ECON 317: Economic Growth & Development 1 · 2017-10-13 · •Structural diversity of developing...

ECON 317: Economic Growth &

Development 1

Lecturer:

Dr. Emmanuel Codjoe

Comparative Development: Differences and Commonalities among Developing Countries

• Structural diversity of developing countries

•Common characteristics of least developed countries

•How developing countries today differ from developed countries in their earlier stages

•Are living standards of developing countries converging?

ECOn 317: Economic Growth and Devt 1 Dr. Emmanuel Codjoe

Structural Diversity of Developing Countries

•We are now familiar with the definition of countries commonly described as developing countries.

•These countries spread across nearly all the continents, but are mostly located in what is generally described as the “South”.

•Nonetheless, they are all not the same! Some developing countries are at a fairly advanced stage of economic development compared to other developing countries.



•We are now familiar with the definition for countries commonly described as developing countries.

•As previously noted, these countries are spread across nearly all the continents, but are mostly located in what is generally described as the “South”.

•Nonetheless, they are all not the same! Some developing countries are at a fairly advanced stage of economic development compared to other developing countries.



• Thus, in the last decade or two, due to high performance of some developing countries, new terminologies have emerged to describe some of the high-performing developing countries.

― Emerging economies― BRICS : Brazil, Russia, India, China and South Africa― MINT : Mexico, Indonesia, Nigeria and Turkey

• At the lower end, are the group of countries described by the United Nations Conference on Trade and Development (UNCTAD) as Least Developed Countries.



• Thus, in recent times, due to high performance of some developing countries, new terminologies have emerged to describe this group of developing countries.

― Emerging economies― BRICS : Brazil, Russia, India, China and South Africa― MINT : Mexico, Indonesia, Nigeria and Turkey

• At the lower end are the group of countries described by the United Nations Conference on Trade and Development (UNCTAD) as Least Developed Countries.



•The list of countries (LDCs) shows a clear diversity in terms of geographic size, population, economy, character, and politics.

•For the broader group of developing countries described, there is a wide range of differences among them.

•These include the following:



• Size and income level•Historical and colonial background• Physical and human resources• Industrial structure (types of industries)• Political system (role of government and democracy)• Population structure and size•Ethnic and religious composition•External dependence (in international political and economic

affairs)



• Relative importance of public and private sectors

• Levels of education

• Language

• The point to note here is that because developing countries are so diverse in their systems of governance, economic structure as well as their historical and colonial backgrounds, it is very difficult to find one-size-fits all solutions to the developmental challenges faced by these countries.


Common Characteristics of Least Developed Countries

• Since 1971, the United Nations has recognized "least developed countries" (LDCs) as a category of States that are deemed highly disadvantaged in their development process, for structural, historical and also geographical reasons.

• LDCs face more than other countries the risk of deeper poverty and remaining in a situation of underdevelopment. More than 75 per cent of the LDCs' population still live in poverty.



• The LDCs are also characterized by their vulnerability to external economic shocks, natural and man-made disasters and communicable diseases. As such, the LDCs are in need of the highest degree of attention from the international community.

• The LDCs comprise around 880 million people, 12 per cent of the world population, which face severe structural impediments to growth. However, the LDCs account for less than 2 per cent of world GDP and around 1 per cent of world trade.



• Lower levels of living and productivity

• Lower levels of human capital

•Higher levels of inequality and absolute poverty

•Higher population growth rates

•Greater social fractionalization



• Larger rural populations; rapid rural-to-urban migration

• Lower levels of industrialization and manufactured exports

•Adverse geography

•Underdeveloped markets

• Lingering colonial impacts and unequal international relations


Are these Characteristics of LDCs Obstacles to Development?

•As observed, most of the LDCs are in Africa. And faced with these characteristics, many countries do have policies to achieve economic development, or at least improve on the social wellbeing of the population in these countries.

•Nonetheless, is it possible to think of these features or characteristics as obstacles to the economic development of the region?



•We have seen that most of the LDCs are in Africa. And faced with these characteristics, many countries do have policies to achieve economic development, or at least improve on the social wellbeing of the population in these countries.

•Nonetheless, is it possible to think of these features or characteristics as obstacles to the economic development o the region?



• Lingering Colonial Impacts and Unequal International Relations:

• Institutions created during the colonial period often had harmful effects on development that in many cases have persisted to the present. These institutions often favoured extractors of wealth rather than creators of wealth.

• The colonial system also determined the legal and other institutions which would encourage investments or facilitate exploitation.



• Institutions and their Effectiveness:

•At the domestic and international levels, developing countries have more often lacked institutions and formal organizations of the type that have benefited developed countries.

•The problems with governance and public administration as well as poorly performing markets are a manifestation of weak institutions.



• Institutions and their Effectiveness:

• Institutions are important because they could be development-facilitating or development-inhibiting.

•With weak and poor institutions, we find that there is relation between resources, resource extraction and kleptocratic institutions.



•Colonial Experience, Ethnicity and Inequality:

•The period of colonization which reinforced inequality, tended to be correlated with ethnicity, thus creating postcolonial elites.

•The period also witnessed the introduction of political and institutional structures – private poverty, personal taxation; payment of taxes in cash not in kind – in Africa and Asia.



•Colonial Experience, Ethnicity and Inequality:

•These institutions tended to facilitate elite rule rather than broad-based opportunity. Hence, its effect on governance has not been inclusive and democratic.

•Colonization, the slave trade and the use of expatriates in SSA.



•External Dependence:

•Developing countries have also not been well organized and influential in international relations, thus sometimes resulting adverse consequences for development.

•Take the case of GATT and WTO and the vexed issue of subsidies on agriculture in developed countries at the expense of agricultural development in developing countries. Similarly, that of intellectual property rights.



•External Dependence:

•Developing countries are also dependent on developed countries for several things ranging from aid and development support, environmental preservation, security, etc.

•This consequently, places them in weaker bargaining positions in international economic and political relations.


Developing Countries: Then and Now

How developing countries today differ from developed countries in their earlier stages!!!

•What can today’s developing countries learn from the past?

• Is the development experience of developed countries replicable in today’s developing countries?



•The predominant thinking in development economics has been predicated on the belief that all developing countries will eventually emulate the developed world, provided they follow certain “prescriptions”.

•After all, the experiences of South Korea and Singapore attest to this possibility!



• It is worth noting however, that, the existing situation of developing countries today differ in many important ways from that of the developed countries when they embarked on their era of modern economic growth.

•There are eight (8) significant differences that can be identified.



• Physical and human resource endowments

• Per capita incomes and levels of GDP

•Climate

• Population size, distribution and growth

•Historical role of international migration



• International trade benefits

•Basic scientific and technological research and development capabilities

•Efficacy of domestic institutions


Is Convergence Possible?

Are living standards of developing countries converging, with those of the developed countries???

•The possibility of economic convergence is based on the prediction from neoclassical growth theory.

•The basic idea is that by following certain growth prescriptions, low-income countries will have their economies converging with developed countries.



•From the latter periods of the 18th century, average real living standards in the richest countries were no more than three times as great as those of the poorest.

•However, in today’s world there is a wide gulf between these countries, with ratios as high as 100 to 1 in some cases.



• It is evident that developed countries have grown faster in the last two centuries than today’s developing countries, a process known as divergence.

•Consequently, the last two decades have been characterized by an era of divergence: a widening gulf between the two worlds.

•But could this have been different? In other words how could convergence be achieved?



• If the growth experience of developing and developed countries were similar, then we might expect that developing countries would be catching up by growing faster on average than developed countries – a process known as convergence.

•How then can convergence be achieved?



•Technology transfer- it is cheaper to replicate than undertake original research and development (R&D). This should allow developing countries to leapfrog over some earlier stages of technological development.

•Factor accumulation – because of low levels of human and physical capital in developing countries, we would expect higher rates of return on capital and higher levels of productivity increases. Hence the flow of capital from the North to the South, in search of higher returns!!


Is Convergence Possible? What is the Evidence?

•Technology transfer- it is cheaper to replicate than undertake original research and development (R&D). This should allow developing countries to leapfrog over some earlier stages of technological development.

•Factor accumulation – because of low levels of human and physical capital in developing countries, we would expect higher rates of return on capital and higher levels of productivity increases. Hence the flow of capital from the North to the South, in search of higher returns!!



So Why Divergence?

•Development models founded on Western economic models, also require political and cultural paths that are Western.

• Innovations in technology, especially in a hyper-connected world means increased opportunities for economic growth and improvement in social welfare.



So Why Divergence?

• However, technology that does not address the basic problems of poverty and underdevelopment is useless. The internet and smart phones are no cure for a society unable to provide universal access to basic needs.

• Thus, these new technologies may not be the most effective way to improve living standards. The important point here is the need for and use of appropriate technologies to address the development challenges in the South.



So Why Divergence?

• The reliance on economic models obsessed with growth (expanding GDP) at all cost, makes future growth unsustainable.


ECON 317: Economic Growth & Development 1 · 2017-10-13 · •Structural diversity of developing...

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