CHAPTER 4©E.Wayne Nafziger Development Economics 1 Chapter 4 Characteristic of Developing Countries

CHAPTER 4 ©E.Wayne Nafziger Development Economics1

Chapter 4

Characteristic of Developing

Countries


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


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






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).



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.


Insufficient state tax collections & provision of basic services


Failed state

A state that provides virtually no public goods or services to its citizens.


Lack of transparency

Transparency The quality of a government being open,

accessible, frank, and disclosing information (Stiglitz 2002e).


Insecure property rights

Hernando de Soto, The Mystery of Capital

Why DC success in last 50 years?


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.


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.


Poor governance

Lack of openness, accountability, & transparency.

Lack of democratization, with civil and political freedoms, and lack of civil society.



Rent seeking

Unproductive activity to obtain private benefits from public action and resources.

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CHAPTER 4©E.Wayne Nafziger Development Economics 1 Chapter 4 Characteristic of Developing Countries