1 © 2010 South-Western, a part of Cengage Learning Chapter 17 Growth and the Less- Developed Countries Microeconomics for Today Irvin B. Tucker

© 2010 South-Western, a part of Cengage Learning 2 What will I learn in this chapter? How economic growth and development affect the prosperity of nations How economic growth and development affect the prosperity of nations

© 2010 South-Western, a part of Cengage Learning 3 What is one way to compare the well- being of one country to another? GDP per capita GDP per capita

© 2010 South-Western, a part of Cengage Learning 4 What is GDP per capita? The value of final goods produced (GDP) divided by the total population The value of final goods produced (GDP) divided by the total population

© 2010 South-Western, a part of Cengage Learning 5 What are industrially advanced countries? High-income nations that have market economies with technologically advanced capital and well-educated labor High-income nations that have market economies with technologically advanced capital and well-educated labor

© 2010 South-Western, a part of Cengage Learning 6 Who are the IACs? United States United States Canada Canada Australia Australia New Zealand New Zealand Japan Japan and most of the countries of Western Europe and most of the countries of Western Europe

© 2010 South-Western, a part of Cengage Learning 7 What are less- developed countries? Economies based on agriculture which are lacking in technology, advanced capital, and well-educated labor Economies based on agriculture which are lacking in technology, advanced capital, and well-educated labor

© 2010 South-Western, a part of Cengage Learning 8 Who are the LDCs? Most countries of Africa, Asia, and Latin America Most countries of Africa, Asia, and Latin America

© 2010 South-Western, a part of Cengage Learning 9 Average GDP per Capita for IACs and LDCs by Region, 2007

© 2010 South-Western, a part of Cengage Learning 10 What is a problem? LDC’s per capita is subject to greater measurement errors than for IAC’s LDC’s per capita is subject to greater measurement errors than for IAC’s

© 2010 South-Western, a part of Cengage Learning 11 What are problems in comparing GDPs per capita? measurement errors measurement errors income distribution income distribution fluctuations in exchange rates fluctuations in exchange rates differences in living standards differences in living standards

© 2010 South-Western, a part of Cengage Learning 12 Is GDP per capita correlated with other measures of quality of life? Yes Yes

© 2010 South-Western, a part of Cengage Learning 13 What are quality of life indicators? life expectancy at birth life expectancy at birth infant mortality rate infant mortality rate illiteracy rate illiteracy rate per capita energy consumption per capita energy consumption economic freedom rank economic freedom rank

© 2010 South-Western, a part of Cengage Learning 14 Quality-of-Life Indicators for Selected Countries, 2007

© 2010 South-Western, a part of Cengage Learning 15 What factors come together to produce a country’s growth? natural resources natural resources investment in human resources investment in human resources accumulation of capital accumulation of capital technological progress technological progress political environment political environment

© 2010 South-Western, a part of Cengage Learning 16 Growth in resources or technological advance Economic Growth

© 2010 South-Western, a part of Cengage Learning Economic Growth Q Q Manufactured Goods Agricultural Goods PPC 1 PPC 2

© 2010 South-Western, a part of Cengage Learning 18 What is a major problem for LDCs? They find themselves in a vicious circle of poverty They find themselves in a vicious circle of poverty

© 2010 South-Western, a part of Cengage Learning 19 What is the vicious circle of poverty? The trap in which countries are poor because they cannot afford to save and invest, but they cannot save and invest because they are poor The trap in which countries are poor because they cannot afford to save and invest, but they cannot save and invest because they are poor

© 2010 South-Western, a part of Cengage Learning 20 Vicious Circle of Poverty

© 2010 South-Western, a part of Cengage Learning 21 What is infrastructure? Capital goods usually provided by the government, including highways, bridges, waste and water systems, and airports Capital goods usually provided by the government, including highways, bridges, waste and water systems, and airports

© 2010 South-Western, a part of Cengage Learning 22 What are the political factors favorable for economic growth? law and order law and order infrastructure infrastructure international trade international trade

© 2010 South-Western, a part of Cengage Learning 23 Key Categories that Determine Economic Growth and Development

© 2010 South-Western, a part of Cengage Learning 24 What is foreign private investment? Private-sector foreign investment from private investors Private-sector foreign investment from private investors

© 2010 South-Western, a part of Cengage Learning 25 What is foreign aid? The transfer of money or resources from one government to another for which no repayment is required The transfer of money or resources from one government to another for which no repayment is required

© 2010 South-Western, a part of Cengage Learning 26 What is the Agency for International Development (AID)? AID is the agency of the U.S. State Department that is in charge of U.S. aid to foreign countries AID is the agency of the U.S. State Department that is in charge of U.S. aid to foreign countries

© 2010 South-Western, a part of Cengage Learning 27 What is the World Bank? The lending agency that makes long-term low- interest loans and provides technical assistance to less- developed countries The lending agency that makes long-term low- interest loans and provides technical assistance to less- developed countries

© 2010 South-Western, a part of Cengage Learning 28 What is the International Monetary Fund (IMF)? The lending agency that makes short-term conditional low-interest loans to developing countries The lending agency that makes short-term conditional low-interest loans to developing countries

© 2010 South-Western, a part of Cengage Learning 29 What is a conclusion? There is no single strategy for economic growth and development There is no single strategy for economic growth and development

© 2010 South-Western, a part of Cengage Learning 30 Who are the Four Tigers of East Asia? Hong Kong Hong Kong Singapore Singapore South Korea South Korea Taiwan Taiwan

© 2010 South-Western, a part of Cengage Learning 31 The Four Tigers of East Asia

© 2010 South-Western, a part of Cengage Learning 32 END