An Analysis of Developing Nations

8/12/2019 An Analysis of Developing Nations

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Defining the Developing Nation

A nation where the average incomeis much lower than in

industrial nations, where the economy relies on a few export crops,and where farming is conducted by primitive methods. In manydeveloping nations, rapid population growth threatens the supplyof food. Developing nations have also been called underdevelopednations. Most of them are in Africa, Asia, and Latin America.

Kofi Annan, former ecretary !eneral of the "nited #ations,

defined a developed country as follows. $A developed country isone that allows all its citi%ens to en&oy a free and healthy life in asafe environment.$ 'ut according to the "nited #ations tatisticsDivision,

(here is no established convention for the designation of$developed$ and $developing$ countries or areas in the"nited #ationssystem.

And it notes that

(he designations $developed$ and $developing$ are intendedfor statistical convenience and do not necessarily express a

&udgment about the stage reached by a particular country orarea in the development process.

(he "# also notes

In common practice, )apan in Asia, *anada and the "nitedtates in northern America, Australia and #ew +ealand inceania, and -urope are considered $developed$ regions orareas. In international trade statistics, the outhern African*ustoms "nion is also treated as a developed region andIsraelas a developed country countries emerging from the
http://dictionary.reference.com/browse/incomehttp://dictionary.reference.com/browse/Africahttp://dictionary.reference.com/browse/Asiahttp://dictionary.reference.com/browse/Latin+Americahttp://en.wikipedia.org/wiki/Kofi_Annanhttp://en.wikipedia.org/wiki/United_Nationshttp://en.wikipedia.org/wiki/Oceaniahttp://en.wikipedia.org/wiki/Southern_African_Customs_Unionhttp://en.wikipedia.org/wiki/Southern_African_Customs_Unionhttp://en.wikipedia.org/wiki/Israelhttp://dictionary.reference.com/browse/incomehttp://dictionary.reference.com/browse/Africahttp://dictionary.reference.com/browse/Asiahttp://dictionary.reference.com/browse/Latin+Americahttp://en.wikipedia.org/wiki/Kofi_Annanhttp://en.wikipedia.org/wiki/United_Nationshttp://en.wikipedia.org/wiki/Oceaniahttp://en.wikipedia.org/wiki/Southern_African_Customs_Unionhttp://en.wikipedia.org/wiki/Southern_African_Customs_Unionhttp://en.wikipedia.org/wiki/Israel


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former /ugoslavia, except for lovenia, are treated asdeveloping countries and countries of eastern -uropeand the*ommonwealth of Independent tates0code 1234 in -uropeare not included under either developed or developing

regions.567

In the 31stcentury, the original 8our Asian (igersregions 09ongKong, ingapore, outh Korea, and (aiwan, along with *yprus,and lovenia, are considered $developed countries$.

n the other hand, according to the classification from IM8beforeApril 3::;, all the countries of -astern -urope0including *entral-uropean countries which still belongs to $-astern -urope !roup$in the "# institutions4 as well as the former oviet "nion0"...


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Lower middle income countries had !#I per capita of"E2GH6,BFF.

"pper middle income countries had !#I per capita between"6,BFGH11,E:F.

9igh income countries had !#I above 11,E:G.

(he orld 'an= classifies all low and middleincome countries asdeveloping but notes, $(he use of the term is convenient it is notintended to imply that all economies in the group are experiencingsimilar development or that other economies have reached a

preferred or final stage of development. *lassification by incomedoes not necessarily reflect development status.

Characteristics of Developing Countries

A developing country is one with real per capita income thatis low relative to that in industriali%ed countries li=e ", )apan andthose in estern -urope. Developing countries typically have

population with poor health, low levels of literacy, inadeJuatedwellings, and meager diets. Life expectancy is low and there is a

low level of investment in human capital.

1. Deficiency of capital: ne indication of the capital deficiency isthe low amount of capital per head of population. hortage ofcapital is reflected in the very low capitallabour ratio. #ot only isthe capital stoc= extremely small, but the current rate of capitalformation is also very low, which is due to low inducement toinvest and to the low propensity to save. (hus low level of per

capita income limits the mar=et si%e.2. Excessive dependence on agriculture: Most of the lessdeveloped countries are agrarians. In ?a=istan, most of the peopleare engaged in agriculture. hereas in developed countries 1F@ ofthe population is engaged in agriculture. (he excessive dependenceon agriculture in less developed countries is due to the fact that


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nonagricultural occupations have not grown in proportion with thegrowth in population. 9ence, the surplus labor is to be absorbed inagriculture.3. Inequalities in the distribution of income and ealth: In under

developed countries, there is a concentration of income in a fewhands. In other terms, the income is insufficient to meet thereJuirements of the whole economy. uch income is diverted tononproductive investments such as &ewellery and realestates, andunproductive social expenditure.!. Dualistic economy: Dualistic economy refers to the existence oftwo extreme classes in an economy, particularly lessdevelopedeconomy. (here are old and new production methods, educated

and illiterate population, rich and poor, modern and bac=ward,capitalists and socialists, don=ey carts and motor cars existing side

by side. (his situation creates an atmosphere of great conflict andcontradiction, and hampers the economic development in the longrun.

5. "ac# of dynamic entrepreneurial abilities and highly s#illed

labour

$. Inadequate infrastructure: li=e airports, rail roads, highways,overheads, bridges, telecommunication facilities, sewerage anddrainage, power generation, hospitals, etc.

%. &apid population groth and disguised unemployment

'. (nder)utili*ation of natural resources

+. ,oor consumption pattern: In lessdeveloped countries, most ofthe peoples income is spent on basic necessities of life. (hey aretoo poor to spend on other industrial goods and services


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COMMON CHARACTERISTICS OF DEVEO!IN"

CO#NTRIES

Developing countries are those per capita real income is low when

compared with the per capita real income of advance or developedcountries. Developing countries can be classified into six broadcategories. (hey are

1. Low level of living

2. Low income and productivity

3. Rapid population growth and dependency burdens

4. Dependence on Agricultural production and primary

product e!ports.

". #revalence of imperfect mar$ets and limitedinformation

%. Dominance& dependence and vulnerability in

international relation

Low level of livingCIn developing nations, general level of living tends to be very lowfor the vast ma&ority of people. (hese low level of living are

manifested Juantitatively and Jualitatively in the form of lowincome or poverty, poor health, limited education, hopelessness,low life etc.

Low Levels of incomeCIn addition to low level of living and deprivations in humandevelopment, developing countries are characteri%ed by low levelof labor productivity. Low productivity leads to low income which

leads to low ability to purchase necessary goods leading to lowcapacity for wor= and hence to low productivity.

'ncome ine(uality) ?er *apita !ross #ational ?roduct inelected *ountries, 1EE2 0in ".. dollars at official exchangerates4


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Education

As a final illustration of the very low levels of living that arepervasive in (hird orld nations, consider the spread ofeducational opportunities. (he attempt to provide primary school

educational opportunities has probably been the most significant ofall LD* development efforts. In most countries, education ta=esthe largest share of the government budget. /et in spite of someimpressive Juantitative advances in school enrollments, literacylevels remain stri=ingly low compared with the developed nations.8or example, among the least developed countries, literacy ratesaverage only ;F@ of the population. (he corresponding rates forother (hird orld nations and the developed countries are

approximately G;@ and EE@, respectively. *urrently, it isestimated that more than 6:: million children have dropped out of

primary and secondary school, and of the estimated 1 billionilliterate adults, more than G:@ are women. (he education ofchildren who do attend school regularly is often ill suited andirrelevant to the development needs of the nation.ummari%ing our discussion so far, we can list the followingcommon characteristics of developing countriesC

1. Low relative levels and, in many countries, slow growth rates ofnational income3. Low levels and, in many countries, stagnating rates of realincome per capita growth6. 9ighly s=ewed patterns of income distribution, with the top 3:@of the population receiving F to 1: times as much income as the

bottom ;:@;. *onseJuently, great masses of (hird orld populationssuffering from absolute poverty, with 1 billion to 1.6 billion people

living on subsistence incomes of less than 62: per yearF. Large segments of the populations suffering from ill health,malnutrition and debilitating diseases, with infant mortality ratesrunning as high as 1: times those in developed nations


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G. In education, low levels of literacy, significant school dropoutrates, and inadeJuate and often irrelevant educational curricula andfacilitiesMost important is the interaction of all six characteristics, which

tends to reinforce and perpetuate the pervasive problems of$poverty, ignorance, and disease$ that restrict the lives of so many

people in the (hird orld.

Low Levels of Productivity

In addition to low levels of living, developing countries arecharacteri%ed by relatively low levels of labor productivity. (heconcept of a production function systematically relating outputs

to different combinations offactor inputs for a given technology isoften used to describe the way in which societies go about

providing for

'ncome)*omparison of !#? ?er *apita

,-# #er +apita /0

*ountry -xchange rate ???

"K 3;,F:: 36,FF:

"A 6;,3G: 6;,3G:

+imbabwe ;B: 3,FE:

'angladesh 6B: 1,GF:

*hina B;: 6,E;:

India ;G: 3,6E:

ri Lan=a B2: 6,;2:


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Dependence on AgriculturalC

Most underdeveloped countries are predominantly agricultural. A

great ma&ority of population usually FB@ is engaged in agriculture,compared to only F@ in the developed nations. Agriculturecontributes about 1;@ of the !#? of the developing countries butonly 6@ of the !#? of developed countries. Most economics ofdeveloping nations are oriented towards the production of primary

product.

?revalence of imperfect mar=ets and limited informationC

(he presumed befits of mar=et economics depends on existence ofinstitutional cultural and legal perJuisites. Mar=et is highlyimperfect due to limited demand and few sellers, widespread-xternalities etc. Moreover information is limited and costly toobtain, thereby often causing goods and resources to be allocated.

Dominance, dependence and vulnerability in internationalrelationC

(he above uneJual strings are manifested not only the dominantpower of rich nations to control the pattern of international tradebut also their ability to dictate the terms whereby technologyforeign aid are transferred to the developing countries.

The Structural Diversit$ of Developing Econo%ies& Anyportrayal of the structural diversity of developing nations reJuiresan examination of seven critical componentsC1. (he si%e of the country 0geographic area, population, andincome43. Its historical and colonial bac=ground6. Its endowments of physical and human resources;. (he relative importance of its public and private sectorsF. (he nature of its industrial structure


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G. Its degree of dependence on external economic and politicalforces2. (he distribution of power and the institutional and politicalstructure within the nation

Let us briefly consider each component, focusing on somesimilarities and differences among countries in Africa, Asia, andLatin America.

8igureC (he Developed and Developing world 3::3

Size and Income Level

bviously, the sheer physical si%e of a country, the si%e of its

population, and its level of national income per capita areimportant determinants of its economic potential and ma&or factorsdifferentiating one (hird orld nation from another. f the 1;Fdeveloping countries that are full members of the "nited #ations,E: have fewer than 1F million people, B6 fewer than F million.Large and populated nations li=e 'ra%il, India, -gypt, and #igeria


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exist side by side with small countries li=e ?araguay, #epal,)ordan, and *had. Large si%e usually presents advantages ofdiverse resource endowment, large potential mar=ets, and a lesserdependence on foreign sources of materials and products. 'ut it

also creates problems of administrative control, national cohesion,and regional imbalances. As we shall see in *hapter F, there is nonecessary relationship between a countrys si%e, its level of percapita national income, and the degree of eJuality or ineJuality inits distribution of that income.

-istorical ac#ground

Most African and Asian nations were at one time or anothercolonies of estern -uropean countries, primarily 'ritain and8rance but also 'elgium, the #etherlands, !ermany, ?ortugal, andpain. (he economic structures of these nations, as well as theireducational and social institutions, have typically been modeled onthose of their former colonial rulers. *ountries li=e those in Africathat only recently gained their independence are therefore li=ely to

be more concerned with consolidating and evolving their ownnational economic and political structures than with simplypromoting rapid economic development. (heir policies 0e.g., therapid Africani%ation of former colonialheld civil service &obs4 mayconseJuently reflect a greater interest in these immediate politicalissues. ?erhaps more important, the -uropean colonial powers hada dramatic and longlasting impact on the economies and political


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and institutional structures of their African and Asiancolonies by


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their introduction of three powerful and traditionshattering ideasCprivate property, personal taxation, and the reJuirement that taxesbe paid in money rather than in =ind. As we will discover later,these ideas combined to erode the autonomy of local communitiesand to expose their people to many new forms of potentialexploitation. In Latin America, a longer history of politicalindependence plus a more shared colonial heritage 0panish and?ortuguese4 has meant that in spite of geographic and demographic

diversity, the countries possess relatively similar economic, social,and cultural institutions and face similar problems. In Asia,different colonial heritages and the diverse cultural traditions of theindigenous peoples have combined to create different institutionaland social patterns in countries such as India 0'ritish4, the?hilippines 0panish and American4, ietnam 08rench4, andIndonesia 0Dutch4.

,hysical and -uman &esources

A countrys potential for economic growth is greatly influenced byits endowments of physical resources 0its land, minerals, andother raw materials4 and human resources 0both numbers of

people and their level of s=ills4. (he extreme case of favorablephysical resource endowment is the ?ersian !ulf oil states. At theother extreme are countries li=e *had, /emen, 9aiti, and'angladesh, where endowments of raw materials and minerals and

even fertile land are relatively minimal. In the realm of humanresource endowments, not only are sheer numbers of people andtheir s=ill levels important, but so also are their cultural outloo=s,attitudes toward wor=, and desire for selfimprovement. Moreover,the level of administrative s=ills will often determine the ability ofthe public sector to alter the structure of production and the time it


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ta=es for such structural alteration to occur. (his involves thewhole complex of interrelationships between culture, tradition,religion, and ethnic and tribal fragmentation or cohesion. (hus thenature and character of a countrys human resources are important

determinants of its economic structure 0see *hapter II4, and theseclearly differ from one region to the next.

&elative Importance of the ,ublic and ,rivate /ectors

Most (hird orld countries have mi!ed economic systems,featuring both public and private ownership and use of resources.(he division between the two and their relative importance are

mostly a function of historical and political circumstances. (hus, ingeneral, Latin American and outheast Asian nations have larger

private sectors than outh Asian and African nations. (he degreeof foreign ownership in the private sector is another importantvariable to consider when differentiating among LD*s. A largeforeignowned private sector usually creates economic and

political opportunities as well as problems not found in countrieswhere foreign investors are less prevalent. ften countries li=e

those in Africa with severe shortages of s=illed human resourceshave tended to put greater emphasis on publicsector activities andstaterun enterprises on the assumption that limited s=illedmanpower can be best used by coordinating rather thanfragmenting administrative and entrepreneurial activities.(he widespread economic failures and financial difficulties ofmany of these public concerns in countries such as !hana,enegal, Kenya, and (an%ania raise Juestions, however, about thevalidity of this assumption. As a result, these and other African

nations have moved in recent years toward less public and moreprivate enterprise.-conomic policies, such as those designed to promote moreemployment, will naturally be different for countries with large

public sectors and ones with si%able private sectors. In economiesdominated by the public sector, direct government investment


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pro&ects and large rural wor=s programs will ta=e precedence,whereas in private oriented economies, special tax allowancesdesigned to induce private businesses to employ more wor=ersmight be more common. Although the problem of widespread

unemployment may be similar, the solution can differ in Ecountries with significant differences in the relative importance ofthe public and private sectors.

Industrial /tructure

(he vast ma&ority of developing countries are agrarian ineconomic, social, and cultural outloo=. Agriculture, both

subsistence and commercial, is the principal economic activity interms of the occupational distribution of the labor force, if not interms of proportionate contributions to the gross national product.

#evertheless, there are great differences between the structure ofagrarian systems and patterns of land ownership in Latin Americaand Africa. Asian agrarian systems are somewhat closer to those ofLatin America in terms of patterns of land ownership, but thesimilarities are lessened by substantial cultural differences. It is in

the relative importance of both the manufacturing and servicesectors that we find the widest variation among developing nations.Most Latin American countries, having a longer history ofindependence and, in general, higher levels of national incomethan African or Asian nations, possess more advanced industrialsectors. 'ut in the 1E2:s and 1EB:s, countries li=e (aiwan, outhKorea, 9ong Kong, and ingapore greatly accelerated the growthof their manufacturing output and are rapidly becomingindustriali%ed states. In terms of sheer si%e, India has one of the

largest manufacturing sectors in the (hird orld, but this sector isnevertheless small in relation to the nations enormous rural

population. (able 3.3 provides information on the distribution oflabor force and gross domestic product 0!D?4 between agricultureand industry in 12 developing countries, the "nited tates and the"nited Kingdom. (he contrasts among the industrial structures of


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these countries are stri=ing, especially in terms of the relativeimportance of agriculture. In spite of common problems, therefore.(hird orld development strategies may vary from one country tothe next, depending on the nature, structure, and degree of

interdependence among its primary& secondary& and tertiaryindustrial sectors. (he primary sector consists of agriculture,forestry, and fishing the secondary, mostly of manufacturing andthe tertiary, of commerce, finance, transport, and services.

External Dependence: Economic0 ,olitical0 and ultural

(he degree to which a country is dependent on foreign economic,

social, and political forces is related to its si%e, resourceendowment, and political history. 8or most (hird orld countries,this dependence is substantial. In some cases, it touches almostevery facet of life. Most small nations are highly dependent onforeign trade with the developed world 0see *hapter 134. Almostall small nations are dependent on the importation of foreign andoften inappropriate technologies of production 0*hapter B4. (hisfact alone exerts an extraordinary influence on the character of the

growth process in these dependent nations. 'ut even beyond thestrictly economic manifestations of dependence in the form of theinternational transfer of goods and technologies is the internationaltransmission of institutions 0most notably systems of education andgovernance4, values, patterns of consumption, and attitudes towardlife, wor=, and self. Later chapters show that this transmission

phenomenon brings mixed blessings to most LD*s, especially tothose with the greatest potential for selfreliance. A countrysability to chart its own economic and social destiny is significantly

affected by its degree of dependence on these and other externalforces.


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developing countries are ruled directly or indirectly by small andpowerful elites to a greater extent than the developed nations are.-ffective social and economic change thus reJuires either that thesupport of elite groups be enlisted through persuasion or coercion

or that the elites be pushed aside by more powerful forces. -itherway, and this point will be repeated often throughout this boo=,economic and social development will often be impossible withoutcorresponding changes in the social, political, and economicinstitutions of a nation 0e.g., land tenure systems, forms ofgovernance, educational structures, labor mar=et relationships,

property rights, the distribution and control of physical andfinancial assets, laws of taxation and inheritance, and provision of

credit4.

Classification of Econo%ies

orld 'an= classifies 3:B economies 0populationNOP 6:,:::4based on gross national income per capita, 3:::

LI* NOQ 2FF LM* N2FG3EEF

"M* N3EEGE3GF

9igh income -*D NOPE33G

ther highincome countries

Different classification of otherhigh income countries

,ross -ational 'ncomeis the total final output ofgoods and services produced by the economy, plus netfactor income from the rest of the world, minus salestaxes

!ross domestic product 0!D?4 R net factor payments N!ross national product 0!#?4


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!#? sales taxes N !ross national income

tructural Diversity of Developing -conomiesC ?opulation andIncome

?opulation 0mill4 !#? per capita0"D4

Most ?opulous1. *hina3. India6. "A1:. )apan

1,3G11,:1G3B3132

B;:;G:6;,3G:6;,31:

Least ?opulous

1. t Kitts#evis3. Antigua and 'arbuda6. Dominica

;1GB26

G,GG:E,1E:6,3G:


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'ncome gapsC growth rates of real !#? per capita 0avg annual

growth4

*ountry 1EB:E: 1EE:3:::

AfricaC

Kenya

#igeria

:.6

6.:

:.6

:.;

AsiaC

India

outh Korea

6.3

B.E

;.3

;.2

Latin AmericaC

'ra%il

Mexico

:.G

:.E

1.F

1.F


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Distribution of 'ncome

ealth)Infant Mortality


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ealth and ducation) Indicators


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9DI and !D?


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9DI variations for similar incomes, 1EEE

*ountry 9DI 9DI ran=

!#? per capS ??? 1:::

Kenya

"ganda

:.F1;

:.;6F

136

1;1

!#? per capS ??? 3:::

ietnam

?a=istan

:.GB3

:.;EB

1:1

132

!#? per capS ??? 6:::

ri Lan=a

Indonesia

:.26F

:.G22

B1

1:3

*omposition of orld -xports 0percentages of primary andmanufactured products4


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Documents

An Analysis of Developing Nations