Lecture Macroeconomics (19/e) - Chapter 22: The economics of developing countries

22W
The Economics of Developing 
Countries

McGraw­Hill/Irwin

        Copyright © 2012 by The McGraw­Hill Companies, Inc. All rights reserved.


Classifications

• Industrially advanced countries
• High income nations
• Well-developed market economies
• Per capita income $37,665 in 2008
• Developing countries
• Middle income nations
• Low income nations
• Wide variation in income per capita
LO1

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Classifications

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Comparisons

• U.S. GDP $14.6 trillion
• Combined GDP of DVCs $15.6 trillion
• U.S. has 4.5% of population but
•
•
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produces 25.1% of world’s output
U.S. per capita GDP is 150 times that
of Sierra Leone
Walmart’s annual revenue is greater
than all but 23 nations’ GDP

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Growth, Decline and Income Gaps

• Some developing countries have
•
•
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grown considerably
• China, Malaysia, Chile, Thailand
Some developing countries have
become high-income
• Singapore, Greece, Hong Kong
Income gap has widened
• Developing countries must grow

faster to reduce the gap
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Human Realities of Poverty
Selected Socioeconomic Indicators of Development

LO2

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Obstacles to Development

• The path to economic development
• Use existing resources more

•

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efficiently
• Expand available supplies of
resources
Simple generalizations are not
possible

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Obstacles to Development

•

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Natural Resources
• Shortage of land, resources,
power
• Tropical climates hinder labor,
lead to disease
• Difficult to solve

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Obstacles to Development

• Human resources
• Large populations
• Reduced standard of living
• Less saving and investment
• Lower productivity
• Overuse of land resources
• Urban problems
• Qualifications
• Unemployment and underemployment
LO2

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Obstacles to Development

• Capital accumulation
• This is key for economic

development
• Domestic capital formation
• Savings potential
• Capital flight
• Investment obstacles
• Lack of infrastructure

LO2

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Obstacles to Development

• Technological advance
• Borrowed technology
• Socio-cultural obstacles
• Institutional obstacles
• Land reform

LO2

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The Vicious Circle of Poverty
LOW
PER CAPITA
INCOME

LOW
PRODUCTIVITY

RAPID
POPULATION
GROWTH

LOW LEVEL
OF SAVING

LOW LEVEL
OF DEMAND

LOW LEVELS OF
INVESTMENT IN
PHYSICAL AND
HUMAN CAPITAL

LO3

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Role of Government

• A positive role
• Establishing the rule of law
• Building infrastructure
• Embracing globalization
• Building human capital
• Promoting entrepreneurship
• Developing credit systems
• Controlling population growth
• Making peace with neighbors
LO4

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Role of Government

• Public sector problems
• Misadministration
• Bribery
• Corruption

LO4

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Role of Government

LO4

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Role of Advanced Nations

• Expanding trade
• Admitting temporary workers
• Discouraging arms sales
• Foreign aid
• Direct aid
• The World Bank group

LO5

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