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Terms in this set (47)
For all of their diversity, many less developed countries are linked by a range of common problems. What are these problems? Which do you think are the most important? Why?
Lower level of standard of living and the labor productivity
Lower level of standard of living and the labor productivity
Weak human capital base
High level of economic inequality and absolute poverty
Large rural population and frequent rural-urban migration
Weak financial and other markets
Low level of industrialization
Common history of colonial exploitation and a lot of dependence of foreign aid and markets
Explain the distinction between low levels of living and low per capita incomes. Can low levels of living exist simultaneously with high levels of per capita income? Explain and give some examples.
Per capita income of a country is obtained by dividing national income of a country by its population. Low per capita income would be generated if the income is less as compared to the size of population. This is what happens in the developing nations wherein, the availability of skilled labor is less and thus, productivity is low due to which less income is generated in the economy. Low levels of living imply the inability of the population to intake the required calorie count per day. This situation arises due to absolute poverty conditions or low levels of employment. Thus, we can see that the basic difference between low per capita income and low levels of living is that former is a quantitative concept and latter is a quantity one.
However, higher per capita income does not always mean higher standard of living. For measuring the well being of people of various nations we need to consider two things: 1. Income of people of the nations or within various regions of a nation 2. Price of the commodities in a nation or within various regions of a nation.
Can you think of other common (not necessarily universal but widespread) characteristics of less developed countries not mentioned in the text? See if you can list four or five and briefly justify them.
Do you think that there is a strong relationship among health, labor productivity, and income levels? Explain your answer.
What is meant by the statement that many developing nations are subject to "dominance, dependence, and vulnerability" in their relations with rich nations? Can you give some examples?
Explain the many ways in which developing countries may differ in their economic, social, and political structures.
What are some additional strengths and weaknesses of the Human Development Index as a comparative measure of human welfare? If you were designing the HDI, what might you do differently, and why?
HDI is the one that measures the socio economic development of a country based on the parameters like health, education, and per capita income. The countries are ranked on a scaled of 0 to 1. Strengths: 1. it does not rank the countries based on their income alone. It takes into account the measures like education, health status, poverty, life expectancy etc. that would combine to reflect true status of the economy. The ranking comes as low, low, medium, and high.
2. The HDI indicators are accepted worldwide at the country level provided appropriate statistical data are available while its estimation. It can further be used within the nation to measure disparity state/region wise on availability of the required data.
3. The result of HDI indices enables the government of a nation to devise appropriate policy measured that will help the development of ares that need urgent attention.
4. It also enables the government in allocation of funds or asking for international financial aid in underdeveloped ares.
Data from some developing countries may not be very reliable and may be difficult to confirm.
The measures chosen may seem very arbitrary to some because there are other way of measuring relative qualities in health and education.
Similar criticism of GDP, that it does not measure unequal distribution within the country.
No indication in the education index about access to education for all groups in society
Why do many economists expect income convergence between developed and developing countries, and what factors would you look to for an explanation of why this has occurred for only a limited number of countries and in such a limited degree so far?
The term convergence is a hypothesis in economics that believes that there would be a time when developing nations will grow faster than the developed ones in terms of per capita income. This can happen because of mainly two reasons: 1. The developing nations only need to replicate the development process hat was invented by the developed nations in terms of technology, production methods methods and other institutions.
2. There is a lot of scope in developing nations to utilize the resources at its disposal. This means that the stage of diminishing returns is still far for the developing nations.
What are good economic institutions, why do so many developing countries lack them, and what can developing countries do to get them. Justify your answer.
The term economic institutions imply man made rules of the game in an economy including the formal rules that are found in the constitution of a country, law contracts and market regulations. They are also embodies as informal rules of behavior and conduct, values, customs, and generally accepted ways of doing things. The developing countries lack good economic institutions due to some reasons: 1. The developing countries have a past picture of colonial explanation where the invaders and the colonialists ruled these developing nations to their best advantage. For example, production of more cash crops in developing nations forcibly by the farmers; and their sale in developed nations at a profitable price or supply of raw material from developing nation to the developed one and producing goods in developed nation with a view to sale in developing nations at a high price. It was a regime of slavery and different kinds of mass exploitation.
2. The developing nations faced inequality amongst rich and poor in terms of access to education, land, voting rights as well as labor markets.
3. The colonialists followed the policy of divide and rule in the countries where there were many rulers and a large population. This lead to social fractionalization in these developing nations.
4. The developing nations lagged behind in creating strong economic institution due to weak geographical location that did matter for carrying production activities and process of urbanization.
The emigration of highly educated and
skilled professionals and technicians from the developing
countries to the developed world.
The total amount of physical goods
existing at a particular time that have been produced for
use in the production of other goods and services.
Significant ethnic, linguistic, and other
social divisions within a country
"Humanly devised" constraints that shape interactions
(or "rules of the game") in an economy, including formal
rules embodied in constitutions, laws, contracts, and
market regulations, plus informal rules reflected in
norms of behavior and conduct, values, customs, and
generally accepted ways of doing things.
A tendency for per capita income (or output)
to grow faster in higherincome countries than in
lower-income countries so that the income gap widens
across countries over time (as was seen in the two centuries
after industrialization began).
Diminishing marginal utility
The concept that the subjective value of additional consumption lessens as total consumption becomes higher
Depreciation (of the capital
The wearing out of equipment, buildings, infrastructure,
and other forms of capital, reflected in write-offs
to the value of the capital stock.
The proportion of the total population
aged 0 to 15 and 65+, which is considered economically
unproductive and therefore not counted in the labor
Crude birth rate
The number of children born alive
each year per 1,000 population (often shortened to birth
The tendency for per capita income (or output)
to grow faster in lowerincome countries than in
higher-income countries so that lower-income countries
are "catching up" over time. When countries are hypothesized to converge not in all cases but other things being equal (particularly savings rates, labor force growth, and production technologies), then the term conditional convergence is used.
An organization known as an "international
financial institution" that provides development funds to developing countries in the form of interest-bearing loans, grants, and technical assistance
The portion of a product's final value that
is added at each stage of production.
Terms of trade
The ratio of a country's average export
price to its average import price.
A nation's supply of usable factors
of production including mineral deposits, raw materials,
Research and development
Scientific investigation with a view toward
improving the existing quality of human life, products, profits, factors of production, or knowledge.
Purchasing power parity (PPP)
Calculation of GNI using a common set of international
prices for all goods and services, to provide more accurate
comparisons of living standards.
Newly industrializing countries
Countries at a relatively advanced level of
economic development with a substantial and dynamic industrial sector and with close links to the international
trade, finance, and investment system.
Least developed countries
A United Nations designation of countries with low income,
low human capital, and high economic vulnerability.
Low-income countries (LICs)
In the World Bank classification, countries with a gross national income per capita of less than $976 in 2008.
In the World Bank classification, countries with a GNI per
capita between $976 and $11,906 in 2008.
Facilities that enable economic activity and
markets, such as transportation, communication and distribution networks, utilities, water, sewer, and energy supply systems.
The absence of information that producers and consumers
need to make efficient decisions resulting in underperforming markets.
A market in which the theoretical
assumptions of perfect competition are violated by the existence of, for example, a small number of buyers and
sellers, barriers to entry, and incomplete information.
Human Development Index
An index measuring national socioeconomic development,
based on combining measures of education,
health, and adjusted real income per capita.
Productive investments in people, such
as skills, values, and health resulting from expenditures
on education, on-the-job training programs, and medical care
Gross national income (GNI)
The total domestic and foreign output claimed by residents
of a country, consisting of gross domestic product (GDP) plus factor incomes earned by foreign residents,
minus income earned in the domestic economy by nonresidents.
Gross domestic product (GDP)
The total final output of goods and services
produced by the country's economy within the country's
territory by residents and nonresidents, regardless of its
allocation between domestic and foreign claims.
Trade in which goods can be imported and
exported without any barriers in the forms of tariffs, quotas, or other restrictions
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