Chapter 25W. The Economics of Developing Countries

The Economics of Developing CountriesChapter 25WCopyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.ClassificationsIndustrially advanced countriesHigh income nationsWell-developed market economiesPer capita income $38,745 in 2010Developing countriesMiddle income nations Low income nationsWide variation in income per capitaLO1LO1ComparisonsU.S. GDP $14.6 trillionCombined GDP of DVCs $20 trillionU.S. has 4.5% of population but produces 23.1% of world’s outputU.S. per capita GDP is 127 times that of Democratic Republic of the CongoWalmart’s annual revenue is greater than all but 23 nations’ GDPLO1LO1Growth, Decline and Income GapsSome developing countries have grown considerablyChina, Malaysia, Chile, ThailandSome developing countries have become high-incomeSingapore, Greece, Hong KongIncome gap has widenedDeveloping countries must grow faster to reduce the gapLO1LO1Human Realities of PovertyLO2Selected Socioeconomic Indicators of DevelopmentLO1The path to economic developmentUse existing resources more efficientlyExpand available supplies of resourcesSimple generalizations are not possibleLO2Obstacles to DevelopmentLO2Natural ResourcesShortage of land, resources, powerTropical climates hinder labor, lead to diseaseDifficult to solveObstacles to DevelopmentHuman resourcesLarge populations Reduced standard of living Less saving and investment Lower productivity Overuse of land resources Urban problems QualificationsUnemployment and underemployment LO2LO2Obstacles to DevelopmentCapital accumulationThis is key for economic developmentDomestic capital formationSavings potentialCapital flightInvestment obstaclesLack of infrastructureLO2LO2Technological advanceBorrowed technologySocio-cultural obstaclesInstitutional obstaclesLand reformObstacles to DevelopmentLO2LO2The Vicious Circle of PovertyRAPIDPOPULATIONGROWTHLOW LEVELOF DEMANDLOWPRODUCTIVITYLOW LEVELS OFINVESTMENT INPHYSICAL ANDHUMAN CAPITALLOWPER CAPITAINCOMELO3LOW LEVELOF SAVINGLO3Role of GovernmentA positive roleEstablishing the rule of lawBuilding infrastructureEmbracing globalizationBuilding human capitalPromoting entrepreneurshipDeveloping credit systemsControlling population growthMaking peace with neighborsLO4LO4Role of GovernmentPublic sector problemsMisadministrationBriberyCorruptionLO4LO4Expanding tradeAdmitting temporary workersDiscouraging arms salesForeign aidDirect aidThe World Bank groupLO5Role of Advanced NationsLO5Role of Advanced NationsForeign harm?Dependency and incentivesBureaucracy and centralized governmentCorruption and misuseCurrent level of foreign aidFlows of private capitalLO5LO5Famine in AfricaRoot causes – natural and human Droughts – Lack of rainfallCivil strife – Rebellions and civil warsPopulation growthEcological degradationPublic policiesExternal debtLO5