchange-Rate Policies
–Privatizing State Industries
End Show
16W-17
Copyright 2008 The McGraw-Hill Companies
Rich and Poor
Obstacles to
Economic
Development
Capital
Accumulation
Vicious Circle of
Poverty
Role of
Government
Role of Advanced
Nations
Where from
Here?
IAC Policies for
Fostering DVC
Growth
Last Word
Key Terms
End Show
16W-18
IAC Policies for Fostering DVC
Growth
• Directing Foreign Aid to the
Poorest DVCs
• Reducing Tariffs, Import
Quotas, and Farm Subsidies
• Providing Debt Forgiveness
to the Poorest DVCs
• Admitting in Temporary
Workers and Discouraging
Brain Drains
• Discouraging Arms Sales to
the DVCs
Copyright 2008 The McGraw-Hill Companies
Famine in Africa
Rich and Poor
Obstacles to
Economic
Development
Capital
Accumulation
Vicious Circle of
Poverty
Role of
Government
Role of Advanced
Nations
Where from
Here?
IAC Policies for
Fostering DVC
Growth
Last Word
• Root Causes – Both Natural
and Human Causes
• Droughts
– Lack of Rainfall
– Overuse of Land
• Civil Strife
– Rebellions, Civil Wars, Wars
with Neighbors, Anarchy
• Population Growth
• Ecological Degradation
Key Terms
End Show
16W-19
Copyright 2008 The McGraw-Hill Companies
Famine in Africa
Rich and Poor
Obstacles to
Economic
Development
Capital
Accumulation
Vicious Circle of
Poverty
Role of
Government
Role of Advanced
Nations
Where from
Here?
IAC Policies for
Fostering DVC
Growth
Last Word
• Public Policies
– Neglected Agriculture for
Military Uses
– Channeling Aid to Military and
Ignoring Civilians
– Setting Agricultural Prices Low
Decreasing Incentive to Grow
– Land Seizures that Collapsed
the Food Supply
• External Debt
Key Terms
– Required Austerity
End Show
16W-20
Copyright 2008 The McGraw-Hill Companies
Key Terms
Rich and Poor
Obstacles to
Economic
Development
Capital
Accumulation
Vicious Circle of
Poverty
Role of
Government
Role of Advanced
Nations
Where from
Here?
IAC Policies for
Fostering DVC
Growth
Last Word
Key Terms
End Show
16W-21
• industrially
advanced countries
(IACs)
• developing
countries (DVCs)
• demographic
transition view
• underemployment
• brain drain
• capital flight
• infrastructure
• capital-saving
technology
Copyright 2008 The McGraw-Hill Companies
• capital-using
technology
• the will to develop
• capricious universe
view
• land reform
• vicious circle of
poverty
• corruption
• World Bank
• direct foreign
investment
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Rich and Poor
Obstacles to
Economic
Development
Capital
Accumulation
Vicious Circle of
Poverty
Role of
Government
Role of Advanced
Nations
Where from
Here?
IAC Policies for
Fostering DVC
Growth
Last Word
Disputes Over
Macro Theory
And Policy
Key Terms
End Show
16W-22
Copyright 2008 The McGraw-Hill Companies