Download Economics of development

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Economics of development
Module 1:
Economic development: concept of development-definition-distinction
between economic growth and development-sustainable developmentcharacteristics of developing countries-measures of economic
development: Gross national product(GNP)- per capita income, net
economic welfare, physical quality of life index(PQLI), Human
development index(HDI), Gender development Index(GDI), Gender
empowerment measure(GEM), human poverty index(HPI).
Economics of development refers to the problems of the economic
development of underdeveloped countries. The study of economic
development has attracted the attention of economist’s right from the
mercantilist sch0ol and Adam Smith to Marx and Keynes; they were
mainly interested in the problems which were static in nature and
largely related to a western European framework of social and cultural
institutions.
It is however, in the forties of the present century and especially after
the Second World War that economists started devoting their
attention towards analyzing the problems of underdeveloped
economies.
Their interest in the economic development of
underdeveloped countries has further stimulated by the wave of
political resurgence that swept Asian and African countries after the
Second World War. The desire on the part of the new leaders in these
countries to promote rapid economic development coupled with the
realization on the part of the developed nations that,” poverty
anywhere is a threat to prosperity everywhere”, has aroused further
interest in the subject. As Meir and Baldwin has remarked,” A study of
the poverty of nation has even more urgency than a study of wealth of
nations”.
But the interest of the wealthy nations in removing poverty of the
under developed countries has not been aroused by any humanitarian
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motive. The most important reason for aiding the underdeveloped
countries had been the cold war between former USSR and USA. Each
tried to enlist the support and loyalty of underdeveloped countries by
promoting larger aid than the other. Prof.Lyle.W.Shannon, observes,”
the development of underdeveloped countries will be an area of intense
competition between united states and USSR for many years,
underdeveloped countries contains either vast natural resources
needed by world power or having strategic locations from a military
view point, will be of particular interest from a standpoint of their
importance in world affairs.
Economic development has also an export value for both aid receiving
and aid giving countries. In order to avoid secular stagnation rich
countries need an ever increasing rate of development which must be
accompanied by an outlet for the use of their growing capital stock.
Poor countries need an accelerating rate of development to increase
their export potential for avoiding deficit in balance of payments.
However, a study of poverty of nations and the methods of removing
poverty cannot be based on the experience of the rich nations.
According to Prof.Myrdal,” the underdeveloped countries should not
accept our inherited economic theory uncritically but remould it to fit
to their own problems and interest. So far economic theory has not
concerned itself with the problems of underdeveloped countries.
Nevertheless if it is uncritically applied to their problems it becomes
wrong”.
Economic development and economic growth:
The term economic development is used in inter-changeably with such
terms as economic growth. But certain economists like Schumpeter
and Mrs. Ursula Hicks have made a distinction between the more
commonly used terms economic development and economic growth.
Economic development refers to the problems of underdeveloped
economies; economic growth refers to the problems of advanced or
developed countries. Development according to Schumpeter is a
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discontinuous change in the stationary state, which for ever alters and
displaces the equilibrium state previously existing, while growth is a
gradual and steady change in the long-run which comes about by a
general increase in the rate of savings. Mrs. Ursula Hicks points out
that the problems of underdeveloped countries are concerned with the
development of unused resources, even though their uses are wellknown, while those of advanced counties are related to growth, most of
their resources being already known, and developed to a considerable
extent.
According to Prof. Kindleberger, “Economic growth means more
output, while economic development implies both more output and
changes in the technical and institutional arrangements by it is
produced and distributed. Growth may well involve not only more
output, but also greater efficiency, that is, an increase in output per
unit of input. Development goes beyond this, to apply changes in the
composition of output and in the allocation of inputs by all the sectors
of the economy.
Prof. Friedman defines growth,” as an expansion of the system in one
or more dimensions without a change in its structure and development
is, an innovative process leading to the structural transformation of
social system”.
Thus economic growth is related to a quantitative sustained increase
in the countries per capita output or income accompanied by expansion
in its labour force, consumption, capital and volume of trade. On the
other hand, economic development is a wider term; it is related to
quantitative changes in economic wants, goods, incentives and
institutions. It describes the underlying determinants of growth, such
as technological and structural changes.
Despite these apparent differences, some economists use these terms as
synonyms. W. Arthur Lewis, in his theory of economic growth writes
that,” most often we shall refer only to growth but occasionally for the
sake of variety, to progress or to development”.
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Measures / definitions /indicators of economic
development:
Economic development has defined in three ways:
One of the definitions is to measure economic
development in terms of an increase in the economy’s real
national income over a long period.
“Real national income” refers to the country’s total output
of final goods and services in real terms rather than in
money terms. Thus price changes will have to be ruled
out, while calculating real national income. But this is
unrealistic in a developing economy, where variations in
price are inevitable. In this definition, the phrase,” over a
long-period of time” implies a sustained increase in real
income. A short period rise in national income which
occurs during the upswing of the business cycle does not
constitute economic development.
This definition fails to take into consideration changes in
the growth population, if a rise in the national income is
accompanied by a faster growth in population.
2. The second definition relates to an increase in the
percapita real income of the economy over a long period.
Economists are one in defining economic development in
terms of an increase in per capita real income.
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Prof.Meier defines economic development.” As the
process of a country increases over a long period of time.
Prof. Baran opines,” let economic development be defined
as an increase over time in per capita output of material
goods”.
According to Buchanan and Ellis,” development means
developing the real income potentialities of the
underdeveloped areas by using investment to effect those
changes and to augment those productive resources which
promise to raise real income per person”.
These definitions emphasize that, for economic
development the rate of increase in real income should be
higher than the growth rate of population. But there are
some difficulties or criticisms.
An increase in per capita income may not raise the real
standard of living of the masses. It is possible that while
per capita real income is increasing per capita consumption
might be falling. People might be increasing the rate of
saving or the government might itself be using up the
increased income for military or other purposes.
The masses can also remain poor despite an increase in the
per capita income, if the increased income goes to a few
rich instead of going to the many poor.
Moreover, such a definition subordinates other questions
regarding, the structure of the society. The size and
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composition of its population, its institutions and culture,
the resource patterns and even distribution of output
among the members of the society.
3. Economic development is also defined from the point of
view of economic welfare. Economic development is
regarded as a process whereby the real per capita income
increases accompanied by reduction in inequalities of
income and the satisfaction of the preferences of the
masses.
In the words of Richardson, economic
development is,” a sustained secular improvement in
material well-being, which we may consider to be
reflected in an increasing flow of goods and services.
This definition is also not free from limitations:
1. Sustained growth in real national income does not
necessarily mean an improvement in economic welfare. It
is possible that with the increase in real per capita or
national income, the rich may become richer and the poor
poorer. Thus a mere increase in economic welfare does
not lead to economic development unless the resultant
distribution of national income is also considered just.
2. In measuring economic welfare, caution has to be
exercised with regard to the composition of the total
output. The increased total output may be composed of
capital goods. It may be at the cost of a reduced output of
consumer gods.
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3. From the welfare point of view, we must also consider
not only what is produced but how it is produced. The
expansion of real national output might have raised the
real costs (pain, sacrifice) and several costs in the
economy.
Lastly, we cannot equate an increase in output per head
with an increase in economic welfare, let alone social
welfare, without additional considerations. To specify an
optimum rate of development, we must make value
judgments, regarding income distribution, composition of
output, tastes, real costs and other particular changes that
are associated with the overall increase in the real income.
Therefore, in order to avoid value judgments and for the
sale of simplicity economists use the per capita income as
the measure of economic development.
Measures of economic development:
NEW, PQLI, HDI, GDI, GEM:
Net economic welfare (NEW):
There is also a tendency to measure economic
development from the point of view of economic welfare.
James Tobin and Paul Samuelson have popularized the
concept of Net Economic Welfare (NEW).
NEW is arrived at by modifying GNP, by adding to it
certain items like the value of leisure and housewives
services and from subtracting from GNP such items like
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unmet costs of population and other disamenities of
modern urbanization. Adjustments for increased leisure
may not increase percapita, NEW is beyond percapita
GNP growth. But disamenities of urbanization such as
growing pollution would slow down NEW.
In overall development planning, the important question
would be to decide how much of GNP growth the
community would be willing to sacrifice to enhance the
quality of life and net economic welfare. For instance, as a
country becomes highly affluent, people prefer to work
fewer hours in order to enjoy greater leisure, then the
measured rate of growth of GNP may fall, but net
economic welfare will shoe an increase, that is, people
would have sacrificed to some extent certain quantity of
goods and services for experiencing better quality of life.
The concept of NEW is more meaningful than GNP as a
basis for development planning, because the aim of
development planning is to improve the quality of life and
net economic welfare helps to achieve this goal.
Gender related development (GDI):
Gender related development index was introduced in
human development report (HDR) 1995. It measures
achievements in the same dimensions and variables as HDI
does, but takes account of inequality between women and
men. Thus GDI attempts to capture achievements through
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the same set of basic capabilities as included in the human
development index, such as, life expectancy, educational
attainment and income but adjusts the HDI for gender
inequality. The greater the gender disparity in basic
human development, the lower a country’s GDI compared
with its HDI.
In its 6 point plan of action to eradicate poverty, the human
development report 1997 urges nations to commit
themselves to gender equality, in order to unleash the
energy and productive capabilities of women around the
world. The report says there is much work to be done. In
developing countries, the report illustrates women
outnumber men by 60%, women earn only 3/4th of what
men earn , meanwhile women bear a disproportionately
large share of chores and child rearing responsibilities.
They also have less access to land, credit and employment
opportunities. In industrialized countries, unemployment
rate among women is higher that among men. Globally
women still hold 13% of parliamentary seats and 6% of
cabinet posts.
To help nations monitor their progress in closing the
gender gap, recent editions of the Human Development
Report (HDR) have presented two measures of the
disparities in opportunities for men and women in
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countries around the world. The findings of the report
include:
a. The GDI measure 146 countries achievements in life
expectancy, educational attainment and income and
compares the status of women and men. Canada tops the
GDI rankings, Norway is second and Sweden followed by
Iceland and United States of America.
b. Several developing countries do well in GDI. Barbados
17, Uruguay 13, Trinidad and Tobago32, Korea 35, Cost
Rica 36, Thailand 39. These countries have succeeded at
enhancing the basic human capabilities of both men and
women.
c. Sierra Leone falls at the bottom of the GDI, Nigeria
ranks next to last and Burkina Faso third from the bottom.
These countries also rank near the bottom in overall
human development.
d. No society treats its women as well as its men. In every
country, GDI values are lower than values on a HDI which
measures people’s well-being.
e. Gender inequality often accompanies human poverty
which reflects limited choices and opportunities. Sierra
Leone, Nigeria, Burkina Faso, for example is at the bottom
of the GDI rankings. They also report the worst human
poverty, measured by a ‘human poverty index’(HPI), a
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new indicator of human deprivation featured in the HDR
of 1997.
3. Gender Empowerment Measure (GEM)
Gender empowerment measure examines women’s access
to professional, economic and political opportunities. This
measure was also introduced by the Human development
Report, 1995. It indicates whether women are able to
actively participate in economic and political life. It
focuses on participation, measuring gender inequality in
key areas of economic and political participation, and
decision making. It thus, differs from the GDI which is an
indicator of Gender inequality in basic capabilities.
Human development report of 2004, presented GEM for
94 countries. The top four rankings are occupied by
Norway, Sweden, Australia, and Canada. These countries
are not only good at strengthening the basic capabilities of
women but they have also opened many opportunities for
them to participate in economic and political fields.
Some developing countries outperform many richer
industrial countries in gender equality in political,
economic, and professional activities. For example,
Barbados outranks Italy and Belgium. Bahamas leads
Japan, Philippines leaves behind Venezuela and Korea. In
some countries there is a strong association between extent
of poverty and opportunities for women.
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However, the link between income, poverty and
opportunities for women is not always positive. There are
some countries which are quite highly placed in the GEM
rankings, but have a high incidence of poverty by $1 a day
poverty line. In some other countries GEM ranks are quite
low but income poverty is also low.
The GEM results show that only 8 countries have a GEM
value exceeding 0.800 only 27 countries have a GEM
value of more than 0.600. And 31 countries have a Gem
value less than 0.500. The latter group of countries has
much further to travel in extending broad economic and
political opportunities to women.
4. Human Development Index (HDI):
A more sensible index and the most recent one is HDI. In
use since 1990, it was prepared by the United Nations
under UN development programme. It is based on the
three aspects of human living:
1. Income for decent living
2. Educational attainment and
3. Life expectancy
Elements and index:
Of the three components of the index, percapita income is
the economic indicator. It is taken because it can well
serve as a proxy measure fro the satisfaction derived from
a bundle of basic goods and services. For this reason, the
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nominal GDP is adjusted for price changes, so that it
reflects the real purchasing power. It is assumed also to
reflect employment level of people. The other two are
social indicators. The educational attainment is indicated
by a combination of two measures. One is the adult
literacy ratio. The second is the combined enrolment ratio
at primary, secondary and tertiary levels which shows the
stock of literacy for the young. This is in recognition of
the importance of high levels of skill-formation for modern
development. This also greatly helps in differentiating
countries which are near the top of the ladder, particularly
by the industrialized countries. Life expectancy or
longevity, a much desired objective of human beings,
reflects the progress made in such fields of health as infant
and child mortality and nutrition. Thus one economic and
two social components are brought together in the index.
It reflects progress in the availability of material goods and
services, employment adult literacy and the education for
the young, infant and child mortality and nutrition. The
improvements in these get reflected in the 3 indicators
which together from one composite index of human
development.
Ranking of countries:
The composite index, formed by combining 3 indices of
income, educational attainment and life expectancy, does
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not measure absolute levels of human development. It
ranks countries in relation to certain defined goals. The
ranking of countries is dome according to how far they
have progressed from the lowest levels of achievement and
how far they will have to travel towards the present highest
level of achievement on each of the three indicators. To
prepare one composite index or to rank countries on a
uniform scale, a common denominator has been prepared.
Since income, educational attainment and life expectancy
are all expressed in different units, the problem of common
denominator was solved by choosing the distance which
each country travels from the minimum towards the
maximum for this, the current minimum value and the
maximum desirable value are taken note of from the
relevant data in respect of each of the three components of
the index.
For example, with respect to the life
expectancy, the minimum value is given by the figure of a
country with the lowest life expectancy. The maximum
desirable value is given by the figure of a country with the
highest life expectancy. The index traveled from the
minimum towards the maximum and is expressed in
percentage terms. The same exercise is repeated with
respect to other two components. The distance traveled in
each case is then the common basis which has been used
for combining the three indices.
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Diminishing importance of income:
An additional point in respect of HDI is the weight
assigned to income while calculating HDI, the weight to
income tapers off sharply beyond the threshold income,
regarded as sufficient for human survival. This means that
as the income goes higher than the cut-off point, it
becomes increasingly less important. This is based on the
valid assumption that the rich in income after a point is
subject to diminishing returns. The consequences become
more influential in determining the index.
Significance:
This index is much better, for the simple reason that it
includes income which is the single most important factor
in determining the well-being of the poor in the lessdeveloped countries. Equally important is taking account
of the social progress as indicated by an improvement in
educational attainment and life expectancy, the HDI
stresses the importance of the quality of life. This index
also sharply illustrates the wide disparities that exist in the
levels of human development between countries. This
should spur action, both at the national and international
levels, to undertake remedial measures.
By itself the index is important and a novel one. It is
obvious that human development involves the growth of
per capita income as the first and the foremost objective
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for the less developed countries at their present stage of
development. It is also important to improve the social
services both through increase in income and change in the
pattern of public expenditure. It is all these together that
will raise the quality of life.
Physical Quality Life Index:
Recent deterioration in the economic conditions of the
bulk of population in less developed countries, despite
some growth, has led to the formulation of non-income,
one important index development. Among them, one
important index is the PQLI.
Morris D. Morris constructed a composite PQLI in 1979
relating to 23 developing countries for a comparative
study. He combines three component indicators of infant
mortality, life expectancy at age one, and basic literacy at
age 15 to measure performance in meeting the most basic
needs of the people. This index represents a wide range of
indicators such as health, education, drinking water,
nutrition and sanitation.
Each indicator of the three components is placed on a scale
of zero to 100 where zero represents an absolutely defined
worst performance and 100 represents an absolutely
defined best performance. The PQLI is calculated by
averaging the three indicators giving equal weight to each
and the index is also scaled from zero to 100.
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According to Morris, each of the three indicators measures
results and not inputs such as income. Each is sensitive to
distribution effects. It means that an improvement in these
indicators signifies an increase in the proportion of people
benefiting from them. But none of the indicators depends
on any particular level of development. Each indicator
lends itself to international comparison.
Morris regards life expectancy at age one and infant
mortality as very good indicators of the physical quality of
life. So are literacy and life expectancy.
Limitations:
Morris admits that PQLI is a limited measure of basic
needs. It supplements but does not supplant the GNP. It
does not measure economic growth. Further, it does not
explain the changing structure of economic and social
organization. It, therefore, does not measure economic
development. Similarly, it does not measure total welfare.
However, it measures the qualities of life which are
essential for the poor.
Morris has been criticized for using arbitrary weights for
the three variables of his PQLI.
According to Meier,” non-income factors captured by the
PQLI are important but so are income and consumption
statistics and distribution sensitive methods of aggregation
by which to obtain an overall poverty index.
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Conclusion:
Despite these limitations, the PQLI can be used to identify
particular regions of underdevelopment and groups of
society suffering from the neglect of failure of social
policy. It points towards that indicator where immediate
action is required. The state can take up such policies
which increase the PQLI rapidly along with economic
growth.
Human poverty index:
The human development report 1997 introduced the
concept of a human poverty index (HPI) in an attempt to
bring together in a composite index the different features
of deprivation in the equality of life, to arrive at an
aggregate judgment on the extent of poverty in a
community. It measures deprivation in basic human
development in the same dimension as the HDI; Human
Development Report 2004 uses the following variables for
calculating HPI for developing countries, probability at
birth of not surviving to age 40; adult literacy rate and
percentage of population without sustainable access to an
improved water source and children underweight for age.
Human Development Report 2004 has presented HPI for
95 developing countries having adequate data. At the top
of the rankings are Barbados, Uruguay, Chile, Costa Rica,
Cuba, Singapore, Jordon, Trinidad and Tobago and
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Panama, these countries have reduced human poverty to an
HPI value of less than 8%. In other words, these countries
have reduced human poverty to the point at which it
affects less than 8% of the population. At the bottom are
six countries whose HPI exceeds 50%-Zambia, Zimbabwe,
Ethiopia, Mali, Niger, and Burkina Faso. In 40 countries
out of the 95 countries covered, the HPI exceeds 34%,
implying that about a third of their population suffer
human poverty. India has an HPI value of 31.4%
indicating that a little less than 1/3rd of its people suffer
human poverty.
Sustainable development:
The concept of sustainable development is of recent origin.
The term sustainable development was first used by the
world conservation strategy presented by the international
union for the conservation of nature and natural resources
in 1980. It was commonly used and defined for the first
time by the Brundtland report entitled our common future,
of the world commission on environment and development
in 1987.
Meaning:
There are many definitions of sustainable development.
But the most popular definition is by the Brundtland
Report. It defined sustainable development as,” meeting
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the needs of the present generation without compromising
the needs of future generations”.
Sustainable development means that development should,
‘keep going’, it emphasis the creation of sustainable
improvements in the quality of life of all people through
increases in real income per capita, improvements in
education, health and general quality of natural
environmental resources. Thus sustainable development is
closely linked to economic development. It is a situation
in which economic development does not decrease over
time. Sustainable development is development that is
everlasting and contributes to the quality of life through
improvements in natural environments.
Natural
environments in turn, supply utility to individuals, inputs
to the economic process and services that support life. As
pointed out by Pearce and Warford,”sustainable
development describes a process in which natural
resources base is not allowed to deteriorate. It emphasizes
the hitherto unappreciated role of environmental quality
and environmental inputs in the process of raising real
income and the quality of life”.
Features of sustainable development:
Sustainable development, the real economic development
which every country strives to achieve, has certain special
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features. The special features of sustainable economic
development are:
1. Sustainable economic development increases not only
the production but also the productivity of the economy.
2. Sustainable economic development is not just restricted
to money value of goods and services. It results in
increase in real goods and services.
3. Sustainable economic development makes the economy
self-sufficient and self-reliant.
4. Sustainable development builds sound and healthy
economic and social infrastructure in the fields of
transport, communication, finance, insurance, health,
education, civic amenities etc.
5. It generates increasing employment opportunities.
6. Sustainable development improves the standard of
living of the people particularly, the poor masses. That is,
it adds to the welfare, that is, sense of well-being or feeling
of better off among people.
7. Eradication of poverty, illiteracy, malnutrition,
inequality, disease, infant mortality etc is the main targets
of sustainable development.
8. Improving the quality of life of the people by increasing
the longevity of life, adult literacy rate, gross enrolment
ratio and the real GDP per capita is also one of the special
features of sustainable economic development.
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9. It emphasizes on the cost of development, particularly
the cost of environmental loss, should be taken care off.
10. It ensures that the stock of natural resources both
renewable and non-renewable resources is maintained or
increased along with the preservation of human capital and
physical capital like machinery.
11. It ensures that the options of future generation are no
compromised by the path taken by the present generation.
Thus sustainable development is that development which
attempts to strike a balance between the quality of life of
the present generation and the future generation. It strikes
a balance between the demands of economic development
and the need for the protection of the ecology and
environment.
Characteristics of an underdeveloped economy:
Prof. Hoffman portrays a vivid picture of an
underdeveloped country in the following words,” everyone
knows an underdeveloped country, when he sees one. It is
a country characterized by poverty, with beggars in the
cities and villages living on bare subsistence in the rural
areas. It is a country lacking in factories of its own,
usually with inadequate supplies of power and light. It
usually has insufficient roads and railways, insufficient
government services, poor communication system. It has
few hospitals and few institutions of higher learning. Most
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of its people cannot read and write. Inspite of the
generally prevailing poverty of the people, it may have
isolated islands of wealth with a few persons living in
luxury.”
The main characteristics of an underdeveloped country
are:
1. General poverty:
An underdeveloped country is poverty ridden. Poverty is
reflected in low percapita income. According to the world
development report, 50% of the population of the world
had GNP of less than 300 dollars. Low per capita income
is further reflected in low living standards of the people.
In such countries, food is the major item of consumption
and about 75% of the income is spent on it as compared to
20% in advanced countries. The average calorie intake
hardly exceeds 2000 in underdeveloped economy, as
compared with more than 3000 calories in advanced
countries. Thus the vast majority of the people in
underdeveloped countries are ill-fed, ill-clothed, ill-housed
and ill-educated. Poverty, is, therefore, is the basic malady
of an under developed country. Prof. A.K. Caircross, is
justified in saying that the underdeveloped countries are
the “slums of the world economy”
2. Agriculture – the main occupation:
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In underdeveloped countries 2/3rds of the people live in
rural areas and their main occupation is agriculture. The
primary sector supplies raw-materials and food has
occupied an important role in the production and
occupation structure of the underdeveloped countries.
In an underdeveloped country a large part of the labour
force is working in the primary sector and large part of
their national income consist of primary products. Though
a large part of the labour force is engaged in agriculture,
yet agricultural productivity is at a low level on account of
the existence of traditional methods of cultivation.
3. Backwardness of agriculture:
Although agriculture has occupied the pride of place in an
underdeveloped country, considered from modern agricultural
standards there are many defects and deficiencies. Old
methods are used for tilling, sowing, harvesting, storing, etc.
As a result, the yield from land is lower than the developed
countries.
4. Low per-capita income and standard of living:
A country having per-capita income, which is below the
average per capita income of the world or having less than
1/5th of the per capita income of USA is an overall
indicator of underdevelopment. A small part of the
income is utilized for defending the country and another
small part is saved. The remaining income which can be
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spent on consumption permits only a very low standard of
living for the people. If we compare the standards of
living of people in underdeveloped countries with the
standard of living of the people in developed countries the
problem of poverty existing in underdeveloped counties
becomes very clear. Though it is difficult to compare the
standard of living of different nations, yet economists with
the help of modern sophisticated statistical techniques
have made attempts in this direction.
There is a close relationship between low per capita
income and low standards of education of the people in
under developed countries. The economic history of
developed countries has shown that the standard of
education rises with economic development, which in turn
promotes further economic development.
Thus an underdeveloped country is characterized by
several features of poor standard of living, malnutrition,
unbalanced diet, lack of housing facilities, illiteracy etc.
5. Under developed countries are dual economies:
Under developed countries are not countries without any
sign of modern development. There are atleast a few
industries, mines and big plantations in underdeveloped
counties. All these have adopted modern techniques of
production. However, this kind of modern sector forms
only a small part of the economy. Most of the economic
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activities are carried on with old techniques and processes
of production. It means that underdeveloped economies
are dual economies having a small modern sector and a
large traditional sector. They are also economies having
technological dualism. Development process in this
context may be viewed as the course of transformation of
the traditional sector to the modernized sector.
6. Pressure of population:
Under developed countries have a very high birth rate.
Chiefly due to the advancement made by the medical
sciences, their has been a fall in the death rate, during the
20th century, especially after the World War II. This has
resulted in very high rate of growth of population in
underdeveloped countries. An important consequence of
high birth rate is that a large proportion of the total
population is in younger age groups. A large percentage
Of children in the population who do not produce anything
but consume entails a heavy burden on the economy. The
life expectancy is very low in underdeveloped countries a
small part of population is productively engaged and a
large part of the population consist of dependent
population. This also inhibits the rate of growth of
population produces undesirable effects, is applicable to
these under developed countries. In a situation devoid of
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growth generating forces, population pressures make the
problem of poverty and unemployment severe.
7. Unemployment:
The problem of unemployment in underdeveloped
countries can be said to be more serious than the problem
of unemployment in the developed countries.
Underemployment in the underveloped countries is a
chronic problem. Pre-dominance of agriculture in these
countries indicate imbalances in the economic structure.
The number of persons working in the field of agriculture
is more than the number of jobs available in agriculture.
The lack of job opportunities outside agriculture has made
the problem of rural unemployment chronic. Disguised
unemployment is common in the villages where farmers
and their families have insufficient land and equipment, to
keep all of them fully engaged. Disguised unemployment
is an important feature and a problem of underdeveloped
countries.
Along with rural under employment, unemployment
among the urban labour force and educated unemployment
are also common in under developed countries. Since the
level of income is low, the effective demand is also low,
therefore, entrepreneurs in underdeveloped countries, are
not in a position to provide employment to a large number
of workers. On the whole, it can be said that the slow
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growth of the economy and the rapid rate of population are
the causes of unemployment existing in underdeveloped
countries.
8. Absence of enterprise:
Lack of enterprise is one of the features of under
developed countries.
The role of entrepreneurs in
economic development is very significant. But the
underdeveloped countries have only a small number of
industrial leaders. The social climate and the absence of
infrastructural facilities are not conducive to the growth of
entrepreneurial class. Lack of power, capital, inadequate
supply of water, lack of transport facilities, small size of
the market etc hamper enterprise. Thus under developed
countries lack entrepreneurs, who play a very important
role in the economic development of a country.
9. Quality of people and social forces:
Though underdeveloped countries have vast population it
is to be noted that this population does not possess the
qualities needed for achieving economic development.
They are wedded to traditional modes of production
associated with only subsistence levels. The efficiency of
labour is underdeveloped countries are at a low level.
Caste system, joint family and other social factors prevent
workers from moving to more attractive occupations.
These social institutions and social forces are in some
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respects obstacles to economic development. The status of
an individual is determined by birth, competition, which is
the main cause of economic efficiency has very little place
in the economic efficiency has very little place in the
economic organization of underdeveloped countries.
Economic relationship and activities are guided by custom
and status rather than competition and contract.
In many underdeveloped countries, there is no single
sociological pattern for the entire country. They have two
or more social groups, each having its own customs and
practices. The existence of this kind of sociological
dualism is a feature of under developed countries. The
social diversity and problems arising from this should be
considered in the studies relating to economic
development. As Prof. Myrdal has said overcoming this
social diversity and creating suitable psychological, social
and political conditions for economic development are
important tasks in the economic development of
underdeveloped countries.
10. Deficiency of capital:
Low level of savings and capital formation is another
important feature of underdeveloped countries. These
countries are in the grip of vicious circle of low income,
low savings, low investment, which further decreases
income, low level of income, savings and investment are
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the causes of underdevelopment. The excess income over
consumption is very little on account of the low level of
income of the people in under developed countries.
In these countries propensity to consume is very high due
to “demonstration effect”. These countries have a rich
class, which usually indulges in “conspicuous
consumption” the poor people imitate the consumption
standards of the rich, therefore only a small part of the
national income can be saved and invested.
The deficiency of capital in under developed countries is
also due to poor organization of saving institutions like
banks, insurance companies etc. Private capitalists lend
their money for unproductive purposes and engage
themselves in unproductive activities.
Thus low income, saving and investment, demonstration
effect, conspicuous consumption, poor organization of
financial institutions combined together to create
deficiency of capital in under developed countries.
11. Natural resources:
Under utilization of resources is another characteristic
feature of under developed countries, in these countries,
the hidden natural resources have not been adequately
explored. Even the known natural resources remain
unutilized on account of inaccessibility of natural
resources, lack of capital and technological backwardness.
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12. Foreign economic relation:
Although underdeveloped countries are economically
backward, yet, their foreign trade has grown significantly.
Most of the underdeveloped countries were under the
political control of industrial super powers. This gave rise
to a special form of trade structure. These under
developed countries were the chief suppliers of raw
materials to industrial nations. Primary products are
prominent in the export trade of each under developed
country. Exports of these countries consist of coffee, tea,
raw-jute, cotton, oil-seeds, rice, copper and other metals,
rubber and other products. Since these countries export
one or two products on a large-scale, depression or
prosperity in other countries affects these countries
severely.
This produces variations in their foreign
exchange earnings. To overcome these problems the
underdeveloped countries have to diversify their exports
and stabilize their export earnings.
The expansion of exports of under developed countries
even from the last century is related to foreign investment.
Foreigners employ their capital and enterprise in these
countries to develop chiefly plantations, mines and some
trading companies. This led to the growth of exports
oriented industries in these countries. However, foreign
investment and foreign trade have not stimulated nation
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wide economic development in these backward countries.
In fact, many economists argue that foreign economic
relation has led to the exploitation of these under
developed countries. Prof. Singer, Myrdal and others have
also argued that the terms of trade have generally been
against the countries producing primary products.
13. Technological backwardness:
Most of the under developed countries are characterized by
low level of technological development. This is reflected
in high cost of production, high labour-output ratios, and
existence of inefficient workers. Productive activities in
agricultural and industrial sectors are carried on through
outdated implements or tools.
14. Income-disparities:
Existence of income-disparities is one of the problems of
under developed countries. The under developed countries
consist of rich and poor people. A considerable proportion
of income is concentrated in the hands of rich, were as
majority live below the poverty line. Developed countries
constitute less than 1/8th of the human race but produce
and consume. 2/3rds of the world’s output. On the
contrary, nearly 2/3rds of the world’s population live in the
economically backward regions of Africa, Asia, and Latin
America per capita income in such countries us very low
as compared with that of the rich countries.
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Conclusion:
The above descriptions of the common characteristics of
under developed countries help us to understand the
difficult nature of the problem of economic development
of these countries.
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