1. Low living standards 2. Low levels of labour productivity 3. High rate of population growth 4. Economic structure dominated by primary sector production 5. High degree of market failure 6. Lack of economic power in international markets and dependence

 Low income  Poor health  High infant mortality  Malnutrition  Lack of access to clean water  Limited availability of goods & services

 Shortage of physical capital  Low GDP limits investment in machinery & infrastructure  Lack of domestic savings (Harrod-Domar)  Lack of investment in human capital  Poor health reduces labour productivity  Vicious circle of low income, poverty & low economic growth ◦ Developing countries have low incomes because they have low productivity & they have low productivity because they are poor

 84% of world’s population lives in developing countries (low & middle income)  Poorest countries have highest rates of population growth  Why? ◦ High birth rates have continued whilst improved health conditions have improved life expectancy

 Clear negative correlation between development economy & importance of primary sector  Small-scale subsistence agriculture  Large percentage of exports, but low value & subject to declining terms of trade over the long term

 Incomplete or missing markets  Lack of legal institutions, property rights  Unstable currency  Poor banking & insurance markets  Natural resources often overused  Large landowners rent land out at monopoly rents

 Low value of exports assign little economic power  Even where countries have comparative advantage, world trading system is dominated by multinational companies  Legacy of colonial rule?

 Natural resources  Human resources  Historical background  Structure of economies ◦ Africa: planning & state investment dominate ◦ South East Asia: giving incentives for market-driven investment, e.g. FDI  Beware of generalisations!  Policies must consider unique nature of each country

 Primary  Secondary - industrialisation  Tertiary – deindustrialisation  Quaternary – knowledge & information- related services ◦ Education ◦ R&D ◦ Modern communications ◦ Business services ◦ The Knowledge Revolution

 Informal  formal activity  Pull factor for the rural population ◦ Rural-urban migration ◦ Growth of urban shantytowns  High unemployment  informal activity

 Incomes rise, demand for food rises, but less slowly ◦ Demand for food is inelastic  Demand for secondary sector output is income elastic ◦ Industry grows more rapidly than agriculture  Increases in agricultural productivity reduce price of food ◦ Value of agricultural sector falls relative to output of secondary sector  Higher agricultural productivity  surplus of labour in rural areas ◦ Migration of labour to urban areas keeps wage rates there low & emerging industrial sector’s profits rise

 India’s example

 Internal & external factors  Dominance of primary sector ◦ The resource curse (see page 295)  Low level of savings starves investment  Legacy of colonial rule  Trade & development trap

 Inequalities in distribution of income & wealth  Inequalities in distribution of land ownership  Insufficient & inadequate infrastructure  Lack of financial markets  Insufficient education system (neglect of primary education)  Poor governance & corruption  Market failures that distort allocation of resources & reduce competition  Inability to access international markets – trading blocs & domestic market protection  High levels of external debt