1. Chapter 9
Development
© 2014 Pearson Education, Inc.

2. KI #1 Why Does Development Vary among Countries?
United Nations (UN) developed a metric to measure the level of development of every country called the Human Development Index (HDI). The highest possible HDI is 1.0 or 100%.
Currently the highest HDI is Norway’s at (in 2009) and the lowest is Niger with an HDI of 0.34
It is based on three factors:
Economic Indicators
Social Indicators
Demographic Indicators

3. FIGURE 9-3HDI BY REGIOIN Regions and other areas are shown in order of level of development. Developed regions are in red, and developing regions in green. Similar patterns will be used for a number of charts in this chapter.

4. Economic Indicators of Development
A Decent Standard of Living
UN measures standard of living based on two functions:
Gross national income (GNI)
Value of the output of goods and services produced in a country annually, including money that leaves and enters the country.
Gross domestic product (GDP) is similar except it doesn’t account for money entering and leaving the country.
Per capita GNI measures average (mean) wealth, not its distribution among citizens.
Purchasing power parity (PPP)
Cost of living adjustment made to the GNI.

5. Why Does Development Vary Among Countries?
Economic indicators of development
Types of jobs
Primary sector – directly extract materials from earth
Secondary sector – manufacturing of products
Tertiary sector – provision of goods and services
Quartenary sector-Information, research and management
Quinary sector-Executive decision makers
Productivity
Measured by the value added per capita (the gross value of the product minus the costs of raw materials and energy)
MDCs are more productive than LDCs
Consumer goods
3 consumer goods considered to be particularly good indicators of development: cars, telephones and computers

7. Social Indicators of Development
Education and Literacy
Student/Teacher ratio
Literacy rate
Health and Welfare
Daily caloric intake
Total expenditures on healthcare
Access to healthcare (physicians/1000)
© 2014 Pearson Education, Inc.

8. Why Does Development Vary among Countries?
Access to Knowledge
UN considers years of schooling to be the most critical measure of the ability of an individual to gain access to knowledge needed for development.
Quantity of Schooling
Average Years of schooling
Global: 7 years
Developing: 6 years
Developed: 11 years
Expected years of schooling
Developed: 16 years
Developing: 11 years
Quantity of Schooling
Years of schooling is the number of years that the average person age 25 during the country has spent in school.
Expected years of Schooling
This is a number of years that an average five-year-old child is expected to spend in school.
Children in developed countries are expected to attend college, but they aren’t expected to attend college in developing countries.

9. Demographic Indicators of Development
MDC
LDC
Life Expectancy
70s
60s
Infant Mortality Rate
99.5%
94%
Natural Increase Rate
0.2% NIR
1.5% NIR
Crude Birth Rate
12/1,000
23/1,000
© 2014 Pearson Education, Inc.

10. Demographic, Social, and Economic Indicators of Development
LDC
MDC
Crude Birth Rate = low
Crude Death Rate =low
Infant Mortality Rate = low
Literacy Rate = high
School Enrollment = high
Total Fertility Rate = low
Total % of pop under 15 = low
Life Expectancy = high
Natural Increase Rate = low
GDP per Capita = high
Primary Economic Activities =low
Service Economic Activities = high
Crude Birth Rate = high
Crude Death Rate = low
Infant Mortality Rate = high
Literacy Rate = low
School Enrollment = low
Total Fertility Rate =high
Total % of pop under 15 =high
Life Expectancy = low
Natural Increase Rate = high
GDP per Capita = low
Primary Economic Activities= high
Service Economic Activities =low

12. Look at your Key Issue 9-2 Questions for MDC vs
Look at your Key Issue 9-2 Questions for MDC vs. LDC regions of the world
© 2014 Pearson Education, Inc.

13. North-South Divide

14. Inequality Indexes
Economic Disparity The Gini coefficient is a measure of statistical dispersion intended to represent the income distribution of a nation's residents, and is the most commonly used measure of inequality. When you look up economic statistics about inequality, you often see it measured with a Gini coefficient. 0=Perfect Equality; 1=100% Inequality
Gender Inequality is based on the Gender Development Index
© 2014 Pearson Education, Inc.

15. Gender Related Development Index (GDI)
GDI is based on economic, social and demographic indicators as it compares the situation of women to that of men
Economic Indicators-per capital income
Social Indicators-# of females enrolled in school and % of literacy
Demographic Indicators-life expectancy
Highest GDI
U.S., Canada, W. Europe, Australia, Japan, S. Korea
Lowest GDI
Sub-Saharan Africa, Yemen
© 2014 Pearson Education, Inc.

16. KI #2 Why Does Development Vary by Gender?
Gender Inequality Measures
UN created the Gender Inequality Index (GII) that is based on multiple metrics.
Gender Empowerment Measure (GEM)
Every country has a lower GEM than GDI b/c women possess a greater share of a country’s resources than they do power over allocations of those resources.
Defined: Ability of women to achieve improvements in status.
Percentage of seats held by women in the national legislature.
Percentage of women who have completed high school.
Labor Force
Female labor force participation rate defined as percentage of women holding full-time jobs outside the home.
Highest in developed countries.
Reproductive Health
Maternal mortality ratio
Adolescent fertility rate
The UN has not found a single country in the world where the women are treated as well as the men. At best, women have achieved near-equality with men in some countries.
UN argues that inequality among men and women is a major factor that keeps a country from achieving a higher level of development.
Both maternal mortality ratio and adolescent fertility rates are lowest in developed countries.
GII scores range from 0 (equality) to 1 (inequality).

17. Why Does Development Vary by Gender?
Gender Inequality Trends
UN asserts gender inequality has declined in nearly every country since the 1990s.
Greatest improvements in Southwest Asia and North Africa.
U.S. is one of few developed countries where the GII has increased.
Reproductive rights much lower in U.S. compared to other very high HDI countries.
Percentage of women in the national legislature is relatively lower than other high HDI countries.

18. Why LDCs Face Obstacles to Development
Two Paths to Development
Developing countries chose of of two models to promote development:
Self-sufficiency
Countries encourage domestic production of goods, discourage foreign ownership of businesses and resources, and protect their businesses form international competition.
Most popular for most of 20th century
International trade
Countries open themselves to foreign investment and international markets.
Became more popular beginning in the late 20th century
In order to shrink the gap between developed and developing countries, developing countries must increase per capita GNI more rapidly and use the additional funds to make more rapid improvements in social and economic conditions.

19. Self-Sufficiency Model
Elements of the Self-Sufficiency Model
Balanced growth
country spreads investment as equally as possible across all sectors of the economy and regions
pace of development is modest
Incomes in the countryside are consistent with the cities
Isolates and helps weak businesses from competitors
Limits imports and sets high taxes

20. Self-Sufficiency Model (cont.)
Problems and Criticisms
Protects inefficient businesses (little incentive to improve quality, lower production costs, etc.)
Needs a large bureaucracy (has led to corruption and a black market-informal sector)
Examples
India (in order for foreign countries to import into India, they must get a license from the government with several dozen agencies approving, pay heavy taxes, govt. restricts the quantity to be sold in India, Indian money could not be converted to other currencies to discourage Indian countries from exporting)
© 2014 Pearson Education, Inc.

21. Models of Development Rostow: International Trade Approach

22. Rostow: International Trade Model
International Trade Path
Rostow Model (LDCs=Stages 1-3)
Traditional Society
Not started the development process yet. Marked by a very high percentage of people engaged in agriculture and a high percentage of national wealth allocated to “nonproductive” activities. e.g. military or religion.
Preconditions for Takeoff
Elite group initiates innovative economic activities that ultimately stimulate an increase in productivity. Country starts to invest in new technology and infrastructure
Takeoff
Rapid growth is generated in a limited number of economic activities. e.g. textiles or food production; other sectors still dominated by traditional practices
W.W. Rostow proposed a five-stage model of development in the 1950s.
Several countries adopted this approach during the 1960s.

23. Rostow Model (cont.) Two Paths to Development
Rostow Model (MDCs=Stages 4-5)
Drive to Maturity
Modern technology diffuses from the few takeoff industries to other economic sectors, thus sparking rapid growth. Workers become skilled and specialized
Age of Mass Consumption
Marked by a shift from heavy industry, such as steel, to consumer goods like cars and refrigerators.

24. Rostow Model (cont.) Problems and Criticisms of Rostow Examples
Uneven resource distribution
When LDCs depend on the sale of one commodity and that prices goes down
Increased dependence on MDCs
LDCs need MDCs to invest during take-off
Market decline
Developing countries have found increased difficulty selling their manufactured goods in a world market that has recently declined for many products.
Examples
Arabian Peninsula
Petroleum sales finance housing, highways, airports, etc.
Four Asian Dragons
Lack natural resources, but promote development by producing textiles and electronics with low labor costs
Uneven resource distribution
Over time, commodity prices can decrease, such as the case of copper reserves in Zambia where world prices for copper have declined.

25. Why Do Countries Face Obstacles to Development?
Financing Development
Finance comes from two primary sources:
Direct investment by transnational corporations
Loans from banks and international organizations
Foreign Direct Investment (FDI)
Defined: Investment made by a foreign company in the economy of another country.
FDI grew from $130 billion in 1990s to $1.5 in 2000 and 2010.
In 2010, only 2/5 went from developed to developing
Major source of FDI are transnational corporations

26. Why Do Countries Face Obstacles to Development?
Financing Development
Loans
Two major lenders to developing countries:
World Bank
Includes the International Bank for Reconstruction and Development (IBRD) and International Development Association (IDA).
IBRD provides loans to countries to reform public administration and legal institutions, develop and strengthen financial institutions, and implement transportation and social service projects.
IDA provides support to countries considered too risky to receive loans from IBRD.

27. Why Do Countries Face Obstacles to Development?
Financing Development
Loans
Two major lenders to developing countries:
International Monetary Fund (IMF)
IMF provides loans to countries experiencing balance-of-payments problems that threaten expansion of international trade.
IMF assistance designed to help a country rebuild international reserves, stabilize currency exchange rates, and pay for imports without the imposition of harsh trade restrictions or capital controls that could hamper the growth of world trade.

28. Why Do Countries Face Obstacles to Development?
Financing Challenges in Developing and Developed Countries
Developing Countries
IMF, World Bank, and developed countries fear that granting, canceling, or refinancing debts without strings attached will perpetuate bad habits in developing countries.
Developing countries required to prepare a Policy Framework Paper outlining a structural adjust program, which includes economic goals, strategies for achieving the objectives, and external financing requirements.

29. Why Do Countries Face Obstacles to Development?
Financing Challenges in Developing and Developed Countries
Developed Countries
Heart of the global economic crisis in developed countries was the poor condition of many banks and other financial institutions.
Bad loans were especially widespread in housing, which led to the housing bubble- a rapid increase in the value of houses following by a sharp decline in their value.
Bubble burst because of relaxation of long-standing restrictions on the ability of individuals to purchase houses and higher-income people took advantage of low- interest loans to buy additional houses.
When the bubble burst, many people found themselves are way more on their mortgages than their house is one hour.

30. Why Do Countries Face Obstacles to Development?
Making Progress in Development
Fair Trade
Defined: Commerce in which products are made and traded according to standards that protect workers and small businesses in developing countries.
Ex. In North America, Ten Thousand Villages is the largest fair trade organization in North America.
Because fair trade organizations bypass distributors, a greater percentage of the retail price makes it way back directly to the producers.
Fair Trade requires employers to pay workers fair wages, permit union organizing, and comply with minimum environmental and safety standards.

31. Why Do Countries Face Obstacles to Development?
Making Progress in Development
Immanuel Wallerstein, a U.S. social scientist, posited a world-systems analysis that unified the world economy with developed countries forming an inner core area, whereas developing countries occupy peripheral locations.
Developing countries in the periphery have less access to the world center of consumption, communications, wealth, and power, which are clustered in the core.
When the bubble burst, many people found themselves are way more on their mortgages than their house is one hour.

32. Wallerstein’s World System Analysis
Core: Dominates Global Economy High – Income, use of technology, % of tertiary activities, levels of Education by the majority of the population. OECD countries G8 Semi-Periphery: Increased economic development. BRICS, 4 Dragons, Middle East, Eastern Europe Periphery: Dependent on Core as markets for raw materials and sources of technology Low Income, Low use of technology, High % of primary activities, Low levels of education by the majority of the population
The Organisation for Economic Co-operation and Development (OECD) (French: Organisation de coopération et de développement économiques, OCDE) is an international economic organisation of 34 countries founded in 1961 to stimulate economic progress and world trade. (US and Europe)
The Group of Seven (G7, formerly G8) is a governmental forum of leading advanced economies in the world. It was originally formed by six leading industrial countries and subsequently extended with two additional members, one of which, Russia, is suspended.[1][2][3][4] Since 2014, the G8 in effect comprises seven nations and the European Union as the eighth member.

33. Three Tier Structure Core Periphery
Processes that incorporate higher levels of education, higher salaries, and more technology
* Generate more wealth in the world economy
Periphery
Processes that incorporate lower levels of education, lower salaries, and less technology
* Generate less wealth in the world economy
Semi-periphery
Places where core and periphery processes are both occurring. Places that are exploited by the core but then exploit the periphery.
* Serves as a buffer between core and periphery

34. FIGURE 9-68 CORE AND PERIPHERY This unorthodox world map projection emphasizes the central role that developed countries play at the core of the world economy.

35. Dependency Theory
Dependency Theory Political & economic relationships between nations & regions limit the development of the less developed areas
Colonial dependencies are still in place from long ago.
Dependency theory sees little hope for economic prosperity in some traditional parts of the world

36. Why Do Countries Face Obstacles to Development?
Making Progress in Development
Closing the Gap
Progress in reducing the gap in level of development between developed and developing countries varies depending on the variable:
Infant Mortality Rate
Gap has narrowed from 17 to 6 (per 1,000) in developed countries and from 107 to 44 developing countries.
Life Expectancy
Gap has not narrowed.
GNI Per Capita
Gap in wealth between developed and developing countries has widened.