Why do less developed countries face obstacles to development?

4 Approaches to Development Development Through Self- sufficiency Development Through International Trade Financing Development Fair Trade

Two Paths of Development Self Sufficiency (balanced growth) – countries encourage domestic production of goods, discourage foreign ownership of businesses and resources, and protect their businesses from international competition International Trade – countries open themselves to foreign investment and international markets

Development Through Self- sufficiency Dominant most of 20 th century Key Elements: –Tarrifs –Quotas –Licenses Isolation from competition Equal spread of economic investment “Fair System” – encourages equal investment for entire country Reducing poverty most important

Self-Sufficiency Challenges Protection of inefficient business –Little incentive to improve quality Need for large bureaucracy –Complex administrative system needed to administer the controls –Leads to corruption and increase in black market/informal economy

Development through International Trade Identify distinctive or unique economic assets –what do you have an abundance of that other countries are willing to buy? Country can develop by concentrating scarce resources on expansion of its distinctive local industries –Sale on world market brings funds back that can be used to finance development

Development Through International Trade Rostow’s Development Model 1.The Traditional Society 2.The Preconditions for Takeoff 3.The Takeoff 4.The Drive to Maturity 5.The Age of Mass Consumption

Rostow - Stages of Growth 1.Traditional Society Characterised by –subsistence economy – output not traded or recorded –existence of barter –high levels of agriculture and labour intensive agriculture –National wealth allocated to “non- productive activities” (military and religion) Village in Lesotho. 86% of the resident workforce in Lesotho is engaged in subsistence agriculture. Copyright: Tracy Wade,

Rostow - Stages of Growth 2. Pre-conditions for takeoff: –“Elite group” initiates innovative economic activities –Country invests in new tech. and infra. (water supply/trans.) –Increase in capital use in agriculture (commercial agr.) –Necessity of external funding –Some growth in savings and investment –Increase in productivity The use of some capital equipment can help increase productivity and generate small surpluses which can be traded. Copyright: Tim & Annette,

Rostow - Stages of Growth 3. Take off: –Rapid growth in few economic activities (textiles/food) –Increasing industrialisation –Further growth in savings and investment –Some regional growth –Number employed in agriculture declines –Other sectors of economy still traditional At this stage, industrial growth may be linked to primary industries. The level of technology required will be low. Copyright: Ramon Venne,

Rostow - Stages of Growth 4. Drive to Maturity: –Growth becomes self- sustaining – wealth generation enables further investment in value adding industry and development –Industry more diversified –Increase in levels of technology utilised –Workers become more skilled and specialized As the economy matures, technology plays an increasing role in developing high value added products. Copyright: Joao de Freitas,

Rostow - Stages of Growth 5. High mass consumption –High output levels –Mass consumption of consumer durables –High proportion of employment in service sector Service industry dominates the economy – banking, insurance, finance, marketing, entertainment, leisure and so on. Copyright: Elliott Tompkins,

International Trade Examples Four Asian Dragons –South Korea –Singapore –Taiwan –Hong Kong Arabian Peninsula

International Trade Challenges Uneven resource distribution –Commodities not priced evenly Increased dependence on developed countries Market decline –MDC’s populations decreasing –Stage 4 DTM

Why Do LDCs Face Obstacles to Development? International trade approach triumphs –The path most commonly selected by the end of the twentieth century –Countries convert because evidence indicates that international trade is the more effective path toward development Example: India –World Trade Organization –Foreign direct investment

Triumph of International Trade Approach Figure 9-27 Figure 9-28

World Trade Organization Est. in 1995 by countries representing 97% of the world trade Works to: –Reduce barriers to int’l trade (tarrifs, quotas, etc.) –Eliminate int’l movement of money

WTO Criticisms Progressives –Decision made behind closed doors promote interests of corporations not poor people Conservatives –Compromises power and sovereignty of individual countries

Financing Development Foreign Direct investment –Transnational Corporations Loans –International Monetary Fund –World Bank

Structural Adjustment Programs Must have to apply for debt relief –Includes economic “reforms” or “adjustments” Spending only what it can afford Directing benefits to poor, not just elite Diverting from military to health and education spending Investing scarce resources where they will have the most impact Encouraging more productive private sector Reforming the gov’t

Fair Trade Advocates –Producer Standards –Worker Standards utube.com/wat ch?v=4tvLHDx v4B4https:// utube.com/wat ch?v=4tvLHDx v4B4