Comparative

Economic
Development

Characteristic of Developing world

HDI indicators for
4 stages of
development.
It is sometimes
called the ladder
of development.

Diversity within commonality

The

objective is to highlight the

commonalities among the poor or
developing countries
This will show what are the common
problems which we share
The difficulty is that there is still
diversity within the developing countries
that is causing issue of proposing a
common plan for development.

 Lower

Levels of
Productivity

84% of world
population earns about
41% of world income
This is because of
vicious circle where
their low education lead
to low income which
again lead to lower
education and health
This slows growth and
called economic
stagnation

 Lower

Levels of Human Capital

Human capital is health, education and skills

Under 5 year mortality is 17 times more in developing as compared to
developed
Enrolment rates low and the teacher pupil ratio are high in this region
Mothers education is crucial for the mortality rate to improve

 High

Levels of Inequality and Absolute Poverty

20% of world poorest only have 1.5% of the world income.

The 20% lowest income people which are about 1.4 billion people
are poor as per $1.25 a day PPP.
It will only require 2% income of richest 10% to bring these out of
poverty
Absolute Poverty: The situation of being unable or only barely able
to meet the subsistence essentials of food, clothing, shelter, and
basic health care.

Higher Population
Growth Rates

Now a days, developing

countries are center for
high population too.
High population means
the resources will be
spread thin
The population growth of
poor countries is 2.2%
and the rich is only 0.7%
It creates dependency
burden, which is the
proportion of the total
population ages
between 0 to 15 and
65+ which are
economically
unproductive and not
counted in labor force.

 Greater

Social Factorization

Factorization means the significant number of

ethnic, linguistic and other social divisions in
country.
It create internal strife and political instability.
Regions within country clash each other. It
weakens international relations.
Half of the worlds developing population is
facing interethnic conflict. It lead to destruction
in countries like Afghanistan, Iraq, etc.

 Large

rural population with high rural to urban

migration

Most of the people live in villages which no access to

information or markets. But the problem does not end here.
This massive population is rapidly moving toward urban area
which is causing hike in resource delivery in cities like Lahore,
Karachi etc.

Low Levels of
Industrializatio
n and
manufactured
exports
Developed
country only
depend 1% on
agriculture.
Low
industrialization
in developing led
to export primary
products which
are not expensive
products

Adverse Geography
Mostly poor economies are landlocked and tropical
where weather is extreme.
Since weather is extreme it leads to many diseases
like malaria etc.
These economies have short amount of resource
endowment, which is nations supply of useable factors
of production including minerals and labor.

Undeveloped Markets
These countries often lack
legal system,
stable currency
infrastructure of roads
banking and insurance system
market information availability
long run business contracts
Infrastructure: facilities that enable economic activity and markets
such as transportation, communication, and distributions networks,
utilities, water, sewer and energy supply systems.
Imperfect market: a market in which the theoretical assumptions of
perfect competition are violated because of fewer buyers or sellers,
barriers of entry into business, and incomplete information
Incomplete information: the absence of information that the
producers and consumers need to make efficient decisions resulting
in underperforming markets.

Lingering colonial impacts

These countries are effected by their colonial rulers. Like British
left different situation as compared to French
Some countries are still influenced even though they are
independent now.
External dependency is the major issue for the economies who
were not developed by them selves rather than influenced by the
rulers.

How low income countries

today differ from developed
countries in their earlier stages
This compares the situation which today
economies faced which are different from
the developed economies.

Physical and Human Resource Endowments

The todays developing countries are more
populated thus less educated and less skilled to
exploit the natural endowments for long term
development.
Secondly most of the naturally endowment
regions are under conflict like gulf and Africa.
Relative levels of GDP
The today developing country per capita incomes
are lower then the developed countrys incomes
when they were developing.
The developed countries were economically
advanced and strong financially

 Climatic

Differences
Todays developing countries are located in the
high temperature zones which lead to fall in soil
and agriculture productivity. Poor human and
animal health. And the colonialists used
unhelpful extractive approach where they felt
that it is not comfortable to settle.
Population size
the population growth of developed countries
never crossed the 2% mark and it only grew
when the death rate fell. This high population
growth rate has been the hindrance of all the
current developing countries.

 Internal

migration
For the case of developed economies they
experienced international migration to USA and
Australia before the world war I, most of them
were poor or unskilled.
Today the migration laws are restrictive for the
developing economies. Secondly only those are
migrating who are skilled and educated which
is causing problems in developing economies.
Because of Brain Drain, which is the
emigration of highly education and skilled
professionals and technicians from the
developing countries to the developed world.

 Rule

of international trade
The developed economies were fortunate with
the free trade which propelled them in 19th
century.
Now even though some of the developing
countries are able to produce low cost products
like textiles, shoes etc. they are facing trade
barriers in the form of tariff and nontariff
coupled with several conditions like sanitary
requirements, intellectual property claims and
antidumping investigations. Their Terms of
trade is also lower then developed

 Technological

research
Currently developed economies had the
advantage of rapid technological development.
Even today they are highly investing in
research and development for sophisticated
production processes. In contrast the current
developing economies are based on simple
production and capital saving methods and labor
oriented production.
Efficacy of domestic institutions
The developed economies had strong political
and social institutions when they were
developing which promoted opportunities.
Where as in the developing economies the
institutions are weak.

Are living standards of developing

and developed nations converging?
Divergence:
A tendency for per capita income to grow faster in
higher income countries than in lower income
countries so that income gap widens across
countries over time
Convergence:
The tendency for per capita income to grow faster
in lower income countries than in higher income
countries so that lower income countries are
catching up over time.

Reasons for Convergence

First

reason is due to technology transfer

Developing countries do not have to reinvent the
wheel. They can leapfrog the early stages of
technology development.
UK double its output per person in 60 years and
USA did it in 45 years where as South Korea did it
in 12 and china did it in 9 years.
This concept is named as advantage of
backwardness by Alexander Greschenkron

Reasons for Convergence

Second

Reason is due to similarity in factor

accumulation
Since developed economies have higher physical
and human capital which according to law of
diminishing returns they would expect low
returns. And as developing has lower capital and
high stock of labor, investing here will lead to
higher returns.

Reasons for Divergence

First reason is diversity among poor countries
All the poor countries are not performing similarly,
some of them are facing stagnation. Hence it is
increasing the gap between the low income and
medium income countries.
Second reason is trade bargaining
All the rich countries have similar conditions and have
trade bargaining power hence they are enjoying trade
with lower barriers.
Maturity of institutions
The institutes in developing economies are not mature
and it will take time too which is required for
convergence.