Economic Problems of Developing Countries

Economic Problems of Developing Countries The Problem of Underdevelopment

THE PROBLEM OF UNDERDEVELOPMENT The gulf between rich and poor countries differences in GNY 2

GNY per head as % of US GNY per head: 2000 (using ppp exchange rates)

THE PROBLEM OF UNDERDEVELOPMENT The gulf between rich and poor countries differences in GNY differences in mortality and health 2

THE PROBLEM OF UNDERDEVELOPMENT The gulf between rich and poor countries differences in GNY differences in mortality and health other differences 2

Selected world statistics

Selected world statistics

Selected world statistics

Selected world statistics

Selected world statistics

Selected world statistics

Selected world statistics

Selected world statistics

Selected world statistics

Selected world statistics

THE PROBLEM OF UNDERDEVELOPMENT Differences between developing countries resources and climate infrastructure cultural and social factors degree of industrialisation relations with developed world 2

THE PROBLEM OF UNDERDEVELOPMENT Measuring development basic needs approach advantages of this approach disadvantages of this approach using GNY statistics the Human Development Index 4

Human Development Index (HDI) for selected countries (1999)

Human Development Index (HDI) for selected countries (1999)

Human Development Index (HDI) for selected countries (1999)

Human Development Index (HDI) for selected countries (1999)

Human Development Index (HDI) for selected countries (1999)

Human Development Index (HDI) for selected countries (1999)

Human Development Index (HDI) for selected countries (1999)

Human Development Index (HDI) for selected countries (1999)

Human Development Index (HDI) for selected countries (1999)

Economic Problems of Developing Countries International Trade and Development

INTERNATIONAL TRADE AND DEVELOPMENT Role of international trade in economic development importance of trade trade strategies primary outward-looking strategy secondary inward-looking strategy import-substituting industrialisation (ISI) secondary outward-looking strategy exporting manufactures 5

INTERNATIONAL TRADE AND DEVELOPMENT Primary outward-looking strategy importance of primary exports justification for exporting primaries comparative advantage (Heckscher–Ohlin) vent for surplus; engine for growth weakness of traditional trade theory problems for primary exporters: long term slow growth in exports rapid growth in imports problems for primary exporters: short term price and output fluctuations 6

World primary commodity prices (1990 = 100)

World primary commodity prices (1990 = 100)

INTERNATIONAL TRADE AND DEVELOPMENT Primary outward-looking strategy importance of primary exports justification for exporting primaries comparative advantage (Heckscher–Ohlin) vent for surplus; engine for growth weakness of traditional trade theory problems for primary exporters: long term slow growth in exports rapid growth in imports problems for primary exporters: short term 6

INTERNATIONAL TRADE AND DEVELOPMENT Primary outward-looking strategy importance of primary exports justification for exporting primaries comparative advantage (Heckscher–Ohlin) vent for surplus; engine for growth weakness of traditional trade theory problems for primary exporters: long term slow growth in exports rapid growth in imports problems for primary exporters: short term price and output fluctuations 6

INTERNATIONAL TRADE AND DEVELOPMENT Import-substituting industrialisation the process of ISI justification problems of primary-outward looking policies greater dynamic potential with industrial production infant industries 7

INTERNATIONAL TRADE AND DEVELOPMENT Import-substituting industrialisation adverse effects against comparative advantage cushions inefficiency urban bias damages exports wide variations in effective protection social / cultural problems environmental costs 7

INTERNATIONAL TRADE AND DEVELOPMENT Exporting manufactures 8

Growth rates and export performance of selected secondary outward-looking countries

Growth rates and export performance of selected secondary outward-looking countries

Growth rates and export performance of selected secondary outward-looking countries

INTERNATIONAL TRADE AND DEVELOPMENT Exporting manufactures transition from inward-looking to outward-looking industrialisation 8

INTERNATIONAL TRADE AND DEVELOPMENT Exporting manufactures transition from inward-looking to outward-looking industrialisation benefits from a secondary outward-looking policy 8

INTERNATIONAL TRADE AND DEVELOPMENT Exporting manufactures transition from inward-looking to outward-looking industrialisation benefits from a secondary outward-looking policy drawbacks of a secondary outward-looking policy 8

Economic Problems of Developing Countries Structural Problems in Developing Countries

STRUCTURAL PROBLEMS IN DEVELOPING COUNTRIES The neglect of agriculture problems of urban bias policies to promote agriculture problems with these policies Inappropriate technology capital-intensity biases arguments for capital-intensive technology arguments for labour-intensive technology 9

STRUCTURAL PROBLEMS IN DEVELOPING COUNTRIES Unemployment rapid population growth capital-intensity bias 10

Limited choice of techniques: one technique only Capital (K) O Labour (L)

Limited choice of techniques: one technique only Expansion path c K3 Capital (K) Q3 L3 b K2 Q2 L2 a K1 Q1 L1 O Labour (L)

Limited choice of techniques: one technique only Assume that total capital supply is K total labour supply is L Capital (K) Q3 K L Q2 Q1 O Labour (L)

Limited choice of techniques: one technique only With K of capital, only Q2 can be produced. Only L1 will be required L - L1 will be unemployed. Capital (K) Q3 K Q2 L1 Q1 O L Labour (L)

Capital intensity bias Assume that the total supply of capital is K, and the total supply of labour is L. Capital (K) K L Q1 Q2 O Labour (L)

Capital intensity bias With competitively determined prices, the market will clear at point d with output of Q1 and price ratio given by the slope of AB A B Capital (K) d K Q1 Q2 O L Labour (L)

Capital intensity bias With a lower relative price of capital (given by slope of line CD) or a bias in favour of capital-intensive techniques, less labour will be employed (L1) and output will be lower (Q2). A C D Capital (K) d K L1 Q1 Q2 O L B Labour (L)

STRUCTURAL PROBLEMS IN DEVELOPING COUNTRIES Unemployment rapid population growth capital-intensity bias rural–urban migration 10

STRUCTURAL PROBLEMS IN DEVELOPING COUNTRIES Unemployment rapid population growth capital-intensity bias rural–urban migration external influences 10

STRUCTURAL PROBLEMS IN DEVELOPING COUNTRIES Unemployment rapid population growth capital-intensity bias rural–urban migration external influences Inflation 10

STRUCTURAL PROBLEMS IN DEVELOPING COUNTRIES Unemployment rapid population growth capital-intensity bias rural–urban migration external influences Inflation problems of hyper-inflation 10

STRUCTURAL PROBLEMS IN DEVELOPING COUNTRIES Unemployment rapid population growth capital-intensity bias rural–urban migration external influences Inflation problems of hyper-inflation monetarist explanations 10

STRUCTURAL PROBLEMS IN DEVELOPING COUNTRIES Unemployment rapid population growth capital-intensity bias rural–urban migration external influences Inflation problems of hyper-inflation monetarist explanations structuralist explanations 10

Economic Problems of Developing Countries The Problem of Debt

Growth in debt of developing countries: (average annual)

Growth in debt of developing countries: (average annual)

Growth in debt of developing countries: (average annual)

Growth in debt of developing countries: (average annual)

Debt ratios and the growth of debt: (average of all developing countries)

Debt ratios and the growth of debt: (average of all developing countries)

Debt ratios and the growth of debt: (average of all developing countries)

THE PROBLEM OF DEBT Effects of the first oil shock 1971–78 Effects of the second oil shock 1979–84 deep world recession decline in commodity prices high interest rates Effects of recessions in early 1990s and early 2000s 11

THE PROBLEM OF DEBT The effects of the debt problem on developing countries effects on growth effects on poverty Coping with debt crises: rescheduling rescheduling official loans rescheduling commercial loans 12

THE PROBLEM OF DEBT Dealing with debt structural reform in developing countries IMF policy recommendations interventionist solutions debt swaps debt forgiveness the HIPC initiative Jubilee 2000 subsequent events should all debt be cancelled and aid increased? 13