Developing countries

Diversity and Characteristics

• Most common way to define the developing world is by income per capita
• World bank classification system 208 economies with population of at least 30000
are ranked by their levels of national income
• Economies are classified as Low income, middle income and high income
• Developing countries are not homogeneous but are enormously diverse in their
structure. In particular it is stressed that the developing world differs in:
• STRUCTURAL DIVERSITY OF DEVLOPING COUNTRIES
• Population and geographic size.
• Language and religion.
• Experiences in the colonial era.
• Levels of education.
• Natural resource endowments.
• Types of industry.
• Role of government and degree of democracy.
• Degree of dependency in international economic and political affairs.
• SIZE AND INCOME LEVEL
• Major factors differentiating one developing nation from another
 Size of the country, population and national per capita income
 Large and populated countries like brazil India Egypt and Nigeria exist side by side
with small countries like Paraguay Nepal and Jordan.
 ADVANTAGES OF LARGE SIZE
 DIVERSE RESOURCE ENDOWMENT
 LARGE POTENTIAL MARKETS
 LESS DEPENDENCE ON FOREIGN REOURCES FOR RAW MATERIALS AND PRODUCTS.
 DISADVANTAGES
 PROBLEMS OF ADMINISTRATIVE CONTROL
 NATIONAL COHESION
 REGIONAL IMBALANCES

 There is no necessary relationship between size of the population countries size, level of per
capita income and the degree of equality or inequality in distribution of national income.
 EXAMPLE India population 1016 million per capita income 460$ per annum
 Singapore population 4 million income per capita 24740$
• HISTORICAL BACKGROUND OF DEVELOPING NATIONS

• MOST OF THEM WERE COLONIES OF Britain, France Belgium Netherlands Germany Portugal
and Spain.

• ECONOMIC STRUCTURES ,EDUCATIONAL AND SOCIAL INSTITUTIONS HAVE BEEN MODELLED

ON THOSE OF THEIR FORMAL COLONIAL RULERS

• AFRICAN COUNTRIES THAT RECENTLY GAINED INDEPENDENCE ARE THEREFORE MORE

CONCERNED WITH CONSOLODATING AND EVOLVING THERE OWN NATIONAL ECONOMIC AND
POLITICAL STRUCTURES THAN WITH SIMPLY PROMOTING RAPID ECONOMIC DEVELOPMENT.

• IMPACT OF COLONIAL POWERS ON ECONOMIC POLITICAL AND INSTITUTIONAL STRUCTURES

OF THE ASIAN AND AFRICAN COLONIES
• INTRODUCTION OF THREE TRADITION SHATERRING IDEAS 1) PRIVATE PROPERTY 2)PERSONAL
TAXATION 3) REQUIREMENT THAT THESE TAXES TO BE PAID IN MONEY RATHER THAN IN KIND.
• THESE IDEAS COMBINED TO ERODE THE AUTONOMY OF LOCAL COMMUNITIES AND TO
EXPOSE THEIR PEOPLE TO NEW FORMS OF EXPLOITATION. WORST IMPACT IN AFRICA IN THE
FORM OF SLAVE TRADE.
• EVEN LATIN AMERICAN COUNTRIES FACE SIMILAR ECONOMIC CULTURAL AND SOCIAL
PROBLEM.
• PHYSICAL AND HUMAN RESOURCE ENDOWMENT
• Physical resources (land minerals and other raw materials)
• Human resources( number of people and their level of skills)
• Extreme case of physical resource endowment ARAB world on the other extreme YEMEN HAITI
BANGLADESH few natural resources and even lack of fertile land.
• GEOGRAPHY and CLIMATE can also play an important role in success or failure of development
efforts.

• HUMAN RESOURCES
• Not only are sheer no of workers and their skills important but also their
• Cultural outlook
• Attitude towards work
• Access to information
• Willingness to innovate
• Desire of self improvement
• Administrative skills ( ability of the public sector to alter the structure of production and the time
it takes for such structural transformation to occur)
• ETHNIC AND RELEGIOUS COMPOSITION
• ETHNIC AND RELEGIOUS VIOLENCE HAVE ALWAYS EXISTED IN LDCs
• ETHNICITY AND RELEGION OFTEN PLAY AN IMPORTANT ROLE IN SUCCESS OR FAILURE OF
DEVELOPMENT EFFORTS
• GREATER THE ETHNIC AND RELEGIOUS DIVERSITY GREATER THE CHANCE THAT THERE WILL
BE INTERNAL STRIFE AND POLITICAL INSTABILITY.
• SOUTH KOREA TAIWAN SINGAPORE AND HONG KONG EXAMPLES OF SUCCESSFUL RECENT
DEVELOPMENTS BECAUSE OF CULTURAL HOMOGENEOUS SOCIETIES.

• IN DEVELOPING COUNTRIES INDIGENEOUS GROUPS OR NATIVE PEOPLE HAVE LAGGED

BEHIND BECAUSE OF ETHNIC DISCRIMINATION.
• THERE HAVE BEEN NUMEROUS INSTANCES OF SUCCESSFUL ECONOMIC AND SOCIAL
INTEGRATION OF MINORITY OR INDIGENEOUS ETHNIC POPULATIONS IN COUNTRIES AS
DIVERSE AS MALAYSIA AND MAURITIUS .

• RELEGIOUS AND ETHNIC COMPOSITION AND WHERE OR NOT THAT DIVERSITY LEADS TO
CONFLICT OR COOPERATION CAN BE IMPORTANT DETERMINENTS OF SUCCESS OR FAILURE
OF DEVELOPMENT EFFORTS.
• RELATIVE IMPORTANCE OF PUBLIC AND PRIVATE SECTORS
• MOST DEVELOPING COUNTRIES HAVE MIXED ECONOMIC SYSTEMS FEATURING BOTH PUBLIC
AND PRIVATE OWNERSHIP AND USE OF RESOURCES
• LATIN AMERICAN AND SOUTH EAST ASIAN COUNTRIES HAVE LARGER PRIVATE SECTORS
THAN MOST SOUTH ASIAN AND AFRICAN COUNTRIES.
• DEGREE OF FOEIN OWNERSHIP IS ANOTHER FACTOR IS ANOTHER IMPORTANT VARIABLE
WHEN DIFFERNTIATING BETWEEN LDCS
• FOREIGN OWNED PRIVATE SECTOR USUALLY CREATES ECONOMIC AND POLITICAL
OOPORTUNIES AS WELL AS PROBLEMS.
• AFRICAN COUNTRIES WITH SHORTAGES OF SKILLED HUMAN RESOURCES HAVE PUT
EMPHASIS ON STATE RUN ENTERPRISES ON THE ASSUMPTION THAT LIMITED SKILLED
MANPOWER CAN BE BEST PAID BY COORDINATING RATHER THAN FRAGMANTING
ADMINISTRATIVE AND ENTREPRENEURIAL ACTIVITIES.

• ECONOMIES DOMINATED BY PUBLIC SECTOR DIRECT GOV INVESTMENT PROJECTS AND

LARGE RURAL WORK PROGRAMS WILL TAKE PRCEDENCE
• IN PRIVATE ECONOMIES SPECIAL TAX ALLOWANCES DESIGNED TO INDUCE PRIVATE
BUSINESSES TO EMPLOY MORE WORKERS MIGH BE MORE COMMON
• INDUSTRIAL STRUCTURE
• AGRARIAN IN ECONOMIC SOCIAL AND CULTURAL OUTLOOK
• AGRICULTURE BOTH SUBSISTENCE AND COMMERCIAL IS A PRINCIPAL ECONOMIC ACTIVITY IN
TERMS OF OCCUPATIONAL DISTRIBUTION OF LABOR FORCE.
• ASIAN AGRARIAN SYSTEMS ARE MORE SIMILAR TO LATIN AMERICAN SYSTEMS IN TERMS OF
PATTERNS OF LAND OWNERSHIP. BUT THE SIMILARITIES ARE LESSENED BY SUBSTANCIAL
CULTURAL DIFFERENCES.

• LATIN AMERICAN COUNTIRIES WHICH GAINED INDEPENDENCE BEFORE THE ASIAN AND
AFRICAN COUNTRIES HAVE LARGER INDUSTRAIL SECTORS . ECONOMIES LIKE SOUTH KOREA
SINGAPORE AND TAIWAN HAVE GROWING MANUFACTURING SECTORS.
• IN RECENT YEARS ROLE OF INDUSTRY IN MOST ADVANCED COUNTRIES IS SHRINKING AS
ECONOMY INCREASES IN PRODUCTIVITY AND EGUCATION AND SHIFTS TO ADVANCES
SERVICES.

• DEVELOPMENT STRATEGIES MAY VARY FROM ONE COUTRY TO ANOTHER DEPENDING ON THE
CURRENT NATURE, STRUCTURE AND DEGREE OF INTERDEPENDENCE AMONG ITS PRIMARY
SECONDARY AND TERTARY INDUSTRIAL SECTORS.
• PRIMARY SECTOR( AGRICULTURE FORETRY AND FISHING) SECONDARY(MOSTLY OF
MANUFACTURING) TERTIARY (COMMERCE, FINANCE, TRANSPORT AND SERVICES)
• External dependence, economic political and cultural
• The degree to which a country is dependant on foreign economic social and political forces is
related to its size resource endowment and political history.
• For most developing countries this dependence is substantial.
• Most small nations are highly dependant on foreign investment and trade with the developed
world.
• Almost all small nations are dependant on the importation of foreign and often excessively
capital intensive technologies of production.
• International transmission in institutions (most notably systems of education and governance)
values, patterns of consumption, attitudes towards life, work and self.

• Country's ability to chart its own economic and social destiny is significantly affected by its
degree on these and other external forces.

• POLICAL STRUCTURE, POWER AND INTEREST GROUPS

• Political structure and the vested interests and allegiances of ruling elites (e.g large
landowners, urban industrialists, bankers foreign manufacturers, the military, trade unionists)
• The interests and power amongst different segments of the population of most
developing countries is itself a result of their economic social and political
histories is likely to differ from one country from another.

• Whatever the specific distribution of power among the military, the industrialists,
large landowners of Latin America, politicians and high level civil servants in
Africa, oil sheikhs and financial moguls of middle east, or the landlords,
moneylenders and wealthy industrialists of Asia most developing countries are
ruled by small and powerful elites.
• The developing countries have several common features and
problems, despite the differences mentioned above. Seven
similarities among developing countries are considered, with
considerable emphasis being placed on the first two:
• Low levels of living.
• Low levels of productivity.
• High population growth and dependency burdens.
• Dependence on agriculture and primary exports.
• Imperfect markets and incomplete information.
• Dependence and vulnerability in international relations.

• LOW LEVELS OF LIVING

• In developing nations general levels of living tend to be very low for the vast majority of
people. This is not only true in relation to their counterparts in rich nations but often in
relation to small elite groups in their own societies.

• Low income (poverty)

• Inadequate housing
• Poor health
• Limited education, high infant mortality
• Low life and work expectancies
• Hopelessness
• GNP PER CAPITA is often used as a summary index of the relative economic well
being of people in different nations.

• In 2000 total national income of all the nations of the world was US 31 Trillion of
which almost 25trillion is produced in the developed world.

• 80% of worlds income is produced by 15% of the worlds people from developed
countries.

• Per capita GNP comparisons are however exaggerated by the use of official foreign
exchange rates to convert the LDCs national figures into US dollars in order to
rectify the problem we use PPP

• RELATIVE GROWTH RATES OF NATIONAL AND PER CAPITA INCOME

• Many developing countries have slower GNP growth than most developed
countries. BETWEEN 1985 AND 1985 economic growth in Latin America and
Caribbean averaged 0.3% and in Africa -1.1%per capita

• Growth rate of developed countries averaged 1.9% per annum.

• Then enormous gap in per capita incomes between rich and poor nations is not
only the reason behind economic disparity but if we have to analyze the growing
gap between rich and poor within individual LDCs.

• All the nations of the world show some degree of inequality.

• There are large disparities between rich and poor all over the world developed or
under developed but the gap is greater in developing countries.

• No obvious relationship between levels of per capita income and degree of income
inequality. Kuwait has the same income per capita as Belgium has a much lower
propotion of its national income distributed to the bottom 40% of the poulation.

• POVERTY
• The extent of poverty depends upon two factors
• Average level of national income
• Degree of inequality in its distribution.
• For a given level of income the more unequal the distribution the greater the
incidence of poverty.
• For any given distribution the lower the average level of income greater the
incidence of poverty
• ABSOLUTE POVERTY
• It is meant to represent minimum level of income needed to satisfy the basic
physical needs of food clothing and shelter in order to ensure continued survival.

• HEALTH
• Developing nations fight a constant battle against malnutrition, disease and ill
health. Life expectancy in 1998 averaged 48 years in LDCs 63 in developing countries
and 75 in developed countries.
• INFANT MORTALITY RATE
No of children who die before their first birthday out of every 1000 children)
Average 96 in LDCs 64 in developing and 8 in developed countries.

in 1990s situation worsened because deep declines in food consumption and

widespread famine. In both Asia and Africa over 60% of the people barely met
minimum calorie requirements.
 PREVALENCE OF IMPERFECT MARKETS AND INCOMPLETE INFORMATION
• LEGAL AND INSTITUTIONAL FOUNDATIONS ARE EITHER ABSENT OR EXTREAMLY WEAK (THEY
INCLUDE THE EXISTENCE OF A LEGAL SYSTEM THAT ENFORCES CONTRACTS AND VALIDATES
PROPERTY RIGHTS
• A STABLE AND TRUSTWORTHY CURRENCY
• AN INFRASTRUCTURE OF ROADS AND UTILITIES THAT RESULTS IN LOW TRANSPORT AND
COMMUNICATION COSTS SO AS TO FACILITATE INTER REGIONAL TRADE
• A WELL DEVELOPED SYSTEM OF ANKING AND INSURANCE
• FORMAL CREDIT MARKETS THAT SELECT PROJECTS AND ALLOCATE LOANABLE FUNDS ON THE
BASIS OF RELATIVE ECONOMIC PROFITABILY AND ENFORCE RULES OF REPAYMENT
• SUBSTANTIAL MARKET INFORMATION FOR CONSUMERS AND PRODUCERS ABOUT PRICES,
QUANTITIES AND QUALITIES OF PRODUCTS AND RESOURCES AS WELL AS THE
CREDITWORTHINESS OF POTENTIAL BORROWERS
• NORMS OF BEHAVIOR THAT FACILITATE LONG TERM BUSINESS RELATIONS
• THIN MARKETS FOR MANY PRODUCTS DUE TO LIMITED DEMAND AND FEW SELLERS
• WIDESPREAD EXTERNALITIES( COSTS OR BENEFITS THAT ACCRUE TO COMPANIES OR
INDIVIDUALS THAT ARE NOT INVOLVED IN PRODUCING OR CONSUMING) IN PRODUCTION
AND CONSUMPTION.
• ALL THESE POINTS SHOW THAT MARKETS ARE HIGHLY IMPERFECT. INFORMATION IS COSTLY
TO OBTAIN THEREFORE OFTEN CAUSING GOODS FINANCES AND RESOURCES TO BE
ALLOCATED.
• DEPENDANCE ON AGRICULTURE AND PRIMARY EXPORTS

• IN DEVELOPING COUTRIES MOST OF THE LABOR FORCE IS EMPLOYED BY THE AGRICULTURE

SECTOR

• AGRICULTURE SETCOR HAS A LARGER SHARE OF THE GDP AS COMPARED TO INDUSTRIAL

SECTOR. WHERE AS IT’S THE OPPOSITE IN THE DEVELOPED WORLD.

• SIZE OF AGRICULTURE POPULATION IN AFRICA 64% COMPARED TO 3% IN NORTH AMERICA.

• TECHNOLOGICAL BACKWARDNESS IN AGRICULTURAL PRODUCTION

• LAND TENURE AGREEMENTS IN WHICH PEASENTS RENT THE LAND RATHER THAN HAVE
THEIR OWN SMALL PLOTS OF LAND.

• PRODUCE MUCH LOWER AS COMPARED TO THE DEVELOPED WORLD WHERE AS OVER

THERE A MUCH LESS NO OF WORKERS ARE EMPLOYED.
• DEPENDANCE ON PRIMARY EXPORTS.
• LDCs ARE ORIENTED TOWARDS THE PRODUCTION OF PRIMARY PRODUCTS(AGRICULTURE,
FUEL, FORESTRY, AND RAW MATERIALS) AS OPPOSE TO SECONDARY(MANUFACTURING)
AND TERTIARY(SERVICE) INDUSTRIES.
• THE PRIMARY COMMODOTIES PRODUCED FORM THEIR MAIN EXPORTS TO OTHER NATIONS
• BECAUSE OF INTERNATIONAL DEPENCE AND EXTERNAL DEBT THEY HAVE OUTFLOW OF
FOREIGN RESERVES IN THE FORM OF INTEREST PAYMENTS.