Chapter 2.pptx Development economics part I

structural features that differentiates developing world

1. Chapter Two: Structural Features and Common Characteristics of the Third World 2.1. An over view of the Diverse Structure of Developing Countries Developing countries are considered to be different from one another on 8 broad categories. These are: - The size of the country (geographic area, population, and income), Its historical and colonial background, Its endowments of physical and human resources, Ethnic and Religious Composition, The relative importance of its public and private sectors, Economic Structure and industrial structure, Its degree of dependence on external economic and political forces & Political Structure, Power and Interest Groups. 1

2. I. Size and Income Level Evidently, the economic potential of a country is significantly determined by its physical and population size, and its level of national income per capita. This size provides both advantages and disadvantages . Large size usually presents advantages of diverse resource endowment, large potential markets, and lesser dependence on foreign sources of materials and products . For example, as compared to Ethiopia, the neighboring country, Kenya is smaller in geographic and population size. But Kenya has a higher per capita income than Ethiopia at the official exchange rate. But Kenya has also a lesser per capita income than Brazil and some other larger developing countries. 2

3. II. Historical Background European colonial powers had a dramatic and long-lasting impact on the economies, political and institutional structures of their African and Asian colonies . The diversity in colonial heritage together with the indigenous cultural differences have resulted different structural problems in these countries. Africa recently gained their independence and more concerned with consolidating and evolving their own national economic and political structures than with simply promoting rapid economic development. Latin American countries have a longer history of political independence plus a more shared colonial heritage. Therefore, in spite of geographic and demographic diversity the countries possess relatively similar economic, social, and cultural institutions and face similar problems. In Asia, on the other hand, different colonial heritages and the diverse cultural traditions of the indigenous peoples have combined to create different institutional and social patterns . 3

4. III. Physical and Human Resources Endowments of physical and human resources are other sources of disparities in economic growth potential of the counties. Endowments of resources are minerals, raw materials, and fertile land. Poorly endowed nations have relatively minimal resources. Moreover, geography and climate can also play an important role in the success or failure of development efforts. Other things being equal, it is said that island economies seem to do better than landlocked economies. Developing countries are also distinguished one from the other in their human resource endowments (prize). Thus, the nature and character of a country’s human resources are important determinants of its economic structure and these clearly differ from one region to the next. 4

5. IV. Ethnic and Religious Composition Ethnicity and religion often play a major role in the success or failure of development efforts . The greater the ethnic and religious diversity; the more likely internal strife and political instability. Over half of the worlds less developed countries have recently experienced some form of interethnic conflict. In most cases, one or more of these groups face serious problems of discrimination. If development is about improving human lives and providing a widening range of choice to all peoples, racial, ethnic, or religious discriminations can be equally destructive . Ethnic and religious composition of a developing nation and whether or not that diversity leads to conflict or cooperation can be important determinants of the success or failure of development efforts. 5

6. V. Relative Importance of the Public and Private Sectors Most developing countries have mixed economic systems , featuring both public and private ownership and use of resources. In general, Latin American and South East Asian nations have larger private sectors than South Asia and African nations. A large foreign owned private sector usually creates economic and political opportunities . Economic policies will naturally be different for countries with large public sectors and ones with sizeable private sectors. Direct government investment projects and large rural work programs may take precedence in economies dominated by the public sectors. Therefore, although the problem to be solved may be similar, the solution can differ in countries with significant differences in the relative importance of the public and private sectors. 6

7. VI. Economic Structure Developing countries are predominantly agrarian in economic, social, and cultural outlook. The agricultural sector contributes to the GDP of many of the poor nations. Farming is not merely an occupation but a way of life for most people in Asia, Africa, and Latin America. Nevertheless, there are great differences between the structure of agrarian systems and patterns of land ownership in Latin America and Africa. Asia agrarian systems are somewhat closer to those of Latin America in terms of patterns of land ownership by cultural differences . Development strategies may vary from one country to the next, depending on the nature, structure, and degree of interdependence among its primary, secondary, and tertiary industrial sector. 7

8. VII. External Dependence: Economic, Political and Cultural The degree to which a country is dependent on foreign economic, social, and political forces is related to its size, resources endowment, and political history. Most small nations are highly dependent on foreign trade with the developed world. Economic manifestations of dependence in the form of the international transfer of goods and technologies is the international transmission of institutions and values. Most notably are systems of education and governance, and attitudes toward life, work, and self. The transmission phenomenon brings mixed blessings to most less developed countries especially to those with the greatest potential for self reliance. A country’s ability to chart its own economic and social destiny is significantly affected by its degree of dependence on these and other external forces. 8

9. VIII. Political Structure, Power and Interest Groups The political structure, interests and allegiances of ruling elites (e.g., large landowners, urban industrialists, bankers, foreign manufacturers, the military, trade unionists ) will typically determine what strategies are possible and where the main barriers to effective economic and social change may lie. Most countries differ from one another as a result of their economic, social, and political histories. Effective social and economic changes require either the support of elite groups enlisted or that of the power of the elite be offset by more powerful democratic forces. Economic and social development will often be impossible without corresponding changes in the social, political, and economic institutions of a nation. Such institutional changes may include: land tenure systems, forms of governance, educational structures, labour market relationships, property rights, laws of taxation and provision of credit. 9

10. 2.2. Common Characteristics of Developing Countries Dimensions of the development gap between rich and poor countries and similarities of poor nations classify these common characteristics into seven broad categories. Low levels of living, characterized by low income inequality, poor health, and inadequate education Low levels of productivity High rates of population growth and dependency burden High and rising levels of unemployment and underemployment Substantial dependence on agricultural production and primary product exports Prevalence of imperfect markets and limited information Dominance, dependence, and vulnerability in international relations. 10

11. I. Low levels of Living Since the developing countries are poor, it is understandable that the levels of living would be quite low compared to the levels of living in the developed countries. The difference in the levels of living has been portrayed in terms of Per Capita National Income (note: make sure to review the concept of “Purchasing Power Parity” and its advantage over “Exchange rate” in comparing living standards), Relative Growth Rates of GNP , Distribution of National Income , Extent of Poverty , Health and Education . A measure of health is provided by infant mortality rate , population with consumption below caloric requirements and the nature and extent of human health deprivation in the third world. 11

12. II. Low levels of Productivity Productivity of labor is low in developing countries. The reason being lack of physical capital (principle of diminishing marginal productivity) and the quality of labor. Productivity of labor can be raised by mobilizing domestic savings and foreign finance to generate new investment in physical capital goods and by building up the stock of human capital (e.g., managerial skills) through invest­ment in education and training. Institutional changes are also necessary to maxi­mize the potential of this new physical and human investment. The economic success stories of " The Four Asian Tigers " - South Korea, Singapore, Hong Kong, and Taiwan -are often attributed to the quality of their: human resources, the organization of their production systems, and the institu­tional arrangements undertaken to accelerate their productivity growth. 12

13. III. High Rates of Population Growth and Dependency Burdens Population growth in developing countries is due to their higher birth rate as compared to death rate, though death rate also is high. Birthrates in less developed countries are 30 to 40 per 1000 , whereas those in the developed countries are less than half that figure. Death rates (the yearly number of deaths per 1,000 populations) in Third World countries are also high relative to the developed nations. Hence, the differences in death rate between developing and developed countries are substantially smaller than the corresponding differences in birthrates. Children under the age of 15 make up almost 40% of the total population in these countries . This is as opposed to less than 21% of the total population in the developed countries. By contrast, the proportion of people over the age of 65 is much greater in the developed nations. Not only are Third World countries character­ized by higher rates of population growth, but they must also contend with greater dependency burdens than rich nations. 13

14. IV. High Unemployment and Underemployment In the 1980 s the unemployment and underemployment problem became increasingly pronounced and emerged as one of the most serious development problems. The unemployed exhibit youthfulness and high level of education. Youth (the age group of 15 to 24) unemployment rates are on the average twice higher than adult unemployment rates. Given recent and current birthrates in most LDCs, their labor supply will be expanding rapidly for some time to come. This means that jobs will have to be cre­ated at equivalent rates simply to keep pace. Rural urban migrations are increasing from 5% to 7% in Africa. 14

15. Cont,,, VI. Substantial Dependence on Agricultural Production and Primary-Product Exports VII. Imperfect Markets and Incomplete Information Moreover, information is limited and costly to obtain, thereby often causing goods, finances, and resources to be misallocated . Therefore, the existence of imperfect markets and incomplete informa­tion systems remains a common charac­teristic of developing nations and an important contributing factor to their state of underdevelopment. VIII. Dominance, Dependence and Vulnerability in International Relations Finally, the penetration of rich countries attitudes, values, and standards also contributes to a problem widely recognized and referred to as the international brain drain . Brain drain is the migration of professional and skilled personnel, who were often educated in the developing country at great expense, to the various developed nations. Examples include doctors, nurses, sci­entists, engineers, computer programmers, and economists. 15