Features of an Underdeveloped Economy Introduction The term ‘underdeveloped country’ is relative. The World Bank in its World Development Report classified various countries on the basis of Gross National Income(GNI) Per Capita. World Development Report Low Income Countries GNI Per Capita of $906 And below Middle Income Ranging Between $906 and $11,115 High Income of $11,116 Or more

Meaning of an Underdeveloped Economy Good Potential Prospects & Enthusiasm in Its People Low Per Capita Income Un-utilized Human and Natural Resources Low Economic Performance Inefficient and Conventional Technique & Production Under Developed Economy

Definitions Of Underdeveloped Economy U.N.O Group of Experts: “ We use the term underdeveloped countries in which per capita real income is low compared with per capita real income of the United States of America, Canada, Australia and Western Europe.” ( Evaluation: Narrow definition refer to just one parameter i.e. Low income per capita) Nurkse, “ Underdeveloped countries are those which compared with advanced countries are underdeveloped with capital in relation to their population and natural resources.” (Evaluation: Refer to only one of the determinants of underdevelopment)

Features of Underdeveloped Economy Main features are: Low Per Capita Income Low Growth Rate of Per Capita Income Economic Inequalities Low level Of Living Deficiency of Capital Backward Techniques of Production Backward Human Resources Underdeveloped Natural resources High Rate of Population Growth

Features of Underdeveloped Country Dependence on Agriculture Backward Industrial Sector Backwardness of Tertiary Sector Unfavourable Institutional Structure External Indebtness Vicious Circle of Poverty

Explanation of Features 1. Low Per Capita Income:

Explanation of Features 2. Low Growth Rate Growth rate of low income economies (excluding China, India, Pakistan and few other countries) is less than that of developed countries. Country Growth Rate Bolivia 2.1% Kenya 0.4% Burundi -2.6% Ireland 2.6% Sweden 2.3% U.S.A. 2.5%

Explanation of Features 3. Economic Inequalities Country Percentage share of the top 10% in National Income Percentage Share of the bottom 10% in National Income Developed Economies U.S.A. Switzerland 30.5 25.2 1.8 2.6 Underdeveloped Economies Brazil Kenya 46.7 34.9 1.0

Explanation of Features 4. Low Level of Living Country Per capita Daily Consumption of Calories Developed Countries U.S.A France HDI 3,642 3,593 Between 0.8 & 0.9 Underdeveloped Countries India Bangladesh 2,400 2,000 Between 0.3 & 0.4

Explanation of Features 5. Deficiency of Capital Average Rate of domestic capital formation Developed Countries Underdeveloped Countries 23% of GDP 17% of GDP

Explanation of Features 6. Backward Techniques of Production There are two types High cost of production High Capital output ratio (K/O)

Explanation of Features 7. Backward Human Resources Low productivity Of labor Shortage of efficient and literate labor Poor health Low wages

Explanation of Features 8.Underdeveloped Natural Resources Resources like Land, Minerals, Forests and Water are underutilized. For example: Africa possess 44% of total water power of the world , utilizes only 0.11%.

Explanation of Features 9. High Rate of Population Growth Growth Rate of Population (percent per year) Developed Countries growth rate Underdeveloped countries growth rate USA Germany Japan India Pakistan Kenya 1.0 0.1 0.2 1.5 2.4 2.2

Explanation of Features 10. Dependence on Agriculture Labour force in Agriculture (%) Share of Agriculture in G.N.P. (%) Under Developed Economies 66% 27% Developed Economies 5% 2% In nutshell Agriculture in underdeveloped economies are: Backward Low Productive Outmoded Techniques

Explanation of Features 11. Backward Industrial sector Contribution of Industries to National Income Underdeveloped Economies Developed Economies India Bangladesh U.S.A Japan 27% 13% 35% 43% Weak Industrial Structure because of: Lack of basic key industries Shortage of able entrepreneurs

Explanation of Features 12.Backwardness of Tertiary Sector Underdeveloped Economies 25% of working population is engaged in this sector. Developed 45% of working population is engaged in this sector. Trade, Banking, insurance services and infrastructure are in a state of underdevelopment.

Explanation of Features 13.Unfavourable Institutional Structure Structure of Underdeveloped Economies Uneconomic Culture Customs and Traditions Political Corruptions Philosophical and religious obstacles Believers in Faith Old customs and Orthodox approach Unstable Governments Politically weak Corrupt politicians

Explanation of Features 14. External Indebtedness Foreign indebtedness of underdeveloped countries is 37% of their national income as they borrow from foreign countries on a large scale.

Explanation of Features 15a. Vicious circle of poverty : Supply side “ A country is a poor because it is poor.” –Nurkse. Low per capita income Low saving Low investments Low productivity

Explanation of Features 15b. Vicious circle of poverty: Demand side Low demand Low inducement to invest Low investment Low productivity Low income

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