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Chapter 36 Problems of developing countries

Chapter 36 Problems of developing countries. David Begg, Stanley Fischer and Rudiger Dornbusch, Economics , 9th Edition, McGraw-Hill, 2008 PowerPoint presentation by Alex Tackie and Damian Ward. Some key issues. Less-developed countries (LDCs) countries with low levels of per capita output

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Chapter 36 Problems of developing countries

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  1. Chapter 36Problems of developing countries David Begg, Stanley Fischer and Rudiger Dornbusch, Economics, 9th Edition, McGraw-Hill, 2008 PowerPoint presentation by Alex Tackie and Damian Ward

  2. Some key issues Less-developed countries (LDCs) countries with low levels of per capita output Why have LDCs remained poor? The potential roles of: comparative advantage industrialisation international debt structural adjustment aid

  3. The distribution of world population and GNP, 2006

  4. Welfare indicators by country group

  5. Problems of LDCs Resource scarcity LDCs lack natural resources or the means to exploit them Capital few domestic resources available for investment multinationals may repatriate profits, rather than reinvesting.

  6. Life Expectancy at Birth (2000-2010)

  7. Illetarcy rate in Turkey (%) (2007-2011)

  8. Population Growth Rate in Turkey (%) (1992-2011)

  9. Social investment in infrastructure LDCs may not be able to achieve scale economies in power generation roads telephone systems urban housing Customs and ideology in SOME cases, traditional attitudes may inhibit development but this argument is often over-stated Problems of LDCs (2)

  10. Human capital LDCs lack resources to invest in health nutrition education industrial training so workers in LDCs tend to be less productive than workers using the same technology in HICs. Low productivity agriculture Many LDCs have a high proportion of their labour force engaged in low productivity agriculture. Problems of LDCs (3)

  11. Possible paths to development? Trade in primary products Industrialisation Borrowing Structural adjustment Aid

  12. Development:through trade in primary products? Primary products are agricultural goods and minerals. Comparative advantage suggests that LDCs should specialise in primary production, BUT: some evidence suggests the terms of trade have been moving against primary products and towards manufactures prices of primary products tend to be volatile export concentration can be destabilising

  13. Commodity Prices

  14. Import substitution is a policy of replacing imports by domestic production under the protection of high tariffs or import quotas in the short run this involves inefficient use of resources in the long run, domestic market may not be large enough to allow scale economies and it fosters an inward-looking attitude and promotes activities in which the country begins with a comparative disadvantage Development:through import substitution?

  15. Export-led growth stresses production and income growth through exports rather than the displacement of imports. The most successful economies of the last 3 decades have followed this route especially countries in South East Asia. But for other countries to follow, co-operation is needed from the industrial countries to avoid over-protectionism. Development:through export promotion?

  16. Export Promotion

  17. LDCs have traditionally been borrowers in world markets funds used to import capital goods to supplement domestic investment borrowing finances a current account deficit Borrowing increased after the first OPEC oil-price shock of 1973/74 notably borrowing by non-oil developing countries Development: through borrowing?

  18. Countries were reluctant to borrow from the IMF under stringent conditions so borrowed from commercial sources often at variable interest rates high real interest rates in the early 1980s created debt-servicing problems for many borrowers raising the possibility of default the HIPC initiative of the late 1990s attempted to tackle the debt burden which many LDCs found unsustainable Development: through borrowing? (2)

  19. Debt

  20. Structural adjustment programmes the pursuit of supply-side policies aimed at increasing potential output by increasing efficiency, e.g.: reductions in government subsidies to industry privatisation trade liberalisation price reforms monetary and fiscal discipline Development:through structural adjustment?

  21. Development: through aid? Aid is an international transfer payment from rich countries to poor countries. takes many forms: subsidised loans gifts of food or machinery technical help justified on grounds of equity? but may create dependency allowing freer trade is an alternative

  22. Globalisation A threat to developed and developing economies Electronic communication a threat to high-end professional services

  23. Are income gaps widening?

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