Chapter 16W  Indicators Of The Level Of Economic Development

NOTE: Do not confuse “indicator” with “cause”

 

                                                               IAC / MDC                    DVC  /LDC

 

Role of agriculture                                 ­­­_______________      _______________

 

Level of industrialization:                       _______________      _______________

 

Literacy rates:                                       _______________      _______________

 

Unemployment:                                     _______________      _______________

 

Population growth rate:                         _______________      _______________

 

Type of exports:                                   _______________      _______________

 

Amount of capital equipment:                _______________      _______________

 

Production technologies:                       _______________      _______________

 

Productivity:                                         _______________      _______________

 

GDP per capita:                                    _______________      _______________

 

Population Growth rates:                       _______________      _______________

 

Structure of the Labor Force:                _______________      _______________

 

Urbanization:                                        _______________      _______________

 

Consumption per capita:                       _______________      _______________

 

Infrastructure:                                       _______________      _______________

 

literacy rates:                                        _______________      _______________

 

life expectancy:                                     _______________      _______________

 

lacking health care:                                _______________      _______________

 

caloric intake:                                       _______________      _______________

 

infant mortality:                                     _______________      _______________

 

birth rates:                                            _______________      _______________

 

death rates                                            _______________      _______________

 

From the textbook:

 

The industrially advanced countries (IACs) include the United States, Japan, Canada, Australia, New Zealand, and most of the nations of western Europe.

 

In 2004 these economies had a per capita incomeover $10,065 abd averaged $32,040.

 

The remaining nations of the world are called developing countries (DVCs) . They have wide variations of income per capita and are mainly located in Africa, Asia, and Latin America. The DVCs are a diverse group that can be subdivided into two groups:

 

• The middle-income nations, shown in green in Figure 16W.1 , include such countries as Brazil, Iran, Poland, Russia, South Africa, and Thailand.

 

Per capita output of these middle-income nations ranged from $826 to $10,065 in 2004 and averaged $2190.

 

• The low-income nations, shown in orange, had a per capita income of $825 or less in 2004 and averaged only $510 of income per person.

 

India, Indonesia, and the sub-Saharan nations of Africa dominate this group. About 37 percent of the world’s population lives in these low-income DVCs, all of which suffer widespread poverty.

 

The various nations have demonstrated considerable differences in their ability to improve circumstances over time.

 

The absolute income gap between rich and poor nations has been widening.

 

The paths to economic development are essentially the same for developing countries as for the industrially advanced economies:

 

• The DVCs must use their existing supplies of resources more efficiently. This means that they must eliminate unemployment and underemployment and also combine labor and capital resources in a way that will achieve lowest-cost production. They must also direct their scarce resources so that they will achieve allocative efficiency.

 

What type of economic growth is this?

 

 

 

• The DVCs must expand their available supplies of resources. By achieving greater supplies of raw materials, capital equipment, and productive labor, and by advancing its technological knowledge, a DVC can push its production possibilities curve outward.

 

What type of economic growth is this?

 

The absolute income gap between rich and poor nations has been widening.

 

For example,

 

LDC: if per capita income is $400 a year in a DVC, a 2% growth rate means an $??? increase in income.

 

 

 

 

IAC: Where per capita income is $20,000 per year in an IAC, the same 2% growth rate translates into a $??? increase in income.

 

 

AID QUIZ

What fraction of the U. S. federal government's budget is spent on foreign aid?

 

1%

5%

10%

15%

20%

25%

How much aid do we give as a % of our GDP?

0.2%

0.5%

1%

5%

20%

15%

 

 

In terms of absolute amounts, the United States is second only to Japan as a leading provider of development assistance to the DVCs. But many other industrialized nations contribute a larger percentage of their GDPs to foreign aid than does the United States.

Role of Government

 

Economists do not agree on the appropriate government in fostering DVC growth.

 

One view is that, at least during initial stages of development, government should play a major role because of the types of obstacles facing DVCs.

 

  • Law and Order
  • Lack of Entrepreneurship
  • Forced Savings and Investment
  • Social-institutions obstacles to development
    • Population growth
    • Unequal land distribution

 

Problems and disadvantages may arise with a government-directed development program.

 

 Development experts are less enthusiastic about the role of government in the growth process than they were 30 years ago. In recent years the perception of government has shifted from that of catalyst and promoter of growth to that of a potential impediment to development (towards structural adjustment).

 

  • government misadministration and corruption are common in many DVCs,

 

 

  • Moreover, political leaders often confer monopoly privileges on relatives, friends, and political supporters and grant exclusive rights to relatives or friends to produce, import, or export certain products. Such monopoly privileges lead to higher domestic prices and diminish the DVC’s ability to compete in world markets.

 

 

  • Similarly, managers of state-owned enterprises are often appointed on the basis of cronyism rather than competence.

 

 

  • Many DVC governments, particularly in Africa, have created “marketing boards” as the sole purchaser of agricultural products from local farmers. The boards buy farm products at artificially low prices and sell them at higher world prices; the “profit” ends up in the pockets of government officials.

 

 

DVC Policies for Promoting Growth

Economists suggest that developing nations have several ways of fostering their economic growth:

 

• Establishing and implementing the rule of law

 

• Opening economies to international trade

 

• Controlling population growth

 

• Encouraging foreign direct investment

 

• Building human capital

 

• Making peace with neighbors

 

• Establishing independent central banks

 

• Establishing realistic exchange-rate policies

 

• Privatizing state industries

 

IAC Policies for Fostering DVC Growth

 

What can the IACs do to improve living conditions and promote growth in the developing nations? Here there is more disagreement among the experts. Economists offer a variety of suggestions, some of which we have already mentioned:

 

• 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