1. Copyright 2008 The McGraw-Hill Companies 27-1 Rich and Poor Obstacles to Economic Development Capital Accumulation Vicious Circle of Poverty Role of Government Role of Advanced Nations Where from Here? IAC Policies for Fostering DVC Growth Last Word Key Terms End Show 27 The Economics Of Developing Countries

2. Copyright 2008 The McGraw-Hill Companies 27-2 Rich and Poor Obstacles to Economic Development Capital Accumulation Vicious Circle of Poverty Role of Government Role of Advanced Nations Where from Here? IAC Policies for Fostering DVC Growth Last Word Key Terms End Show Chapter Objectives In this chapter you will learn: How the World Bank distinguishes between industrial advanced countries (high-income nations) and developing countries (middle- income and low-income nations). Some of the obstacles to economic development. About the vicious cycle of poverty that afflicts low-income nations. The role of government in promoting economic development within low-income nations. How industrial nations attempt to aid low-income countries.

3. Copyright 2008 The McGraw-Hill Companies 27-3 Rich and Poor Obstacles to Economic Development Capital Accumulation Vicious Circle of Poverty Role of Government Role of Advanced Nations Where from Here? IAC Policies for Fostering DVC Growth Last Word Key Terms End Show The Rich and the Poor Classifications –Industrially Advanced Countries (IACs) High Income Nations –Developing Countries (DVCs) Low Income Nations Middle Income Nations

4. Copyright 2008 The McGraw-Hill Companies 27-4 Rich and Poor Obstacles to Economic Development Capital Accumulation Vicious Circle of Poverty Role of Government Role of Advanced Nations Where from Here? IAC Policies for Fostering DVC Growth Last Word Key Terms End Show The Rich and the Poor 2004 Comparisons: –U.S. GDP $12 Trillion –All DVCs $5.5 Trillion –U.S. has 5% of Population but Produces 31% of World’s Output –U.S. Per Capita GDP Many Times Greater than DVCs –Wal-Mart Sales Greater Than All But 19 Nations

5. Copyright 2008 The McGraw-Hill Companies 27-5 Rich and Poor Obstacles to Economic Development Capital Accumulation Vicious Circle of Poverty Role of Government Role of Advanced Nations Where from Here? IAC Policies for Fostering DVC Growth Last Word Key Terms End Show The Rich and the Poor Growth, Decline, and Income Gaps –Differences in Ability to Improve Positions Over Time –Some Increase and Reach IAC Status –Some Decline –Income Gap is Widening Between Rich and Poor Human Realities of Poverty

6. Copyright 2008 The McGraw-Hill Companies 27-6 Rich and Poor Obstacles to Economic Development Capital Accumulation Vicious Circle of Poverty Role of Government Role of Advanced Nations Where from Here? IAC Policies for Fostering DVC Growth Last Word Key Terms End Show Obstacles to Economic Development DVCs Must Use Existing Supplies of Resources More Efficiently DVCs Must Expand Their Available Supplies of Resources –Natural Resources –Human Resources

7. Copyright 2008 The McGraw-Hill Companies 27-7 Rich and Poor Obstacles to Economic Development Capital Accumulation Vicious Circle of Poverty Role of Government Role of Advanced Nations Where from Here? IAC Policies for Fostering DVC Growth Last Word Key Terms End Show Obstacles to Economic Development Overpopulation Standard of Living –Saving and Investment –Productivity –Resource Overuse –Urban Problems Standard Of Living = Consumer Goods (Food) Production Population

8. Copyright 2008 The McGraw-Hill Companies 27-8 Rich and Poor Obstacles to Economic Development Capital Accumulation Vicious Circle of Poverty Role of Government Role of Advanced Nations Where from Here? IAC Policies for Fostering DVC Growth Last Word Key Terms End Show Obstacles to Economic Development Qualifications –Demographic Transition View Unemployment Underemployment Low Labor Productivity Brain Drain

9. Copyright 2008 The McGraw-Hill Companies 27-9 Rich and Poor Obstacles to Economic Development Capital Accumulation Vicious Circle of Poverty Role of Government Role of Advanced Nations Where from Here? IAC Policies for Fostering DVC Growth Last Word Key Terms End Show Capital Accumulation Domestic Capital Formation –Savings Potential –Capital Flight –Investment Obstacles Infrastructure

10. Copyright 2008 The McGraw-Hill Companies 27-10 Rich and Poor Obstacles to Economic Development Capital Accumulation Vicious Circle of Poverty Role of Government Role of Advanced Nations Where from Here? IAC Policies for Fostering DVC Growth Last Word Key Terms End Show Capital Accumulation Technological Advance –Capital-Saving Technology –Capital-Using Technology Sociocultural and Institutional Factors –The Will to Develop –Capricious Universe View –Land Reform

11. Copyright 2008 The McGraw-Hill Companies 27-11 Rich and Poor Obstacles to Economic Development Capital Accumulation Vicious Circle of Poverty Role of Government Role of Advanced Nations Where from Here? IAC Policies for Fostering DVC Growth Last Word Key Terms End Show The Vicious Circle The Vicious Circle of Poverty RAPID POPULATION GROWTH LOW LEVEL OF DEMAND LOW LEVEL OF SAVING LOW PRODUCTIVITY LOW LEVELS OF INVESTMENT IN PHYSICAL AND HUMAN CAPITAL LOW PER CAPITA INCOME 27.1

12. Copyright 2008 The McGraw-Hill Companies 27-12 Rich and Poor Obstacles to Economic Development Capital Accumulation Vicious Circle of Poverty Role of Government Role of Advanced Nations Where from Here? IAC Policies for Fostering DVC Growth Last Word Key Terms End Show Role of Government A Positive Role –Law and Order –Lack of Entrepreneurship –Infrastructure –Forced Saving and Investment –Social-Institutional Problems Public Sector Problems –Corruption

13. Copyright 2008 The McGraw-Hill Companies 27-13 Rich and Poor Obstacles to Economic Development Capital Accumulation Vicious Circle of Poverty Role of Government Role of Advanced Nations Where from Here? IAC Policies for Fostering DVC Growth Last Word Key Terms End Show GLOBAL PERSPECTIVE Role of Government The Corruption Perception Index Source: Transparency International Corruption Index Value, 2005 Finland New Zealand Denmark United States China India Moldova Madagascar Ecuador Russia Azerbaijan Cameroon Paraguay Nigeria Haiti Bangladesh 0 1 2 3 4 5 6 7 8 9 10 9.6 9.5 7.6 3.2 2.9 2.8 2.5 2.4 2.2 2.1 1.9 1.8 1.7

14. Copyright 2008 The McGraw-Hill Companies 27-14 Rich and Poor Obstacles to Economic Development Capital Accumulation Vicious Circle of Poverty Role of Government Role of Advanced Nations Where from Here? IAC Policies for Fostering DVC Growth Last Word Key Terms End Show Role of Advanced Nations Expanding Trade Foreign Aid –Direct Aid –The World Bank Group –Foreign Harm Dependency and Incentives Bureaucracy and Centralized Government Corruption and Misuse –The Decline in Foreign Aid –Flows of Private Capital Direct Foreign Investment

15. Copyright 2008 The McGraw-Hill Companies 27-15 Rich and Poor Obstacles to Economic Development Capital Accumulation Vicious Circle of Poverty Role of Government Role of Advanced Nations Where from Here? IAC Policies for Fostering DVC Growth Last Word Key Terms End Show GLOBAL PERSPECTIVE Role of Advanced Nations Development Assistance as a Percentage of GDP Source: U. N. Human Development Report, 2006 0.20.40.60.801.00 Netherlands Sweden France United Kingdom Germany Canada Japan United States.80.79.34.28.41 Percentage of GDP, 2003.20.15.24

16. Copyright 2008 The McGraw-Hill Companies 27-16 Rich and Poor Obstacles to Economic Development Capital Accumulation Vicious Circle of Poverty Role of Government Role of Advanced Nations Where from Here? IAC Policies for Fostering DVC Growth Last Word Key Terms End Show Where From Here? DVC Policies for Promoting Growth –Establishing and Implementing the Rule of Law –Opening Economies to International Trade –Controlling Population Growth –Encouraging Foreign Direct Investment –Building Human Capital

17. Copyright 2008 The McGraw-Hill Companies 27-17 Rich and Poor Obstacles to Economic Development Capital Accumulation Vicious Circle of Poverty Role of Government Role of Advanced Nations Where from Here? IAC Policies for Fostering DVC Growth Last Word Key Terms End Show Where From Here? DVC Policies for Promoting Growth –Making Peace With Neighbors –Establishing Independent Central Banks –Establishing Realistic Exchange-Rate Policies –Privatizing State Industries

18. Copyright 2008 The McGraw-Hill Companies 27-18 Rich and Poor Obstacles to Economic Development Capital Accumulation Vicious Circle of Poverty Role of Government Role of Advanced Nations Where from Here? IAC Policies for Fostering DVC Growth Last Word Key Terms End Show IAC Policies for Fostering DVC Growth Directing Foreign Aid to the Poorest DVCs Reducing Tariffs, Import Quotas, and Farm Subsidies Providing Debt Forgiveness to the Poorest DVCs Admitting in Temporary Workers and Discouraging Brain Drains Discouraging Arms Sales to the DVCs

19. Copyright 2008 The McGraw-Hill Companies 27-19 Rich and Poor Obstacles to Economic Development Capital Accumulation Vicious Circle of Poverty Role of Government Role of Advanced Nations Where from Here? IAC Policies for Fostering DVC Growth Last Word Key Terms End Show Food Shortages in Africa Root Causes – Both Natural and Human Causes Droughts –Lack of Rainfall –Overuse of Land Civil Strife –Rebellions, Civil Wars, Wars with Neighbors, Anarchy Population Growth Ecological Degradation Last Word

20. Copyright 2008 The McGraw-Hill Companies 27-20 Rich and Poor Obstacles to Economic Development Capital Accumulation Vicious Circle of Poverty Role of Government Role of Advanced Nations Where from Here? IAC Policies for Fostering DVC Growth Last Word Key Terms End Show Public Policies –Neglected Agriculture for Military Uses –Channeling Aid to Military and Ignoring Civilians –Setting Agricultural Prices Low Decreasing Incentive to Grow –Land Seizures that Collapsed the Food Supply External Debt –Required Austerity Food Shortages in Africa Last Word

21. Copyright 2008 The McGraw-Hill Companies 27-21 Rich and Poor Obstacles to Economic Development Capital Accumulation Vicious Circle of Poverty Role of Government Role of Advanced Nations Where from Here? IAC Policies for Fostering DVC Growth Last Word Key Terms End Show Key Terms industrially advanced countries (IACs)industrially advanced countries (IACs) developing countries (DVCs)developing countries (DVCs) demographic transition viewdemographic transition view underemployment brain drain capital flight infrastructure capital-saving technologycapital-saving technology capital-using technologycapital-using technology the will to develop capricious universe viewcapricious universe view land reform vicious circle of povertyvicious circle of poverty corruption World Bank direct foreign investmentdirect foreign investment

22. Copyright 2008 The McGraw-Hill Companies 27-22 Rich and Poor Obstacles to Economic Development Capital Accumulation Vicious Circle of Poverty Role of Government Role of Advanced Nations Where from Here? IAC Policies for Fostering DVC Growth Last Word Key Terms End Show THIS IS IT!!!!!