UNIT 7 : Developed and Developing Economies

Economic growth : Growth of economic activity of an economy measured by GDP, GDP per
capita, etc.
Economic development : it involves an increase in economic welfare of people through growth
in the productive scale and wealth of an economy. It is a wider concept, includes economic
growth and also general improvement in the standard of living as measured by life expectancy,
infant mortality, literacy rate, health care, etc.
World Bank defines countries as low income, middle income and high income. This helps
making decisions about lending money and supporting development projects in different
countries.

Developed economies: key features

 Large, modern, efficient farms
 Wide range of industries selling variety of goods and services
 Well developed transport networks
 Modern communication systems
 Efficient financial system – banks, stock exchanges, insurance, etc.
 Stable govt
 Healthy, wealthy and educated population
 Majority of contribution to GDP is from services sector

Less developed economies: (or developing economies)

 Relatively Low level of economic development
 Inefficient, poorly managed farms
 Few industries
 Poor transport network
 People live in poverty
 Poor health care, education, infrastructure
 Poor sanitation, lack of access to clean water, etc.

Rapidly developing economies: China, Russia, Brazil, India, South Africa, Etc.

Development as Freedom (by Amartya Sen): He reasons that by providing freedom in terms of
social opportunities, political freedom, economic opportunities and security, development is
most likely to occur. (Eg. Kerala). Contrary to general belief, Economic growth on its own will
not bring about development.

Reasons for low economic development:

1. Overdependence on agriculture to provide jobs and incomes (eg. 55% of Indian
population dependent on agri sector)
 Produce just sufficient for own consumption
 Little surplus
 Dependence on natural irrigation
2. Domination of international trade by developed nations
 Have exploited developing countries for natural resources
 Give subsidies to their own farmers , lead to excess production and force prices
down in international markets. Loss to developing countries producers
3. Lack of capital
 Scarce capital to invest in building factories, machinery, etc
4. Insufficient investment in education, skills and health care
 Poor health leads to inefficient work force
 Poor education about family planning – deterioration of living standard
5. Low levels of investment in infrastructure
 Transport networks poor
 Communication networks not developed
6. Lack of an efficient production and distribution system for goods and services
 Eg. Small farms
 Lack of intermediaries (can not get best price for goods)
7. High population growth
 Low living standards, less products to be shared among rising population
8. Other factors
 Unstable and corrupt govt
 Wars – both with neighbouring countries and tribal wars
 Religious rivalry
POVERTY
Absolute poverty : Inability to afford basic necessities of life
 World Bank defines extreme poverty as living on less than USD 1.25 per day (2010)
 According to UN : absolute poverty is characterised by severe deprivation of basic
human needs including food, safe drinking water, sanitation facilities, health care, shelter,
education and information. It depends not only on income but also on access to services.
 Generally not found in developed countries
Relative poverty : Condition of having fewer resources than others in the same society
 Measured by extent to which Household’s financial resources fall below the
average income level in the economy
 It is a comparative measure
 It takes into account access to essential services like education, health and also
ownership of consumer durables (and lack of it)
 Relevant in developed countries

Development Indicators:
1. GDP per capita – most commonly used relative measure of development
 Narrow measure of eco dev – doesn’t take purchasing capacity into account,
access to healthcare, education
 Non- economic aspects (like religious, political freedom, crime) not taken into
account
 Eg. China – GDP per capita rose, but still 36% live in poverty
 Eg. Trinidad, Brunnei – high GDP, but rely mostly on production of oil
2. Population on less than $ 1.25 per day
 Below $1.25 – extreme poverty
 Below $ 2 – moderate poverty
3. Life expectancy at birth
 Malnutrition, poor sanitation, lack of access to health care, wars, famines
prevalent in less developed countries
4. Adult literacy rate
 Sub-saharan Africa – only 1 in 3 literate
5. Access to safe water supplies and sanitation
6. Ownership of consumer goods
 Low incomes, lack of efficient production in developing countries
7. Proportion of workers in agriculture compared to industry and services
 Developing countries have majority of population employed in agriculture sector

Human Poverty Index :

UN compiles these indicators
1. Human Development Index (HDI)
2. Human Poverty Index (HPI)

Measures to reduce international Poverty

1. Sustained economic growth
 Employment creation
 Cutting down on unnecessary regulation
 Providing subsidies and tax incentives to new industries
2. Redistribution of income
 Progressive taxation
 Welfare services for poor
 Income support to poor households
3. Minimum wage laws
4. Quality and quantity of education
5. Govts may attract inward investment from overseas (foreign investment to deal with
scarcity of capital)
Types of Overseas Aid (to reduce poverty)
1. Food Aid
 Overproduction in developed countries may be used as food aid
 May have negative effect – domestic farmers may be hit
2. Financial aid
 Have conditions attached – like use aid to employ companies of donor country
 Corruption in recipient country
3. Technological aid
 To improve living standards
 Problem – people in developing countries need to be trained
4. Loans
 From IMF, World Bank, other countries
 Sometimes developing countries fail to pay interest also
5. Debt relief
 Partial or full cancellation of their loans
Arguments against overseas aid:
1. Corrupt govts misuse aid money
2. Aid budgets often used to employ overseas equipment
3. Some under developed countries are ruled by dictators – they use foreign aid to fund
armies
POPULATION
 Since 18th century world has seen population explosion. It started in Europe after
industrial revolution. It happened due to improvements in housing, sanitation and
medicine.
In 20th century population growth in Europe and many developed countries has slowed
down. Some developed countries have observed negative population growth also due to
migrations and low birth rate.
New population explosion is in developing countries.
Is population growth a cause for concern:
 In 1798 Malthus wrote – rapid population growth will bring misery. Didn’t matter
at that time due to industrial revolution and other advances.
 But in today’s time, its more relevant. Population is increasing pressure on scarce
resources. Eg. Climate change, global warming
Dependent Population:
Dependency ratio = dependent population / working population
Higher the ratio, greater the burden on working population.
What is an Optimum population:
A country will be considered underpopulated if it does not have enough human resources
to make the best use of its other natural and man-made resources.
A country is overpopulated if there are too many people and too few resources to support
them.
Causes of population change:
1. The birth rate – number of live births per 1000 of population per year
2. The death rate
3. The general fertility rate – number of live births per 1000 women between age of
15-44 years
4. Net migration – difference between immigration (into) and emigration (from)
Population growth: Subtract the population figure at the start of year from figure at end

Reasons for difference in birth rates between countries:

1. Living standards (in less developed countries, birth rate stays high)
2. Contraception (advances in medicine)
3. Custom and religion
4. Changes in female employment
5. Marriage (early or late)
 Reasons for differences in death rates between countries:
1. Living standards
2. Medical advances and health care
3. Natural disasters and wars
Migration:
 Average net outward migration from Asia per annum 3.2 million people
 Net inward migration to Europe was 1.5 million people per annum
 International migration has economic, social and political implications. Eg. From Syria
The structure of populations:
1. Age distribution : eg. Japan, Italy – older population, India, China – younger population
2. Sex distribution : Gender imbalance due to wars, sex selection, violence towards
females, sex specific inward migration.
Population Pyramids: The age and sex distribution of a population can be displayed on a
pop pyramid. (See dia)
 Shape for a developing country is triangular, with a wide base and narrow top
 Shape for a developed country is more egg shaped
3. Geographical distribution :
o 90% of world population lives in developing countries
o Half of world population lives in urban areas
o Population density varies around the world
o Number of mega cities increased rapidly
4. Occupational distribution :
 Developed countries employ most number of people in services sector
 Developing countries employ most in agricultural sector
 Female participation rate is far higher in developed countries