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

After reading this chapter, you should be able to: Describe how the World Bank distinguishes between industrial advanced countries (high-income nations) and developing countries (middle-income and low-income nations), list some of the obstacles to economic development, explain the vicious circle of poverty that afflicts low-income nations, discuss the role of government in promoting economic development within low-income nations. | The Economics of Developing Countries McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill 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 Classifications Comparisons U.S. GDP $14.6 trillion Combined GDP of DVCs $15.6 trillion U.S. has 4.5% of population but 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 LO1 Growth, Decline and Income Gaps Some developing countries have 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 LO1 Human Realities of Poverty LO2 Selected Socioeconomic Indicators of Development The path to economic development Use existing resources more efficiently Expand available supplies of resources Simple generalizations are not possible LO2 Obstacles to Development Obstacles to Development Natural Resources Shortage of land, resources, power Tropical climates hinder labor, lead to disease Difficult to solve LO2 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 Obstacles to Development Capital accumulation This is key for economic development Domestic capital formation Savings potential Capital flight Investment obstacles Lack of infrastructure LO2 Technological advance Borrowed technology Socio-cultural obstacles Institutional obstacles Land reform Obstacles to Development LO2 The Vicious Circle of Poverty RAPID POPULATION GROWTH LOW LEVEL OF DEMAND LOW PRODUCTIVITY LOW LEVELS OF INVESTMENT IN PHYSICAL AND HUMAN CAPITAL LOW PER CAPITA INCOME LO3 LOW LEVEL OF SAVING 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 Role of Government Public sector problems Misadministration Bribery Corruption LO4 Role of Government LO4 Expanding trade Admitting temporary workers Discouraging arms sales Foreign aid Direct aid The World Bank group LO5 Role of Advanced Nations | The Economics of Developing Countries McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill 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 Classifications Comparisons U.S. GDP $14.6 trillion Combined GDP of DVCs $15.6 trillion U.S. has 4.5% of population but 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 LO1 Growth, Decline and Income Gaps Some developing countries have 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 LO1 Human Realities of Poverty LO2 Selected Socioeconomic Indicators of .