1 © ©1999 South-Western College Publishing PowerPoint Slides prepared by Ken Long Principles of Economics 2nd edition by Fred M Gottheil

2 Chapter 33 The Economic Problems of Less-Developed Economies 12/8/2015 © ©1999 South-Western College Publishing

3 This chapter discusses principles associated with © ©1999 South-Western College Publishing Economic Aid to the LDCsForeign Investment in the LDCs The Big-Push Strategy for Economic Development Economic Dualism Poverty in the Less-Developed Countries (LDCs) The Unbalanced Growth Strategy for Economic Development

4 What is a Less- developed Country? The economies of Asia, Africa, and Latin America © ©1999 South-Western College Publishing

5 What is Per Capita Income? The income of a nation divided by the population of the country © ©1999 South-Western College Publishing

6 What is Per Capita Income Growth? Income growth divided by population growth © ©1999 South-Western College Publishing

7 7 per capita income growth = Income growth population growth

8 What does Per Capita Income depend upon? population productivity age distribution level of investment education

9 What is Human Capital? The investment in workers’ health and knowledge, acquired through education, training, and/or experience that enhances their productivity © ©1999 South-Western College Publishing

10 What is Production Possibilities? The combinations of goods that can be produced when resources and technology are used efficiently © ©1999 South-Western College Publishing

11 Production Possibilities Curve Capital Goods Unattainable Inefficient Consumer Goods 1111 © ©1999 South-Western College Publishing

12 What is true along the Production Possibilities Curve? available resources are used fully division of labor is maximized shows most efficient combination of resources © ©1999 South-Western College Publishing

13 What choices are made along the Production Possibilities curve? To have more of product A, units of product B have to be sacrificed and vice versa © ©1999 South-Western College Publishing

14 How do we have more of everything? By increasing our resources © ©1999 South-Western College Publishing

15 Increased Resources Increased Resources Capital Goods Consumer Goods 1515 © ©1999 South-Western College Publishing

16 What are some examples of increased resources? Innovations - an idea that takes the form of new applied technology Technology - an improvement in capital © ©1999 South-Western College Publishing

17 Innovations Innovations Capital Goods Consumer Goods 1717 © ©1999 South-Western College Publishing

18 Technological Change Capital Goods Consumer Goods 1818 © ©1999 South-Western College Publishing

19 What is Economic Dualism? The coexistence of two separate and distinct economies within an LDC; one traditional and poor, the other modern and prosperous © ©1999 South-Western College Publishing

20 Why does Economic Dualism tend to persist? The skills of those in the traditional sector are completely inadequate for the modern sector © ©1999 South-Western College Publishing

21 D S Q W © ©1999 South-Western College Publishing Workers in the Traditional Sector of an LDC

22 D S Q W © ©1999 South-Western College Publishing Workers in the Modern Sector of an LDC

23 What are the basic Prerequisites of a Modern Economy? Political stability acceptance of science willingness to break away from tradition modern infrastructure © ©1999 South-Western College Publishing

24 What is Infrastructure? The basic institutions and public facilities upon which an economy’s development depends © ©1999 South-Western College Publishing

25 What are some Strategies of Development? Big Push Unbalanced Development © ©1999 South-Western College Publishing

26 What is the Big Push? The development strategy that relies on a integrated network of government sponsored and financed investments introduced into the economy all at once © ©1999 South-Western College Publishing

27 What is the Unbalanced Development Strategy? Relies essentially upon entrepreneurs to do the major part of investing and funding © ©1999 South-Western College Publishing

28 What is a Forward Linkage? Investments in one industry that create opportunities for profitable investments in other industries, using the goods produced in the first as inputs © ©1999 South-Western College Publishing

29 What is a Backward Linkage? Investments in one industry that create demands for inputs, inducing investment in other industries to produce those inputs © ©1999 South-Western College Publishing

30 What is Foreign Direct Investment? When foreigners invest in a less developed country, the country gains by new capital and expertise © ©1999 South-Western College Publishing

31 Foreign Direct Investment Capital Goods Consumer Goods 3131 © ©1999 South-Western College Publishing

32 Why are some countries leery of foreign investment? They believe that it was the uninvited foreign direct investment of the colonial 19th century that left their economies undeveloped in the first place © ©1999 South-Western College Publishing

33 What is Foreign Economic Aid? Loans and grants from government to government © ©1999 South-Western College Publishing

34 34 © ©1999 South-Western College Publishing praxis.html /

35 What is a Less-developed Country? What is Per Capita Income? What does Per Capita Income depend upon?What does Per Capita Income depend upon? What is Human Capital? What is Economic Dualism? What are the basic Prerequisites of a Modern Economy?What are the basic Prerequisites of a Modern Economy?

36 What are some Strategies of Development?What are some Strategies of Development? What is the Big Push? What is the Unbalanced Development Strategy?What is the Unbalanced Development Strategy? What is a Forward Linkage? What is a Backward Linkage? What is Foreign Direct Investment? What is Foreign Economic Aid?

37 ENDEND © ©1999 South-Western College Publishing