22W The Economics of Developing Countries McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Classifications Industrially advanced countries High income nations Well-developed market economies Per capita income $37,665 in 2008 Developing countries Middle income nations Low income nations Wide variation in income per capita LO1 22W-2

Classifications 22W-3

Comparisons U.S. GDP $14.6 trillion Combined GDP of DVCs $15.6 trillion U.S. has 4.5% of population but produces 25.1% of world’s output U.S. per capita GDP is 150 times that of Sierra Leone Walmart’s annual revenue is greater than all but 23 nations’ GDP LO1 22W-4

Growth, Decline and Income Gaps Some developing countries have grown considerably China, Malaysia, Chile, Thailand Some developing countries have become high-income Singapore, Greece, Hong Kong Income gap has widened Developing countries must grow faster to reduce the gap LO1 22W-5

Human Realities of Poverty LO2 Selected Socioeconomic Indicators of Development 22W-6

The path to economic development Use existing resources more efficiently Expand available supplies of resources Simple generalizations are not possible LO2 Obstacles to Development 22W-7

Obstacles to Development Natural Resources Shortage of land, resources, power Tropical climates hinder labor, lead to disease Difficult to solve LO2 22W-8

Obstacles to Development Human resources Large populations Reduced standard of living Less saving and investment Lower productivity Overuse of land resources Urban problems Qualifications Unemployment and underemployment LO2 22W-9

Obstacles to Development LO2 22W-10

Obstacles to Development LO2 22W-11

Obstacles to Development Capital accumulation This is key for economic development Domestic capital formation Savings potential Capital flight Investment obstacles Lack of infrastructure LO2 22W-12

Technological advance Borrowed technology Socio-cultural obstacles Institutional obstacles Land reform Obstacles to Development LO2 22W-13

The Vicious Circle of Poverty RAPID POPULATION GROWTH LOW LEVEL OF DEMAND LOW PRODUCTIVITY LOW LEVELS OF INVESTMENT IN PHYSICAL AND HUMAN CAPITAL LOW PER CAPITA INCOME LO3 LOW LEVEL OF SAVING 22W-14

Role of Government A positive role Establishing the rule of law Building infrastructure Embracing globalization Building human capital Promoting entrepreneurship Developing credit systems Controlling population growth Making peace with neighbors LO4 22W-15

Role of Government Public sector problems Misadministration Bribery Corruption LO4 22W-16

Role of Government LO4 22W-17

Expanding trade Admitting temporary workers Discouraging arms sales Foreign aid Direct aid The World Bank group LO5 Role of Advanced Nations 22W-18

Role of Advanced Nations Foreign harm? Dependency and incentives Bureaucracy and centralized government Corruption and misuse Current level of foreign aid Flows of private capital LO5 22W-19

LO5 Role of Advanced Nations 22W-20

Famine in Africa Root causes – natural and human Droughts – Lack of rainfall Civil strife – Rebellions and civil wars Population growth Ecological degradation Public policies External debt LO5 22W-21