© Edco Positive Economics Chapter 25

© Edco Positive Economics Characteristics of Least Developed Countries (LDCs) High rate of population growth Famine Foreign debts Uneven distribution of wealth Overdependence on one crop Small home market High percentage of the population engaged in the extractive/primary industries

© Edco Positive Economics Characteristics of Least Developed Countries (LDCs) Unfavourable terms of trade for LDCs Poor living conditions/inadequate infrastructure Lack of capital/low levels of investment Low per capita incomes Poor levels of education/literacy Political corruption/less stable political institutions Multinationals’ exploitation of LDCs/economic dualism

© Edco Positive Economics What Hampers LDCs’ Development? Extreme poverty Structural weaknesses of their economies Lack of capacities related to growth Lack of infrastructure Lack of industrial base

© Edco Positive Economics Stages of Economic Growth Stage 1: Traditional society Stage 2: Transitional stage Stage 3: Take-off Stage 4: Drive to maturity Stage 5: High mass consumption

© Edco Positive Economics Limitations to Rostow’s Theory The development programmes should be more person centred. The approach should look towards improving the life of individuals in their existing environment rather than the adoption of development programmes, as this stimulates mass movements of population into urban areas, potentially leading to industrial slums. The benefits that accrue from rapid urbanisation and industrialisation may take a long time to trickle down to the average worker.

© Edco Positive Economics Limitations to Rostow’s Theory cont. Its generalised nature makes it somewhat limited. It does not set down the detailed nature of the preconditions for growth. In reality, policymakers are unable to clearly identify the respective stages as they merge together.

© Edco Positive Economics Economic development An increase in GNP per head of population accompanied by a fundamental change in the structure of society. Urbanisation Move from rural areas to more urban districts. Political stabilityMove from an unstable and corrupt political structure to a democratic constitution. What Constitutes a ‘Fundamental Change’ in the Structure of Society?

© Edco Positive Economics Move away from subsistence industry Less dependence on agriculture and increased provision of services. Economic growth Increase in GNP per head of population without any structural changes to society. What Constitutes a ‘Fundamental Change’ in the Structure of Society?

© Edco Positive Economics Social Costs of Economic Development Pollution of the air and water Disfigurement of the landscape Possible loss of cultural heritage Traffic congestion in the cities and towns with resulting problems Global warming Reductions in public amenities

© Edco Positive Economics The Human Development Index (HDI) is a summary composite index that measures a country’s average achievements in three basic aspects of human development: health, knowledge and income. The Human Development Index

© Edco Positive Economics How Governments in LDCs Might Promote Economic Development Promote population control Improve infrastructure Promote land/agricultural reform Improve education/literacy skills Incentives for the development of enterprise State bureaucracy/corruption/spending on arms

© Edco Positive Economics Primary sector The extraction of wealth from nature – farming, mining, forestry and fishing. Secondary sectorManufacturing industries. Tertiary sector The supply of services. What Can LDCs Do to Improve Output?

© Edco Positive Economics How Governments of Developed Countries Can Promote Economic Development in LDCs Assist foreign aid programmes/capital provision Restructure their national debts Improve trading opportunities Encourage multinationals to set up firms in LDCs Assist LDCs with skills and technologies Assist with peace measures and promote political stability

© Edco Positive Economics Economic benefits of economic development to LDCs Costs of economic development to LDCs Increased standard of living Unfair distribution of benefits/widening of poverty gap Increased employment Costs to environment Increased resources available to the governments Traditional values Alleviation of povertyWelfare may not improve

© Edco Positive Economics Steps towards Resolving Debt Crisis Drop the debt Reschedule the capital repayments Lower the annual interest repayments Replace the existing ‘expensive’ debt Place a limit on interest repayments Impose barriers to prevent the flight of capital Debt swaps Debt buybacks Reform of IMF/World Bank

© Edco Positive Economics Opportunities an Expanded EU Presents to LDCs Trade agreements with the EU open up bigger markets as barriers to entry are eased (e.g. to Eastern bloc countries). New sources for tourists for LDCs to target. Rising living standards in EU states will create new sources of investment in LDCs.

© Edco Positive Economics Challenges an Expanded EU Presents to LDCs EU agricultural subsidies given to new EU states will make it harder for LDCs to sell produce to Europe. LDCs face stronger opposition for manufactured goods, as new EU countries benefit from investment by their neighbours. Freer movement of labour within the expanded EU will keep labour costs down, making it harder for goods from LDCs to gain a market foothold. Loans between EU members may limit funds available to LDCs.