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CHAPTER 4 ©E.Wayne Nafziger Development Economics1
Chapter 4
Characteristic of Developing
Countries
CHAPTER 4 ©E.Wayne Nafziger Development Economics2
Characteristics of LDCs (especially low-income countries or LICs) Varying income inequality Varying political systems Small political elite Low political institutionalization Most had experience of colonialism Extended family Peasant agricultural societies (LICs) High proportion of labor force in agriculture High proportion of output in agriculture
cont
CHAPTER 4 ©E.Wayne Nafziger Development Economics3
Characteristics of LDCs (cont)
Inadequate technology & capital Low saving rates Dual economy Varying dependence on international trade Rapid population growth (1.6% to DCs’ 0.1%
yearly) Low literacy & school enrollment rates Unskilled labor force Poorly developed institutions
CHAPTER 4 ©E.Wayne Nafziger Development Economics4
CHAPTER 4 ©E.Wayne Nafziger Development Economics5
CHAPTER 4 ©E.Wayne Nafziger Development Economics6
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Institutions
Rules of the game of society composed of formal rules (constitutions, statute & common law, regulations), informal constraints (norms, conventions & internal codes of conduct) & enforcement (North).
Rules that shape behavior when people contest & exercise power & expectations regarding others’ actions (Sandbrook).
CHAPTER 4 ©E.Wayne Nafziger Development Economics9
CHAPTER 4 ©E.Wayne Nafziger Development Economics10
Predatory rulers
Personalistic regime ruling though coercion, material inducement, & personality politics, which degrades institutional foundations of economy & state.
Examples include Zaire, Liberia, Sani Abacha in Nigeria, North Korea, Burma.
CHAPTER 4 ©E.Wayne Nafziger Development Economics11
Insufficient state tax collections & provision of basic services
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Failed state
A state that provides virtually no public goods or services to its citizens.
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Lack of transparency
Transparency The quality of a government being open,
accessible, frank, and disclosing information (Stiglitz 2002e).
CHAPTER 4 ©E.Wayne Nafziger Development Economics14
Insecure property rights
Hernando de Soto, The Mystery of Capital
Why DC success in last 50 years?
CHAPTER 4 ©E.Wayne Nafziger Development Economics15
Why DC success last 50 years?
Legally enforceable property titling based on law written by legislatures consistent with social contract.
Transforms assets to accessible form. By uncoupling economic features of asset
from physical stage, asset is fungible. Assets can be split up so factory owned
by countless investors.
CHAPTER 4 ©E.Wayne Nafziger Development Economics16
De Soto on dead capital
Most potential capital dead capital, unusable & inaccessible.
Woodruff estimates $1,558 per capita in LDCs could be unlocked by clear property rights. De Soto thinks 5/6 of world lack formal credit markets.
CHAPTER 4 ©E.Wayne Nafziger Development Economics17
Poor governance
Lack of openness, accountability, & transparency.
Lack of democratization, with civil and political freedoms, and lack of civil society.
CHAPTER 4 ©E.Wayne Nafziger Development Economics18
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Rent seeking
Unproductive activity to obtain private benefits from public action and resources.
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