Chapter 19Economic Growth in Developing Nations

Characteristics of Developing Nations

• Currently, even the poorest families in the US have an income far above the average income in much of the rest of the world

• About one half of the world’s population lives at or close to subsistence with just enough to survive

• This Chapter will focus on the characteristics of those developing countries

Developed and Developing Nations

• Developed nations – nations with relatively high standards of living and economies based more on industry than on agriculture• Examples are United States, All of Europe,

Canada, Japan, Australia and New Zealand• Of the 190 nations in the world only 35 are

developed

Per Capita GDP around the

world

Developing Nations con’t

• Developing Nations – nations with little industrial development and relatively low standards of living• Developing nations vary greatly• For example, the average income of a person in

Mexico is only about 24% of those in the US but Mexico is much more developed and prosperous than almost all other developing nations

• Religion influences economic development in some developing countries

Economic Characteristics

• Developing nations usually have these characteristics:• Low GDP

• Per capita GDP of US and other developed countries is around $25,000 - $40,000

• Developing countries may have natural and human resources but they lack equipment, financing and knowledge to pull those resources together

• Emphasis in agriculture• Agriculture is central to economies of developing

countries• Subsistence agriculture – growing just enough food by a

family to take care of its own needs, no crops are available to export or feed an industrial workforce

Economic Characteristics con’t

• Poor health conditions• High death rates due to malnutrition or illness due

to lack of food• Developing nations can suffer from a shortage of

modern doctors, hospitals and medicines• Many have low infant mortality rates, meaning the

death rate if children who die within the first year of life is high

• Low Literacy rate• 25% have a low adult literacy rate, which is the

percent of people who can read and write• There are few schools and many children miss

school to work• Lack of educated workers makes it difficult to train

the population for needed technical and engineering jobs

Economic Characteristics con’t

• Rapid Population Growth• The source of most of the other problems like

lack of food and housing• The US grows at a rate of 1% per year• The growth rate of many developing nations

is 3 to 4 times that amount

Economic and Social Conditions for Selected

Nations

Weak Property Rights

• Generally governments of developing countries do not support a system of well-defined property rights.

• For example in Peru only 20% of the land is legally owned so no large scale farming can occur.

The Process of Economic

Development• 3 Stages of Economic Development

• Agriculture stage• Manufacturing stage• Workers shift into service sector

• A basic problem of developing nations is how to finance the equipment and training necessary to improve their standard of living

• Most nations must look to outside sources for investment capital

2 Outside sources of capital

1. Foreign Investment• Attractions

• Low wages, few regulations, and raw materials• Investments can include factories, branch offices,

new companies or buying companies that are already established

• Risks• Unstable governments, terrorist groups and

confiscations which is when the government takes over the company and removes the owners

• Often citizens complain about the economic control that foreign companies have over their resources

2 Outside sources of capital

con’t2. Foreign Aid – funds, goods and services given by

governments and private organizations to help other nations and their citizens

• Types of foreign aid include:• Economic Assistance – loans and outright grants of

funds or equipment to other nations• Technical Assistance – aid in the form of engineers,

teachers, and technicians to teach skills to individuals in other nations

• Military Assistance – aid given to a nation’s armed forces

• Emergency assistance – given during disasters is also considered foreign aid but it is not directed at economic development

Who supplies aid?

• The US devotes a very small portion of its GDP to foreign compared to many other countries• After WWII most US aid was used to rebuild

Europe.• Today most aid is sent to developing nations

in the Middle East and Southeast Asia

• Many other industrial nations also give Foreign Aid

Leading Suppliers of Foreign Aid

Channels of Aid• U.S. Agency for International Development (USAID) is

where most aid is channeled

• Some also goes through the U.N. and its World Bank

• Recently, the International Monetary Fund (IMF) has also become a major foreign aid agency

• However, many aid agencies have become alarmed at the number of developing countries that cannot repay their foreign debts

• In 1990, 40 of the most heavily indebted countries owed more than $127 billion, in 1999 some of the debt was cancelled by major industrial nations

Reasons for giving Foreign Aid

1. Humanitarianism

2. Foreign aid expands and provides new opportunities for private investment

3. Politics – to enhance the appeal of democracy and stop communism

4. Protect security – aid can often be a down payment on military alliance which allows you to build military and posts