1. Developing Countries
Chapter 19

2. Developing Countries
most people in the world live in developing countries
They are countries that the average GNP is a fraction of that of developed countries
Most are in Africa, Asia, and Latin America
Most have many problems including civil war and poverty

3. Other countries around the world want these countries to be successful
Many believe it is their duty to help them
Assistance to these countries help insure a stable supply of raw materials
Plus, the developing countries provide markets for products of industrial nations

4. Over 1.2 billion people in the world have an income of less than $1 a day
Most of them are in Africa and Asia
The gap between industrialized countries and developing countries is huge
It is getting bigger every day

5. Obstacles to Development
1) population growth
Less developed countries population grows much quicker
Partly because of high birthrate
Partly because of longer life expectancy
2) natural resources and geography
Many less developed countries have unproductive land and harsh climates

6. Have a shortage of natural and energy sources
Some can make up for this with international trade
However, if a country is landlocked, it is harder
Most all of the developed countries have a long coastline and access to major trade routes

7. 3) education and technology
Most developing countries do not have a high literacy rate
Do not have technical skills
Most don’t have money to train people
Most can’t provide free public education
Those that can, many kids have to work to help feed their families

8. 4) religion
Some countries or people may not be interested in economic growth because of religious beliefs
In India, many Hindus, and in China, many Buddhists try and reject the material world
As a result, many are not interested in consumer goods or material well-being

9. 5) External debt Many developing nations have huge debt
Borrowed from foreign banks and governments
May never be able to pay it back
Some have a larger debt than GNP
Bulgaria, Ethiopia, Jordan and Tanzania
Angola’s debt is THREE TIMES its GDP
Some can’t even pay the interest on their loans
They are on the verge of default

10. 6) capital flight
The legal or illegal export of a country’s currency and foreign exchange
Happens because people lose faith in gov’t or economy
Then businesses and the gov’t face a cash shortage
Can’t invest in the economy

11. 7) corruption Sometimes on a small scale – bribing local officials
Sometimes on a massive scale – bribing or threatening federal officials
Scamming money from the nation’s treasury

12. 8) war and its aftermath
Many developing nations experienced civil war in late 1900’s
Some are still in war
Devastating impact on lives, property, infrastructure and economy
Effects can last decades after the war is over

13. International Agencies
Two agencies help developing nations solve their problems
1) International Monetary Fund (IMF)
Gives advice to all nations on monetary and fiscal policies
Helps support currency of countries by giving loans so they can compete & attract foreign investors

14. 2) World Bank
Makes loans and financial assistance and advice to developing countries
Owned by IMF member nations
Has funded projects to develop inland water transportation in Bangladesh
Financed desert locust control in East Africa

15. Stages of Economic Development
There are several stages to economic development
1) primitive equilibrium
No formal economic organization
No money system
No investments
No countries like this today
2) transition
Break from primitive
Doesn’t grow economically during this stage
But old traditions begin to fall
People begin to try new living patterns

16. 3) takeoff
Not reached until barriers of primitive equilibrium are broken
People now want new and better way to do things
Have begun to do new things other people have brought in
An industrial nation may be providing aid and education
Country begins to save and invest more
Industries begin to develop and grow

17. 4) semidevelopment National income grows faster than population
This leads to higher per capita income
Core industries are firmly established
Technological advancements are made
Gov’t invests in economy

18. 5) high development
Efforts to obtain food, shelter, and clothing are MORE than successful
Most people have basic needs and wants met
Attention is given to services and consumer goods like TV, washing machines, etc
No longer an emphasis on industrial production
Nation increases is services and provides more public goods

19. Priorities for Industrialized Nations
World Bank has a list of recommendations for industrialized countries
1) trade barriers need to be reduced or eliminated
this would generate c. $50 billion in exports for developing countries
2) industrialized countries need to reduce budget deficits, lower interest rates and stabilize inflation
This would help their economy grow

20. 3) they need to provide more financing to developing countries
It also means they would trade more with developing nations
3) they need to provide more financing to developing countries
4) they need to support the economic development of developing countries
b/w ½ and 2/3 of all US foreign aid is used for military supplies or training

21. Development with Internal Funds
For developing countries to build industries that have a comparative advantage, they need capital.
Also need capital to build roads and ports for trade
Money is hard to get unless a country is somewhat financially stable
For a country to have money, they must produce more than they consume
This is easier in a capitalist economy than in a command economy

22. Development with External Funds
Since it is hard for developing country to have internal funds, they must get external funds
3 ways to do this:
1)get capital from foreign investors who may be interested in the country’s natural resources
This happened in several countries in the Middle East
2) borrowing from foreign governments

23. 3) get a loan from an international agency
The US, Canada and some Western European countries give foreign aid to some developing countries
3) get a loan from an international agency
World Bank
IMF
Countries that are particularly hard hit can get soft loans
Loans that might never be paid back

24. Regional Cooperation
Some countries have joined together to form free-trade areas = two or more countries agree to reduce trade barriers and tariffs among themselves
Others form customs unions = two or more countries abolish trade barriers among them and adopt uniform tariffs for nonmember countries

25. The European Union
Most successful regional cooperative group in the world
No tariffs between countries
Citizens of EU countries have common passports
Can vote in European elections
Can travel anywhere in the EU to work, shop and invest
Have a single currency – the Euro

26. ASEAN
Formed in 1967 – Indonesia, Malaysia, Singapore, Thailand and the Philippines original members
Now have 10 member countries
Work to promote regional peace and stability and economic growth
Free trade area

27. OPEC
Some oil-producing nations have formed a cartel = group of producers or sellers who agree to limit the production or sale of a product to control prices.
Formed in 1960
They control oil prices
Have made trillions from industrialized nations
War and instability in the Middle East have hindered economic growth