Chapter 1:

Introduction to
developing countries

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 Questions to be addressed
1. How is the global income
distributed?
2. How are countries classified?
3. What is the brief history of
developing countries?
4. What are the characteristics of
developing countries?
5. How are they compared to
developed countries in their earlier
stages?
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Contents
1. The global distribution of income
2. Classification of countries
3. The emergence of developing countries
4. Characteristics of developing countries
5. Comparing developing countries today
and developed countries in their earlier
stages: both internal and external
factors

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Part 1. The global distribution of
income

1.1 How are two halves of the

world living?

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How are two halves of the world living?
(extracted from the reading)

 There is a sharp contrast between lives in

North America, Northern Europe, Western
Europe Australia and in Latin America,
South and South East Asia and Africa
illustrated by two respective typical
families.
 Differences can be seen in various
aspects, such as...
 Contrast also be witnessed within a single
country in Asia, Latin America and Africa
 What’s more?
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1.2. Some statistics on income
distribution

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Global income distribution in 2008
(Source: WB website 2010, Key Development Data & Statistics,
http://web.worldbank.org/WBSITE/EXTERNAL/DATASTATISTICS/0,,contentMDK:20535285~menuPK:1192694~pageP
K:64133150~piPK:64133175~theSitePK:239419,00.html )

World High income Medium and low

countries income countries

Absolute Absolute as a Absolute as a

value value percentage value percentage
of the world of the
world
GDP 60,587 43,189 71.3% 17,398 28.7%
(USD
bn)

Populati 6,692 1,068 16% 5,624 84%

on
(millions)

Income 8,613 39,345 3,094

per
capita
(USD)
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For whom are the world producing?
Source: WB website 2009

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 Annual per capita incomes in selected countries
(Source: WB website 2010, Key Development Data & Statistics,
http://siteresources.worldbank.org/DATASTATISTICS/Resources/GNIPC.pdf )

Country GDP per capita Country GDP per capita

Atlas method
(using official
PPP Atlas method
(using official
PPP
exchange exchange rate)
rate)
Malaysia
Switzerland
65,330 46,460 6,970 13,740
Japan
38,210 35,220 the
Philippines
1,890 3,900
USA
47,580 46,970 Vietnam
890 2,700
UK
45,390 36,130 Bangladesh
520 1,440
Singapore
34,760 47,940 Uganda
420 1,140
Poland
11,880 17,310 Nepal
400 1,120
Mexico
9,980 14,270 Ethiopia
280 870
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Is the global income gap being narrowed or widened?
Income of the richest 20% /income of poorest 20%
(Source: Y.Hayami, 2006)

1960 30
1970 32
1980 45
1991 61
2000 70
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Income gap in regions

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Income gap within selected countries.

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Access to water by richest 20% and poorest 20% in selected
developing countries

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How severe global poverty is? Some figures

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How severe global poverty is?

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Some more facts and figures on global
poverty (1/4)
1. Almost half the world — over three
billion people — live on less than $2.50 a
day (At least 80% of humanity lives on less
than $10 a day)
2. More than 80 percent of the world’s
population lives in countries where
income differentials are widening.
3. The poorest 40 percent of the world’s
population accounts for 5 percent of
global income. The richest 20 percent
accounts for three-quarters of world
income.

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Some more facts and figures on global
poverty (2/4)
4. According to UNICEF, 25,000 children die each
day due to poverty. And they “die quietly in
some of the poorest villages on earth, far
removed from the scrutiny and the conscience
of the world. Being meek and weak in life makes
these dying multitudes even more invisible in
death.
5. Around 27-28 percent of all children in
developing countries are estimated to be
underweight or stunted. The two regions that
account for the bulk of the deficit are South Asia
and sub-Saharan Africa.  If current trends
continue, the Millennium Development Goals
target of halving the proportion of underweight
children will be missed by 30 million children,
largely because of slow progress in Southern
Asia and sub-Saharan Africa

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Some more facts and figures on global
poverty (3/4)

6. Based on enrolment data, about 72

million children of primary school age in
the developing world were not in school
in 2005; 57 per cent of them were girls.
And these are regarded as optimisitic
numbers.
7. Nearly a billion people entered the 21st
century unable to read a book or sign
their names.

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Some more facts and figures on global
poverty (4/4)
8. Less than one per cent of what the world spent
every year on weapons was needed to put every
child into school by the year 2000 and yet it
didn’t happen.
9. Infectious diseases continue to blight the lives of
the poor across the world. An estimated 40
million people are living with HIV/AIDS, with 3
million deaths in 2004. Every year there are
350–500 million cases of malaria, with 1 million
fatalities: Africa accounts for 90 percent of
malarial deaths and African children account for
over 80 percent of malaria victims worldwide.

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Part 2: Country classification
 WB
 UNDP

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WB classification: by annual GNI per capita
(Source: WB website 2010, http://go.worldbank.org/K2CKM78CC0 )
 WB classify all their member countries (186), and
all other economies with populations of more than
30,000 (210 total)
 Economies are divided according to 2008 GNI per
capita, calculated using the World Bank 
Atlas method. The groups are: 
 low income, $975 or less; 
 lower middle income, $976 - $3,855; 
 upper middle income, $3,856 - $11,905; and 
 high income, $11,906 or more.
The critical incomes levels used to group
countries change over time

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Income groups by WB
Country In 2005 ($) In 2006 ($) In 2007 ($) In 2008 ($)
group
Low income < 875 < 905 < 935 < 975

Lower < 3465 < 3595 < 3705 $3,855

middle
income
Upper < 10725 < 11115 < 11455 $11,905
middle
income
High income > 10725 > 11115 > 11455 $11,906

Vietnam 620 700 790 890

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Notes on the term and WB country
classification
 In general discussions in Bank reports,
the term "developing economies" has
been used to denote the set of low and
middle income economies.
 Bank publications with notes on the classification of
economies state that the term "developing
economies... does not imply either that all the
economies belonging to the group are actually in the
process of developing, nor that those not in the
group have necessarily reached some preferred or
final stage of development."

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UN classification: by HDI

 Human Development Index

This index measures the average achievement of each
country in three basic areas of human development:
 Life expectancy at birth;
 Adult literacy and school enrolment;
 Standard of living as measured by the Gross
National Product per capita (in PPP$).
 The HDI uses a scale from 0-1. Zero is the lowest score
and would indicate the lowest level of human
development; one is the highest score and would indicate
the highest level of human development. The index is
divided into three categories: High, Medium, and Low.

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HDI (continued)
 High Human Development  
All countries scoring 0.80 and higher on the HDI
are considered to be countries that have achieved
“high human development.”
 Medium Human Development  
All countries scoring between 0.50-0.79 on the
HDI are considered to be countries that have
achieved “medium human development.”
 Low Human Development
All countries scoring below 0.50 on the HDI are
considered to be countries that have achieved
“low human development.”

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UN definition:

 Developing economies: Sometimes

countries with Medium and Low HDI are
called developing countries  
These economies have standards of living
lower than developed economies and
economies in transition. Many have deep
and extensive poverty. Developing
countries are usually importers, rather than
developers, of innovations in science and
technology. They also tend to be more
vulnerable to economic shocks.

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 Some more words on HDI
 Each year since 1990 the Human Development
Report has published the human development
index (HDI) which looks beyond GDP to a broader
definition of well-being.
 The HDI provides a composite measure of three
dimensions of human development: living a long
and healthy life (measured by life expectancy), being
educated (measured by adult literacy and enrolment at
the primary, secondary and tertiary level) and having
a decent standard of living (measured by purchasing
power parity, PPP, income).
 However, the index is not in any sense a
comprehensive measure of human development.
It does not, for example, include important indicators
such as gender or income inequality and more difficult
to measure indicators like respect for human rights
and political freedoms

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Part 3: The emergence of developing
countries
3.1 History:
Most of the present developing
countries were colonies of Western
European countries such Britain,
France, Belgium, the Netherlands,
Germany, Portugal and Spain.
Group discussion: Can you argue how
this historical background of developing
can impact on the present development
progress and prospects?

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Suggested answers (1/3)-
expecting discussions, arguments, comments and examples by creative students

1. Formerly being exploited by the rulers

and bearing the negative effects
2. Affected by colonial heritage:
economic, educational and social
institutions are modeled or shaped or
impacted by the former colonial
rulers. Evidence: Colonies of Spain
and Portugal share relatively similar
economic, social and cultural
institutions and face similar problems,
colonies of Britain have progressed
faster than those of France.
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Suggested answers (2/3)

3. Obtaining late independence and

emergence in international arena
their interests were not taken into
account by major international
economic institutions: Bretton
Woods Institutions (set up by the
agreements at Bretton Woods
conference) WB, IMF, GATT (WTO)

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 Suggested answers (3/3)
4. Facing “disadvantages of late comers” in
technological application, market access,
natural resources...
5. Being induced/impacted by recent
globalization process to develop in the more
competitive and interdependent context
internal and external context does not allow
a country to be isolated/ to close the
economy and grow on its own feet. This is
severe in the case the countries are
relatively weak.

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3.2 Different terminologies: developing
countries vs. the rest of the world

backward/traditional advanced/modern
economy economy
under-developed developed country
country
less-developed country more-developed
country
the third world the first & second
world
the South the North
developing country developed country
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Some more words on defining developing world

 The group of countries referred to as

“developing and transitional
economies” is a combination of several
groups of countries defined by income
and non-income factors
 What most clearly identifies these
countries is that they do not belong to
the group of countries that are
generally recognized as “developed”.

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 Least developed countries - a subgroup
of developing world
Having the following characteristics
 A Low Income Country (Per Capita GDI of under
$900)
 Weak human assets (defined by a Human Assets
Index)
 Poor nutrition – per capita caloric intake
 Health – child mortality rate
 Access to education – secondary school enrollment
ratio
 Literacy – adult literacy rate
 Economic vulnerability (defined by an Economic
Vulnerability Index)
 Instability in agricultural production
 Instability in exports of goods and services
 Limited economic importance of non-traditional
activities (manufacturing and modern services)
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List of Least developed countries (50) (1/2)
(Source: UNCTAD, The Least Developed Countries Report 2006 )

 Arab States: Djibouti, Mauritania, Sudan and

Yemen
 South and West Asia: Afghanistan,
Bangladesh, Bhutan, Maldives and Nepal
 East Asia: Cambodia, Lao People’s Democratic
Republic (Lao), Myanmar and Timor-Leste
 Pacific: Kiribati, Samoa, Solomon Islands,
Tuvalu and Vanuatu
 Caribbean: Haiti

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List of Least developed countries (50) (2/2)
(Source: UNCTAD, The Least Developed Countries Report 2006 )

 Sub-Saharan Africa: Angola, Benin,

Burkina Faso, Burundi, Cape Verde,
Central African Republic, Chad,
Comoros, Democratic Republic of the
Congo, Equatorial Guinea, Eritrea,
Ethiopia, Gambia, Guinea, Guinea-
Bissau, Lesotho, Liberia, Madagascar,
Malawi, Mali, Mozambique, Niger,
Rwanda, Sao Tome and Principe,
Senegal, Sierra Leone, Somalia, Togo,
Uganda, United Republic of Tanzania
and Zambia
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Notes on least developed countries

The list of LDCs is reviewed every

three years by the Economic and
Social Council of the United Nations,
in the light of recommendations
made by the Committee for
Development Policy.

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 Part 4: Characteristics of developing
countries

4.1 Common characteristics

4.2 Diversity

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4.1 Common characteristics
Developing countries demonstrate
several common attributes:
 Low levels of living
 Low productivity
 High rate of population growth high
dependency burden
 Relatively high dependence on agricultural
production and export of primary-product
 Imperfect markets
 Economic vulnerability

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 4.1.1 Low Levels of Living

Let’s start with an easy Q:

 What indicator/measurement of levels
of living can you think of? Which of
them indicate means and which depict
ends?
 Answer:

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Suggested answers:

Nationwide, low levels of living means low income,

inequality, poor health and inadequate education,
measured in different aspects using different indicators:
Income: GNI/head, caloric intake
Health: Life expectancy, malnutrition rate, infant mortality rate,
access to clean drinking water, number of doctors or hospital
beds/100,000 citizens (4.4 vs. 217 in developed countries, in
1995), spread of diseases: HIV/AIDS
Education: Education opportunities, Literacy rate, school drop-out
rate
Inequality: Income inequality (by Gini, Lorenz), inequality in
access to health care and education service

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 Low levels of living-illustrative data
(Source: Learning materials, MDE (NEU), 2007)

SOME MEASURES OF LIVING STANDARDS

CHILD
GNI PER LIFE LITERACY
MORTALITY
Country Group CAPITA EXPECTANCY
(per 1000)
RATE
(2003) (2003) (2000)
(2003)
Least Developed 310 51 150 52

Low Income 440 58 123 58

Lower-middle Income 1,490 69 39 90

Upper-middle Income 5,160 74 22 91

High-income non-OECD 16,060 77 7 99

High-income OECD 27,220 79 5 99

World 5,130 67 86 79

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 4.1.2 Low levels of productivity
(Source: Learning materials, MDE (NEU), 2007)

• Value added per worker (in relative terms) tends to be

low in all sectors – agriculture, industry, services and are
reflected in lower wages

VALUE ADDED PER

COUNTRY GROUP WORKER IN
AGRICULTURE
(2002)

Least developed countries 252

Low income 366

Lower middle income 624

Upper middle income 3,931

High Income: non-OECD …

High income: OECD 21,364

World 765

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Another easy Q

 What leads to low productivity?

 Answer:

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self-reinforcing triangles

Low level of incomes

Poor health

Low productivity

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4.1.3 High Rate of Population Growth

 Few developing countries have completed

the demographic transition (permanently
low natural population growth rates)
whereas all developed countries have
(Source: Learning materials, MDE (NEU), 2007)

Rate of Population
COUNTRY GROUP Growth
(2001)
Least Developed 2.2
Low income 1.8
Lower middle income 0.9
Upper middle income 1.3
High income nonOECD 1.9
High income OECD 0.7
World 1.3

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 high dependency burden

 Birthrates is sufficiently high as

compared to death rates children
under 15 make up 40% in developing
countries as opposed to 20% in
developed countries overall
dependency is 45% in developing
countries as opposed to 33% in
developed world (Todaro M.P, (2006))

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A bit more difficult Q

 Why is the gap between birthrates

in developing and developed
countries wider than that of overall
volume/magnitude of dependency
burden?
 Answer:

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4.1.4 Persistent dependence on agriculture
and primary export products
(Source: Learning materials, MDE (NEU), 2007)

Value Added in Employment in

Agriculture Agriculture
COUNTRY GROUP
as % of GDP as % of total
(2000) (1995)
Least Developed 35.6 --

Low income 24.7 57.3

Lower middle income 12.7 42.9

Upper middle income 6.2 20.5

High income nonOECD 1.3 --

High income OECD 1.9 4.8

World 3.9 38.5

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Q with answer from the reading material

 What are the attributes of agriculture

in developing countries?
 Are there any disadvantages of being
dependent on the agricultural sector?
Are there any disadvantages facing
those engaging in farming activities? If
yes, what are they?

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More Q for brain storming

 What are the disadvantages of

primary export?
 Answer: (more can be found in Chap.6)

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 4.1.5 Persistent market imperfections
 Limited institutional development in areas such as:
 Banking and insurance
 Law and enforcement
 Standard setting institutions (engineering, medicine etc.)
 Information gathering and dissemination
 Information asymmetries
 high transaction cost (costs incurred in
negotiating or enforcing a contract or
agreement)

 Markets that are commonplace in developed economies

(bond markets, mortgage markets) do not exist or work
very imperfectly in these economies Limit the ability of
these countries to compete in the production of certain
goods and services due to limited investment/mobilization
of capital for investment

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 4.1.6 Dominance, Dependence
and Vulnerability
 Dominance
 Most of developing countries are small or weak
economically and have limited bargaining power in
international institutions and other forums
 Dependence
 Most of these countries remain in rather subservient
relationships with former colonial powers
 Often dependent on aid transfers and other historical
economic and cultural linkages
 Vulnerability
 Greater likelihood of financial and other economic
crises and limited ability to mitigate against these
and more natural disasters etc.
 Danger of “brain drain”
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Q for relaxing

 What are the disadvantages of

attribute 4.1.6 for developing
countries?

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Suggested answer:
Economic dependence leads to:
 dependence in other aspects
 Low negotiation power in the global
markets or in any cooperation,
which in turn, re-enforce the
economic dependence or
disadvantageous economic order
 Failure to attain sustainability in
development …

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4.2 The diversity of developing countries

 The fact that these countries are all

“less developed” in some sense
means that they all face a common
challenge of “development”
 However, this is by no means a
homogeneous group of countries
and the nature of the challenges
will vary with the structural
attributes  diversity come shortly

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 The differences between developing countries
(and, in a large part, the nature of their growth
experience) can be seen in various aspects,
including:
 Country size
 Historical background
 Resource endowment
 Ethnic and religious composition
 Public-private mix
 Industrial structure
 Political and institutional structures
 Dependence on external economic and political forces

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 4.2.1 Size differentials
(Source: Learning materials, MDE (NEU), 2007)

Country Population Surface GDP GNI per

(million) area (current $) capita
(thousand (bn) (current $,
sq.km) atlas method)
China 1,318 9,598.1 3,205.5 2370
India 1,124.8 3,287 1,176.9 950
Brazil 191.6 8,514.9 1,313.4 5860
Nigeria 148 923.8 165.5 920
Ethiopia 79 1,104.3 19.4 220
Nepal 28.1 147.2 10.3 350
Chad 10.8 1284 7.1 540
Paraguay 6.1 406.8 12.2 1710
Fiji 0.8 18.3 3.4 3750
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Size differentials (continued)
 Large countries
 tend to be more diverse (resources,
ethnicity, religion etc), more self sufficient
and less trade dependent
 Diversity in production and consumption can
be achieved more easily.
 Economic growth is more internally driven.
 Ethnic and religious conflicts are more likely.
Small countries
 tend to be more uniform, less self-sufficient
and more trade dependent
 Less likelihood of internal discord.
 Openness becomes a necessary condition for
development (by any definition)
 Less economic diversity and therefore
greater vulnerability

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 4.2.2 Historical Experience: Colonialism

 Effects of colonialism varied with the colonial

power, such as: governance was administered by
local people or expatriates: the political and
institutional structures were purely exotic or
impacted by local authorities/communities as well.
 The degree to which this process of adaptation
has been successful (or complete) has been also
dependent on the nature and length of
colonization itself: the longer, the more difficult to
adjust after gaining independence
 The colonial heritage can also affect current
economic ideology: in spite of different
geographical and demographic diversity, Spanish
and Portuguese colonies are sharing similar
economic and cultural institutions

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Historical Experience: Communism

Communism in Eastern Europe and

Central Asia (as well as parts of Asia)
meant:
 The removal of basic institutions of
capitalism (private property, private banking
etc.)
 Development of centrally planned economies
 Extremely large (and dominant) public
sectors

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 4.2.3 Resource Endowment (1/2)
 Mineral Exporters
 Mineral wealth is not easily translated into broad
based economic growth. These countries also tend to
be more unequal.
 Oil Exporting Countries: Saudi Arabia, Venezuela
 Other Mineral exporters: Chile, Angola, Congo
 Land Resource Endowment
 Some countries are blessed with large tracts of fertile
land while others have either limited or poor land
resources, such as: Argentina – the pampas help the
country have good cows and beef

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 Resource Endowment (2/2)

 Human Capital Endowment

 Human capital endowment can come in
various forms:
 A highly educated and skilled labor force
 India, Chile
 A large population
 China, India, Indonesia
 little of either
 Ethiopia, Chad

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 4.2.4 The Mix of Public and Private Sectors

 Most developing countries have mixed economic systems but they

have various combinations of public and private sectors, and different
degree of foreign ownership in the private sector.

 A large foreign-owned private sector creates economic and political

opportunities but also cause potential problems
 A large private sector can allow for more rapid rates of economic
innovation but can perpetuate inequality
 A large public sector can be created based on the assumption that
limited skilled manpower can be best used by coordinating rather
than fragmenting administrative and entrepreneurial activities. A
large public sallow for more rapid resource mobilization and better
income distribution but can lead to stagnation and inefficiency.
 Large public sectors: Sri Lanka, Vietnam, Cuba, Tanzania
 Large private sectors: : Chile, South Africa, Colombia
 Latin American and Southeast Asia have larger private sectors than
South Asia due to historical circumstances and political ideology

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4.2.5 Ethnic and Religious Diversity

 Ethnic and religious diversity may

make it more difficult to develop a
national consensus and, at worst,
lead to conflict
 Religious diversity:
 India
 Ethnic Diversity
 Kenya, Malaysia
 Both
 Nigeria, Indonesia
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4.2.6 Industrial Structure
 Developing Countries vary from highly
industrialized economies to many with
no significant industrial development:
 NIEs of Asia and Latin America: Malaysia,
South Korea, Taiwan, Thailand, Singapore,
Argentina Brazil, Chile and Mexico
 Industrialized economies of Eastern Europe
 Besides, there are agrarian economies of
Africa, Asia and Latin America
 Ethiopia, Cambodia, Nicaragua etc.

 Several countries (China, India) have large

industrial sectors but these are still very
small as compared to the agrarian sectors (in
terms of employment, though not necessarily
output)

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 4.2.7 Political and Institutional Structures
 Developing countries vary from well
functioning democracies to dictatorships
 Each of these political systems present their
own challenges and opportunities
 While the determination and implementation of
policy may be easier in non-democratic
frameworks, the development of a national
consensus may be more difficult.
 Institutional endowment may vary from
highly efficient legal, administrative and
financial systems (Taiwan) to near
anarchy (Somalia)
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4.2.8 Dependence on external economic
and political forces

 Extent of dependence on foreign economic,

social and political forces is related to size,
resource endowment and political history.
 Most small nations are dependent on the
developed world
 Dependence is not confined to economic
matters but also for other aspects such as
education, governance values, patterns of
consumption and attitude toward life, work
and self.

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Group discussion
 Compare the three cases of
developing countries in the three
vignettes (in the readings):
Summarize each case and compare
roughly the levels of development

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To conclude: How severe is the poverty
and malaise in developing countries?

 The common challenges that

developing countries are facing can
be described as “a vicious circle of
poverty” from both demand and
supply sides

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 From supply side....

Low investment

Limited savings Low

productivity

Low income per

capita

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 From demand side....
Limited size of
markets

Low productivity Potential investors

Low income are not encouraged

No incremental
investment

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5. Contemporary developing countries in
the current world today

5.1 How has the world been changing?

5.2 How are developing countries
today compared to developed
countries in their earlier stages?

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The world been changing dramatically:
globalization
What is economic globalization?
 “Globalization is the integration of national
economies into the international economy through
trade in goods and services, direct foreign
investment, short-term capital flows,
international movement of people and flow of
technology” (Perkins, 2006, p.9)
 “Globalization is the pervasive decline in barriers
to the global flow of information, ideas, factors (of
production) (especially capital and skilled labor),
technology and goods” (Kaplinsky, 2001, p.14)
 “Globalization is much more than
internationalization: it implies functional
integration between internationally dispersed
activities” (Gereffi, 2002, p.3)

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More specifically, the world has been
changed as follows:
 Global trade increased rapidly, transportation &
communication costs fell sharply; global production networks
emerged; higher extent of integration with global markets
 Capital move more quickly and easily: developing countries
can utilize foreign capital (but danger of financial crisis in
case local financial institutions are weak and foreign capital is
withdrawn quickly)
 Technology can make ideas and information spread more
quickly and developing countries can engage in service
provision via internet or telephone lines
 There have been substantial demographic shifts toward lower
population growth rates in many countries pressures on
pensions and other social programs
 Many low-income countries have adopted democratic political
systems since 1990s, but the impact of the move on
economic development is still controversial
 The spread of diseases, especially HIV/AIDS, threatens
development progress in many countries. Why? Answer:….

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5.2 How are they compared to developed
countries in their earlier stages?

 The situation of developing countries

today differ significantly from that of
developed countries when they start
their stage of modern economic growth.
Nine significant differences can be
identified.

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The nine aspects are...
 Physical and human resource endowments
 Relative levels of per capita income and GDP
 Climate differences
 Population size, distribution and growth
 The historical role of migration
 The growth stimulus of international trade
 Basic scientific and technological research
and development capability
 Stability and flexibility of political and social
institutions

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5.1 Physical and Human Resource Endowments (1/2)

 Developing countries today have less

natural resources as compared to
developed countries when they began
their rapid economic growth. Only a few
are endowed with supplies of petroleum
and other minerals.
 Some countries having abundant
natural resources face limit of capital
investments to exploit or to sacrifice
substantial control to get external
financing
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5.1 Physical and Human Resource Endowments (2/2)

 There is substantial gap regarding HR

endowments. This weakness hamper the
exploitation of natural resources to sustain
long-term economic growth.
 HR development gap (idea gap) + physical
object gap = technology gap low capacity to
generate economic value.
(HR are human characteristics that raise a worker’s
productivity; HR depends on worker’s knowledge, skills
and attitudes)

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5.2 Relative levels of income per capita and GDP

 Present developing countries: having much

lower levels of real per capita income +
having to grow and develop in a more
interdependent world = disadvantage become
more severe. (a metaphor of the income
levels between these two groups of
countries…)
 Such economic difficulties make these poor
countries sometimes determine or desire to
grow at any cost: making a trade off between
current survival and long term improvement
in levels of living

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 5.3 Climatic differences

 Most of developing countries are

located in tropical zones. Heat and high
humidity discourage workers to work
hard or to be creative.
 Tropical climate bring about danger of
spread of diseases  costs for remedy
or prevention

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5.4 Population size, distribution and growth

 Relatively higher population growth (2,5 to 3%

as compared to less than 2% for developed
countries in the past).
 More importantly, population growth in
developing countries nowadays is exogenous
(supported by foreign aids in health care and
others), while in developed countries it was
endogenous (induced by accelerated eco.
growth in the economy)
 Population concentration means low person to
land ratios  low labour productivity
 Relatively bigger population size

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5.5 Role of international migration

 Developing countries today can not

relieve high population density through
international migration due to
restrictive immigration law in
developed.
 At the same time, the face “brain drain”
(find illustrative data in the reading)

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 5.6 The growth stimulus of international trade
 Previously, developed countries can use free
trade as engine of growth as: export markets
were expanding, consequential local market
expansion larger scale manufacturing
industries cheap capital costs  production
expansion increase in imports  more
diversifies industrial structure...
 Present developing countries are facing:
Deteriorating trade position, declining terms of
trade, being unable to afford advanced techno,
low ability to compete internally
 More will be discussed in chap.6…

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5.7 Basic scientific and technological research
and development capacity

 Previously, in developed countries: mass

application of technological innovations 
high productivity  economic growth 
investment in further R&D  more techno.
innovations
 Present developing countries: (1) low
financial resources for investment in R&D and
(2) dependence on rich countries for
technologies that do not match their resource
endowments

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5.8 Social and political institutions

 Previously, developed countries:

independent, politically unified
societies, fully devoted to economic
development
 Present developing countries: being
either distracted by internal wars or
externally influenced, no full
concentration on economic growth

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5.9 Efficacy of domestic eco. institution

 Previously, developed countries: institutions

are more transparent; ensure property rights,
low cost, effective and rapid access to dispute
resolution such as contract enforcement
through courts
 Present developing countries: unclear
institutions, outdated institutions imposed by
former colonizers, and difficult to change 
discourage business development and
innovations; result in low investment and
high transaction costs

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A very easy Q to close our class today

Can historical economic growth

experience of developed
nations in their earlier stage be
applied in developing countries
today? Why or why not?

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Group discussion on these nine
differences, with the support of the lecturer

 Any difficult ideas or phrase or

expressions?

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