1. Features of an Underdeveloped Economy
Introduction
The term ‘underdeveloped country’ is relative.
The World Bank in its World Development Report classified various countries on the basis of Gross National Income(GNI) Per Capita.
World
Development
Report
Low Income
Countries
GNI Per Capita of
$906
And below
Middle Income
Ranging
Between
$906 and
$11,115
High Income
of $11,116
Or more

2. Meaning of an Underdeveloped Economy
Good
Potential
Prospects &
Enthusiasm in
Its People
Low Per Capita
Income
Un-utilized
Human and
Natural
Resources
Low Economic
Performance
Inefficient and
Conventional
Technique &
Production
Under
Developed
Economy

3. Definitions Of Underdeveloped Economy
U.N.O Group of Experts: “ We use the term underdeveloped countries in which per capita real income is low compared with per capita real income of the United States of America, Canada, Australia and Western Europe.” ( Evaluation: Narrow definition refer to just one parameter i.e. Low income per capita)
Nurkse, “ Underdeveloped countries are those which compared with advanced countries are underdeveloped with capital in relation to their population and natural resources.” (Evaluation: Refer to only one of the determinants of underdevelopment)

4. Features of Underdeveloped Economy
Main features are:
Low Per Capita Income
Low Growth Rate of Per Capita Income
Economic Inequalities
Low level Of Living
Deficiency of Capital
Backward Techniques of Production
Backward Human Resources
Underdeveloped Natural resources
High Rate of Population Growth

5. Features of Underdeveloped Country
Dependence on Agriculture
Backward Industrial Sector
Backwardness of Tertiary Sector
Unfavourable Institutional Structure
External Indebtness
Vicious Circle of Poverty

6. Explanation of Features 1. Low Per Capita Income:

7. Explanation of Features 2. Low Growth Rate
Growth rate of low income economies (excluding China, India, Pakistan and few other countries) is less than that of developed countries.
Country
Growth Rate
Bolivia
2.1%
Kenya
0.4%
Burundi
-2.6%
Ireland
2.6%
Sweden
2.3%
U.S.A.
2.5%

8. Explanation of Features 3. Economic Inequalities
Country
Percentage share of the top 10% in National Income
Percentage Share of the bottom 10% in National Income
Developed Economies
U.S.A.
Switzerland
30.5
25.2
1.8
2.6
Underdeveloped Economies
Brazil
Kenya
46.7
34.9
1.0

9. Explanation of Features 4. Low Level of Living
Country
Per capita Daily Consumption of Calories
Developed Countries
U.S.A
France
HDI
3,642
3,593
Between 0.8 & 0.9
Underdeveloped Countries
India
Bangladesh
2,400
2,000
Between 0.3 & 0.4

10. Explanation of Features 5. Deficiency of Capital
Average Rate of domestic capital formation
Developed Countries
Underdeveloped Countries
23% of GDP
17% of GDP

11. Explanation of Features 6. Backward Techniques of Production
There are two types
High cost of production
High Capital output ratio (K/O)

12. Explanation of Features 7. Backward Human Resources
Low productivity
Of labor
Shortage of efficient
and literate
labor
Poor health
Low wages

13. Explanation of Features 8.Underdeveloped Natural Resources
Resources like Land, Minerals, Forests and
Water are underutilized.
For example: Africa possess 44% of total water power of the world , utilizes only 0.11%.

14. Explanation of Features 9. High Rate of Population Growth
Growth Rate of Population (percent per year)
Developed Countries growth rate
Underdeveloped countries growth rate
USA
Germany
Japan
India
Pakistan
Kenya
1.0
0.1
0.2
1.5
2.4
2.2

15. Explanation of Features 10. Dependence on Agriculture
Labour force in Agriculture (%)
Share of Agriculture in G.N.P. (%)
Under
Developed Economies
66%
27%
Developed
Economies 5% 2%
In nutshell Agriculture in underdeveloped economies are:
Backward
Low Productive
Outmoded Techniques

16. Explanation of Features 11. Backward Industrial sector
Contribution of Industries to National Income
Underdeveloped Economies
Developed Economies
India
Bangladesh
U.S.A
Japan
27%
13%
35%
43%
Weak Industrial Structure because of:
Lack of basic key industries
Shortage of able entrepreneurs

17. Explanation of Features 12.Backwardness of Tertiary Sector
Underdeveloped Economies 25% of working population is engaged in this sector. Developed 45% of working population is engaged in this sector.
Trade, Banking, insurance services and infrastructure are in a state of underdevelopment.

18. Explanation of Features 13.Unfavourable Institutional Structure
Structure of
Underdeveloped
Economies
Uneconomic
Culture
Customs
and Traditions
Political
Corruptions
Philosophical
and religious
obstacles
Believers
in Faith
Old customs
and
Orthodox
approach
Unstable
Governments
Politically
weak
Corrupt
politicians

19. Explanation of Features 14. External Indebtedness
Foreign indebtedness of underdeveloped countries is 37% of their national income as they borrow from foreign countries on a large scale.

20. Explanation of Features 15a. Vicious circle of poverty : Supply side
“ A country is a poor because it is poor.” –Nurkse.
Low per capita
income
Low saving
Low investments
Low productivity

21. Explanation of Features 15b. Vicious circle of poverty: Demand side
Low demand
Low inducement to
invest
Low investment
Low productivity
Low income

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