Developing CountriesDeveloping Countries

Chapter 19Chapter 19

Goals & ObjectivesGoals & Objectives

1.1. Plight of developing countries.Plight of developing countries.

2.2. Obstacles to development.Obstacles to development.

3.3. GNP among various countries.GNP among various countries.

4.4. Stages of economic development.Stages of economic development.

5.5. Internal & external funds for Internal & external funds for development.development.

6.6. International lending agencies.International lending agencies.

7.7. Regional cooperation & growth.Regional cooperation & growth.

Developing CountriesDeveloping Countries

Average Average GNPGNP is a fraction of is a fraction of industrialized countries: Africa, Asia, industrialized countries: Africa, Asia, Latin America.Latin America.

ConcernsConcerns: “moral responsibility” to : “moral responsibility” to aid underdeveloped dictatorships?aid underdeveloped dictatorships?

Per Capita IncomePer Capita Income: 1.2 billion : 1.2 billion people live on a $1 per day.people live on a $1 per day.• Effects of: Command Economy’s.Effects of: Command Economy’s.

International Agencies & Diplomacy

World Bank: Industrialized countries finance developing

International Monetary Fund: Finances the development of industry in underdeveloped countries.

Free Trade or Nation-States?

Purpose of IMF & World Bank

1. Access to resources.1. National Sovereignty?2. International treaties?3. International conflicts?4. Foreign Aid?

Obstacles to DevelopmentObstacles to Development

1. 1. Population GrowthPopulation Growth: : underdeveloped nations have the underdeveloped nations have the highest fertility rates and the lowest highest fertility rates and the lowest life expectancies. life expectancies. • Crude birthrateCrude birthrate: live births per 1000.: live births per 1000.• Life expectancyLife expectancy: average lifespan.: average lifespan.• Zero population growth Zero population growth (ZPG): (ZPG):

average number of births & deaths average number of births & deaths balance.balance.

Population & DevelopmentPopulation & Development

Obstacles to DevelopmentObstacles to Development

2. 2. Natural Resources and Natural Resources and GeographyGeography: Japan, Hong Kong, : Japan, Hong Kong, Taiwan, New Zealand, have all Taiwan, New Zealand, have all overcome this obstacle with overcome this obstacle with Democratic governments and Democratic governments and freefree tradetrade policies, policies, low taxeslow taxes; ; FreeFree MarketsMarkets..

GDP & ResourcesGDP & Resources

Obstacles to DevelopmentObstacles to Development

3. 3. Education and TechnologyEducation and Technology: the : the lack of education due to large lack of education due to large numbers of family members and the numbers of family members and the necessity to work for the family to necessity to work for the family to provide basic needs.provide basic needs.

Education & Economic GrowthEducation & Economic Growth

Obstacles to DevelopmentObstacles to Development

4. 4. ReligionReligion: : Amish & Mennonites Amish & Mennonites choose traditional economy lifestyle.choose traditional economy lifestyle.• Hindus & BuddhistsHindus & Buddhists: choose traditional : choose traditional

economy lifestyles. 20% of world.economy lifestyles. 20% of world.• Catholics, Jews & ProtestantsCatholics, Jews & Protestants: material : material

wealth over religious beliefs; market wealth over religious beliefs; market based economy.based economy.

• MuslimsMuslims: between Hindus and Jews; : between Hindus and Jews; Command Economy’s. Command Economy’s.

Religion & PovertyReligion & Poverty

Obstacles to DevelopmentObstacles to Development

5. 5. External DebtExternal Debt: too much credit : too much credit with the World Bank and the IMF. with the World Bank and the IMF.

1.1. DefaultDefault: not repaying borrowed : not repaying borrowed money.money.

1.1. Detroit, Michigan; Prichard, Alabama.Detroit, Michigan; Prichard, Alabama.

2.2. U.S. Debt: 17.3 Trillion dollars. U.S. Debt: 17.3 Trillion dollars.

Debt & Economic GrowthDebt & Economic Growth

Obstacles to DevelopmentObstacles to Development

6. 6. Capital FlightCapital Flight: legal or illegal : legal or illegal export of a nationexport of a nation’’s currency.s currency.• Loss of faith in nation or economy and Loss of faith in nation or economy and

relocate.relocate. CausesCauses: High personal & business taxes: High personal & business taxes OutsourcingOutsourcing: relocation of industry to avoid : relocation of industry to avoid

taxes and regulations. taxes and regulations.

High Taxes = Capital FlightHigh Taxes = Capital Flight

Obstacles to DevelopmentObstacles to Development

7. 7. CorruptionCorruption:: Bribes and War. Rich Bribes and War. Rich government officials and poor government officials and poor citizens.citizens.

8. 8. War and its AftermathWar and its Aftermath: :

• Somalia, Vietnam, Cambodia, Somalia, Vietnam, Cambodia, Afghanistan, Iraq, EthiopiaAfghanistan, Iraq, Ethiopia

War & Corruption DangersWar & Corruption Dangers

Stages of Economic DevelopmentStages of Economic Development

1.1. Primitive EquilibriumPrimitive Equilibrium: no formal : no formal economic organization. economic organization. TraditionalTraditional Economy’sEconomy’s. .

2.2. TransitionTransition: Economic & cultural changes : Economic & cultural changes (Religion). People question cultural (Religion). People question cultural traditions and transition to new lifestyles. traditions and transition to new lifestyles.

3.3. Takeoff: Takeoff: Traditional customs put aside. Traditional customs put aside. Saving & investing begin. New technology Saving & investing begin. New technology adopted and used to create efficiency. adopted and used to create efficiency.

Stages of Economic DevelopmentStages of Economic Development

4. 4. Semi-developmentSemi-development: Heavy : Heavy spending on capital investment, spending on capital investment, industry grows, new technological industry grows, new technological advancements take place.advancements take place.

5. 5. High DevelopmentHigh Development: Wants and : Wants and needs in abundance; attention towards needs in abundance; attention towards service and luxury goods. service and luxury goods.

Priorities for Developing CountriesPriorities for Developing Countries

1.1. InvestInvest more in people and more in people and education.education.

2.2. Create a climate of Create a climate of free enterprisefree enterprise..

3.3. Open economics to Open economics to free tradefree trade..

4.4. Curb Curb inflationinflation, reduce , reduce borrowingborrowing, , decrease decrease deficitsdeficits. Allow . Allow profitsprofits. .

U.S. Debt, inflation, borrowing?U.S. Debt, inflation, borrowing?

Priorities for Developing CountriesPriorities for Developing Countries

ExpropriationExpropriation: eliminate political : eliminate political and economic distrust; eliminate and economic distrust; eliminate command economics where the command economics where the State takes control of private and State takes control of private and foreign property.foreign property.

Socialism & Communism are Socialism & Communism are obstacles to development.obstacles to development.

International Agencies• 1. IMF—International Monetary

Fund– Intervenes into other nation’s monetary

and fiscal policies by supporting or opposing politically their style of government.

– A. World Bank: provides loans to underdeveloped nations.

IMF Influence & Power

Regional Cooperation 1. Free-trade area: two or more nations

agreeing to reduce trade barriers 2. Customs union: a free trade area with the

inclusion of uniform tariffs for nonmember countries

Regional Cooperation

The European Union: (EU) 1993 same year as NAFTA. Euro: one currency for member nations

European Union (EEC) or (EU)

Regional Cooperation ASEAN:

2008, Indonesia, Malaysia, Singapore, Philippines, Thailand. The Association for Southeast Asian Nations.

ASEAN Map

Regional Cooperation

OPEC: Organization of Petroleum Exporting Countries: 1960 Cartel: group of producers agreeing to limit

production to control prices and profits. U.S. wealth: Trillions transferred to OPEC

nations for oil.

OPEC Member Nations