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Less-Developed Countries of the World

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 Poverty Statistics
• Some 2,600 million people live on less
than $2 per day
• In the poorest countries of the world:
– 43% of children under age five are stunted
– Over 12 percent die before reaching age five
– Average life expectancy is 59
– 50 percent of women and girls over age 15
cannot read and write

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 Gross National Income (GNI)
• Income generated from production of a
nation’s output
• Identical to gross national product (GNP)
• Broadest of all income concepts
• Focuses on more concrete idea of
people’s incomes rather than nation’s
production

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 GNI per Capita
• Gross national income per person on average
Total GNI
Total Population

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 Economic Growth
• Growth in GDP per capita over time,
usually several years
• Calculated two ways:
– As average annual growth rate of real GDP
– As average annual growth in GDP minus
average annual population growth, over some
time period

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Average Annual Economic Growth Rates

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 Problems in Measuring Well-Being
• Use of GNI and GDP data ignores issue of
composition of GDP
– Items of production of which GDP consists
• Distribution of GNI
– Distribution of income between different
income groups
• Income is never distributed equally; therefore, high
value of GNI per capita really tells us nothing about
standard of living of most of country’s residents,
because it tells us nothing about distribution of this
income

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 Income Distribution
• Two ways to measure:
– Share of country’s total income that goes to each fifth of
population
• Lorenz curve
– Share of total income that goes to poorest 20 percent of
population
• Measures to improve equality:
– Elimination of price distortions to ensure that certain groups
receive more adequate incomes
• Raising of agricultural prices would lead to higher incomes for low-
income farmers, for example
– Higher taxes on wealth and income of high-income people
• Government might use this revenue to improve basic services to
poor
– Redistribution of assets (property that is owned, such as land)
• Greater equality in ownership of income-earning assets is often
fundamental to ensuring greater equality of incomes

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Income Distribution in Selected Countries

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 Economic Development and
Standards of Living

• Economic development
– Multifaceted process that involves improvements in
standards of living, reductions in poverty, and growth
in GDP per capita
• Many economists use measures that directly
indicate actual well-being of people of less-
developed countries rather than rely on income
or output data alone
– Best indicators of living standards:
• Average life expectancies
– Age to which baby born in particular year can be expected to
live
• Infant mortality rates
– Number of babies who die within first year of life per 1,000 live
births
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 Average Life Expectancy and
Infant Mortality Rate

• Avoid income distribution problem with respect

to GNI per capita
• Avoid measurement problems inherent in
income and output statistics
– Life expectancies, for example, do not need to be
adjusted for inflation, exchange rates, market prices,
etc.
• These measurement problems sometimes distort
comparisons of income and output between different
countries
• Measure end results of government programs
and state of economy
• Easily conceptualized by policymakers and
populace alike
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Life Expectancy and Infant Mortality Rate Statistics

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 Newly Industrializing Countries (NICs)

• Singapore, South Korea, Taiwan, and

other countries achieving rapid growth
through industrialization
– Characteristics of success:
• Well-educated labor force
• Fairly homogeneous, entrepreneurial culture
• International conditions conducive to success at
the time of early development

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 Capital-Intensive Technology vs.
Labor-Intensive Technology

• Capital-intensive technology utilizes

large amounts of capital
• Labor-intensive technology utilizes large
amounts of labor
– Can utilize large numbers of people who
would otherwise be unemployed
• Key to development often lies in
agricultural sector
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 Agricultural Development
• Development of agricultural sector in most less-
developed countries is now recognized as
extremely important:
1. Most of world’s poor live in agricultural sector;
hence, efforts to benefit this sector will most directly
benefit needy as well
2. Agricultural sector typically offers greatest potential
for development
3. Techniques also tend to be far more labor-intensive
in agriculture than in modern industry, thereby
offering employment for larger numbers of people
4. Agricultural sector most directly addresses most vital
need of all people, that of food security
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Access to Inputs, Extension, and Markets
• For agricultural development to occur and food security
to be achieved, both government of developing country
and international community must fulfill important roles:
– Land must be redistributed in a manner that allows more
appropriate income distribution and maximum incentives for
agricultural production
– Farmers must have access to necessary seeds, fertilizer,
irrigation, animals, structures, and vehicles
– Financing must be arranged for masses of poor farmers
– Farmers will require extension services if they are to use
increasingly complex but more productive farming techniques
and inputs
– Farmers will also require reliable transport and market facilities

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 Price Ceilings
• Legalized maximum prices for goods or
services
• One goal is to keep prices of basic necessities
low for poor consumers
– Although many urban people may be poor, urban
dwellers tend to have higher incomes and lower
poverty rates than rural residents do
• In process of holding down prices for better-off group,
government also keeps low agricultural prices received by
farmers
– Results in two serious problems:
1. Rural incomes fall and poor farmers become poorer
2. Incentives for agricultural production are reduced

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Price Ceilings (cont.)

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 International Role
• International community must assist low-income countries to meet
agricultural development and food security needs
– Must develop systems to ensure that adequate and timely food aid will
be available to countries in emergency situations
• Must be cautious about continuing to provide food aid in nonemergency
situations
– Ongoing food aid leads to dependence by less-developed countries and pushes
down food prices, thereby lowering incentives for local food production
– International community might also enact measures to ensure greater
stability of world food prices
• Establishment of international buffer stock
– Mechanism for stabilizing agricultural prices, whereby an agricultural product is
purchased and placed in storage during years of high production and released from
storage and sold during years of low production
– Must also undertake efforts to ensure that bottlenecks of inadequate
transport, shipping, ports, and storage facilities are resolved

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 Human and Natural Resource Development

• Investment in human capital

– Spending designed to improve productivity of
people

• Human investment programs have not

only an immediate benefit, namely,
improved standard of living of beneficiary,
but also long-term payoff in development
of more productive labor force and better-
educated citizenry
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Human and Natural Resource Development (cont.)

– Education holds most promise

• Numerous studies have linked education (primarily of
women) to widespread benefits:
– Reduced infant mortality rates
– Improved child nutrition
– Later age at marriage
– Lower birthrates
– Greater likelihood that children will be educated
– Development economists are also recognizing need
for safe and convenient water supply
– Steps are also being taken to stop deforestation
(clearing of forested areas in unmanaged fashion)
and desertification (encroachment of desert on
previously fertile land)

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 Women’s Role in Development
• Government and international policies alike have
neglected women in developing countries
– Third World women have lower standards of living
than male counterparts
– Women typically have literacy rates far below those of
men
– High maternal mortality rates
• Number of deaths of women for pregnancy-related reasons
per 100,000 live births
– Women least likely to receive agricultural extension
services, agricultural credit, and access to agricultural
inputs, even though primarily responsible for
producing most subsistence food crops
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 Population Growth
• Many people believe that high population
growth is a problem in many low income
countries because more people means
more sharing of already limited resources
– If we consider population to be a problem only
relative to resources, then we must realize
that less than one-fifth of world’s population in
high-income countries consumes over three-
quarters of world’s goods and services

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Urbanization

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 Underemployment
• One cause of urban poverty is high level of
unemployment and underemployment
– People work limited hours or with low
productivity
– Much underemployment occurs in urban
informal employment sector
• Employment sector consisting primarily of service
occupations in an unofficial setting

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 AIDS
• Serious problem in many countries, but has
reached epidemic proportions in many countries
of Africa
– Has replaced malaria as leading cause of death in
Africa
– Of estimated 2.8 million AIDS-related deaths around
world in 2005, 2.0 million were in sub-Saharan Africa
• Whereas sub-Saharan Africa has just over 10 percent of
world’s population, it has 64 percent of all people living with
HIV
– Roughly two million are children
– Women represent 59 percent of the sub-Saharan African adults
with AIDS/HIV

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 The Economic Left and the Economic Right
• THE ECONOMIC LEFT • THE ECONOMIC RIGHT
(Liberal) (Conservative)
– Feel that economic growth – Prefer growth-oriented
by itself is not panacea for strategy that focuses on
underdevelopment increasing GDP per capita
– Feel that although some – Assume that all people will
people benefit from eventually benefit from
economic growth, many growing propensity of
others do not country and that incomes of
– Argue that strategies must all people will rise as
be designed to focus on economic growth proceeds
poverty and income – May argue in favor of
distribution; otherwise, unequal income distribution
high-income groups will on grounds that high-
only become richer and income people save more
low-income people will than low-income people do
become poorer

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