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CHAPTER 20Economic Growth in Developing Nations
CHAPTER 20SECTION 1
Characteristics of Developing Nations
Developed vs. Developing Nations
Developed Nations: nations with relatively high standards of living and economies based more on industry than on agriculture
Developing Nations: nations with little industrial development and relatively low standards of living
Developed vs. Developing Nations
Only 35 of the more than 192 world nations are considered developed nations.
The rest are developing nations.
The only common factors of developing nations are that they have less industrial development and a relatively low standard of living.
Economic Characteristics
Very low GDP per capita
Natural and human resources, but not enough capital or knowledge to use those resources to their full potential
Agricultural economies
Most families living at a subsistence level Subsistence Agriculture: growing just enough
food by a family to take care of its own needs
Economic Characteristics
Poor health conditions, including shortages of doctors and medical care, and high infant mortality rates
Low literacy rates A large percentage of people who cannot read
or write
Rapid population growth
Weak Property Rights
In many developing nations, there are less well-defined, government-protected private property rights. Peru is one such country, with 80 percent of the
land having no private owner.
No large-scale farming occurs because individual farmers cannot buy and sell land.
The peasant farmers have little incentive to improve the value of the property.
CHAPTER 20SECTION 2
The Process of Economic Development
Financing Economic Development
A basic problem for many developing nations is how to finance the equipment and training necessary to improve their standard of living.
One source of money capital is domestic savings.
The two major outside sources of capital are: Investment by foreign businesses
Foreign aid from developed nations
Foreign Investment
Foreign corporations set up branch offices or companies in the developing nation due to low wage rates.
However the foreign investor takes a risk because there may be political instability in the country.
Citizens of the developing nation lose economic control when foreigners control their resources.
Foreign Aid
Foreign aid can be given to the developing nation by governments and private organizations in many forms. Foreign Aid: money, goods, and services given
by governments and private organizations to help other nations and their citizens
Forms of foreign aid include: Economic Assistance Technical Assistance Military Assistance
Foreign Aid
Economic assistance: providing loans and money/capital donations
Technical assistance: providing professionals to train and teach skills to local population
Military assistance: Providing the nation’s armed forces with money or people who teach and train
Who Supplies Foreign Aid?
While the U.S. gives a large dollar amount in aid, it is a low percentage of its GDP when compared to other countries. $23 Billion in foreign aid $14 Billion in foreign military assistance
The U.S. channels a lot of its aid through the Agency for International Development (AID).
Who Supplies Foreign Aid?
The United Nations has agencies that distribute funds to developing nations.
The International Monetary Fund (IMF) has recently become a major foreign aid agency.
Many developing nations are unable to repay the loans they have received in foreign aid.
Reasons for Giving Foreign Aid
Humanitarianism is the desire to relieve human suffering, and a major goal of private aid organizations.
It is in the best economic interest of developed nations to help because it will create more trading partners and investment opportunities.
Political objectives, such as creating allies
Reasons for Giving Foreign Aid
To help develop a military alliance, a developed nation will give economic aid.
If the developing nation’s government changes hands, the new government may be hostile to the developed nation, and use its military equipment against them.
CHAPTER 20SECTION 3Obstacles to Growth in
Developing Nations
Four Obstacles to Growth
Attitudes and Beliefs People don’t trust innovation and technology,
they are comfortable with the old way of doing things.
Continued Rapid Population Growth The population is growing faster than the
nation’s GDP.
Four Obstacles to Growth
Misuse of Resources Corrupt governments and poor allocation of
resources (capital flight)
Trade Restrictions Trade restrictions in developed nations make it
difficult or impossible to increase exports.
Case Study: Indonesia
Indonesia had a large population and a variety of rich natural resources.
The country received $2 billion in foreign aid, but still the economy was a disaster.
The people did not have a national identity and were divided by nationality, religion, and politics.
The economy under the leadership of Sukarno was a disaster.
Case Study: Indonesia
General Suharto brought improvements, but relied too heavily on oil so that the economy was hit hard by the oil crisis in 1980s, and further suffered from economic crisis of 1997-98.
Money alone does not enable a country to experience economic growth.
Governments must loosen their restrictions on the economy.
Case Study: Indonesia
Foreign aid, domestic savings, foreign investment, and government policies must all work together.
Depending upon only one or two products leads to only a temporary economic growth.
CHAPTER 20SECTION 4
Industrialization and the Future
Problems of Rapid Industrialization
Unwise Investments Some developing nations have invested in
industries in which they do not have a comparative advantage.
For example, India steel mills produced steel 2-3 times more expensively than what it would cost to import the steel.
Not Adapting to Change People need time to adapt to new patterns of
living and working.
Problems of Rapid Industrialization
Using Inappropriate Technology Countries need to use technology that is best
suited for its culture. Instead of buying tractors, countries could use
steel plows because the benefits could be more widely distributed.
Rushing Through the Stages of Development The economy itself needs time to adapt to the
change, build savings, and increase the number of educated and skilled workers.
Economic Development
There are many factors that influence economic development. Trade with the outside world
A government structure that provides for economic incentives, such as reasonable tax rates and private property rights
Natural resources
Economic Development
Lack of one of these factors does not necessarily mean the country has fallen into the vicious cycle of poverty. Vicious Cycle of Poverty: situation in which a
less-developed county with low per capita incomes cannot save and invest enough to achieve acceptable rates of economic growth and thus is trapped
Economic development can also depend on entrepreneurship and private property rights.
Information Leads to Cooperation
Media and the Internet transport information to developing nations.
Developing nations can then see the benefits of working together.
Alone, one developing nation has little power or impact in the world market, but as a group they can have influence.
Developing nations now partner with developed nations.
