CHAPTER 4©E.Wayne Nafziger Development Economics 1 Chapter 4 Characteristic of Developing Countries

CHAPTER 4©E.Wayne Nafziger Development Economics 2 Characteristics of LDCs (especially low-income countries or LICs) Varying income inequality Varying political systems Small political elite Low political institutionalization Most had experience of colonialism Extended family Peasant agricultural societies (LICs) High proportion of labor force in agriculture High proportion of output in agriculture cont

CHAPTER 4©E.Wayne Nafziger Development Economics 3 Characteristics of LDCs (cont) Inadequate technology & capital Low saving rates Dual economy Varying dependence on international trade Rapid population growth (1.6% to DCs’ 0.1% yearly) Low literacy & school enrollment rates Unskilled labor force Poorly developed institutions

CHAPTER 4©E.Wayne Nafziger Development Economics 4

5

6

7

8 Institutions Rules of the game of society composed of formal rules (constitutions, statute & common law, regulations), informal constraints (norms, conventions & internal codes of conduct) & enforcement (North). Rules that shape behavior when people contest & exercise power & expectations regarding others’ actions (Sandbrook).

CHAPTER 4©E.Wayne Nafziger Development Economics 9

10 Predatory rulers Personalistic regime ruling though coercion, material inducement, & personality politics, which degrades institutional foundations of economy & state. Examples include Zaire, Liberia, Sani Abacha in Nigeria, North Korea, Burma.

CHAPTER 4©E.Wayne Nafziger Development Economics 11 Insufficient state tax collections & provision of basic services

CHAPTER 4©E.Wayne Nafziger Development Economics 12 Failed state A state that provides virtually no public goods or services to its citizens.

CHAPTER 4©E.Wayne Nafziger Development Economics 13 Lack of transparency Transparency The quality of a government being open, accessible, frank, and disclosing information (Stiglitz 2002e).

CHAPTER 4©E.Wayne Nafziger Development Economics 14 Insecure property rights Hernando de Soto, The Mystery of Capital Why DC success in last 50 years?

CHAPTER 4©E.Wayne Nafziger Development Economics 15 Why DC success last 50 years? Legally enforceable property titling based on law written by legislatures consistent with social contract. Transforms assets to accessible form. By uncoupling economic features of asset from physical stage, asset is fungible. Assets can be split up so factory owned by countless investors.

CHAPTER 4©E.Wayne Nafziger Development Economics 16 De Soto on dead capital Most potential capital dead capital, unusable & inaccessible. Woodruff estimates $1,558 per capita in LDCs could be unlocked by clear property rights. De Soto thinks 5/6 of world lack formal credit markets.

CHAPTER 4©E.Wayne Nafziger Development Economics 17 Poor governance Lack of openness, accountability, & transparency. Lack of democratization, with civil and political freedoms, and lack of civil society.

CHAPTER 4©E.Wayne Nafziger Development Economics 18

CHAPTER 4©E.Wayne Nafziger Development Economics 19 Rent seeking Unproductive activity to obtain private benefits from public action and resources.