Economic Problems ofEconomic Problems ofDeveloping CountriesDeveloping Countries

Economic Problems of Developing CountriesEconomic Problems of Developing Countries

The Problem of Underdevelopment

The Problem of Underdevelopment

THE PROBLEM OF UNDERDEVELOPMENTTHE PROBLEM OF UNDERDEVELOPMENT

The gulf between rich and poor countries

differences in GNY

The gulf between rich and poor countries

differences in GNY

1.3

1.9

2.3

5.7

68.7

71.4

72.9

73.0

74.9

77.2

88.6

100.0

10.2

11.5

13.8

49.4

24.4

23.4

21.4

7.0

0 10 20 30 40 50 60 70 80 90 100

Sierra Leone

Ethiopia

Nigeria

Pakistan

India

Jamaica

China

Peru

Brazil

Russia

Malaysia

Greece

UK

France

Singapore

Germany

Hong Kong

Japan

Switzerland

USA

GNY per head as % of US GNY per head: 2000 (using ppp exchange rates)GNY per head as % of US GNY per head: 2000 (using ppp exchange rates)

THE PROBLEM OF UNDERDEVELOPMENTTHE PROBLEM OF UNDERDEVELOPMENT

The gulf between rich and poor countries

differences in GNY

differences in mortality and health

The gulf between rich and poor countries

differences in GNY

differences in mortality and health

THE PROBLEM OF UNDERDEVELOPMENTTHE PROBLEM OF UNDERDEVELOPMENT

The gulf between rich and poor countries

differences in GNY

differences in mortality and health

other differences

The gulf between rich and poor countries

differences in GNY

differences in mortality and health

other differences

Selected world statisticsSelected world statistics

Selected world statisticsSelected world statistics

Selected world statisticsSelected world statistics

Selected world statisticsSelected world statistics

Selected world statisticsSelected world statistics

Selected world statisticsSelected world statistics

Selected world statisticsSelected world statistics

Selected world statisticsSelected world statistics

Selected world statisticsSelected world statistics

Selected world statisticsSelected world statistics

THE PROBLEM OF UNDERDEVELOPMENTTHE PROBLEM OF UNDERDEVELOPMENT

Differences between developing countries

resources and climate

infrastructure

cultural and social factors

degree of industrialisation

relations with developed world

Differences between developing countries

resources and climate

infrastructure

cultural and social factors

degree of industrialisation

relations with developed world

THE PROBLEM OF UNDERDEVELOPMENTTHE PROBLEM OF UNDERDEVELOPMENT

Measuring development

basic needs approach

advantages of this approach

disadvantages of this approach

using GNY statistics

advantages of this approach

disadvantages of this approach

the Human Development Index

Measuring development

basic needs approach

advantages of this approach

disadvantages of this approach

using GNY statistics

advantages of this approach

disadvantages of this approach

the Human Development Index

Human Development Index (HDI) for selected countries (1999)Human Development Index (HDI) for selected countries (1999)

Human Development Index (HDI) for selected countries (1999)Human Development Index (HDI) for selected countries (1999)

Human Development Index (HDI) for selected countries (1999)Human Development Index (HDI) for selected countries (1999)

Human Development Index (HDI) for selected countries (1999)Human Development Index (HDI) for selected countries (1999)

Human Development Index (HDI) for selected countries (1999)Human Development Index (HDI) for selected countries (1999)

Human Development Index (HDI) for selected countries (1999)Human Development Index (HDI) for selected countries (1999)

Human Development Index (HDI) for selected countries (1999)Human Development Index (HDI) for selected countries (1999)

Human Development Index (HDI) for selected countries (1999)Human Development Index (HDI) for selected countries (1999)

Human Development Index (HDI) for selected countries (1999)Human Development Index (HDI) for selected countries (1999)

Economic Problems of Developing CountriesEconomic Problems of Developing Countries

International Trade and Development

International Trade and Development

INTERNATIONAL TRADE AND DEVELOPMENTINTERNATIONAL TRADE AND DEVELOPMENT

Role of international trade in economic development

importance of trade

trade strategies

primary outward-looking strategy

secondary inward-looking strategy

• import-substituting industrialisation (ISI)

secondary outward-looking strategy

• exporting manufactures

Role of international trade in economic development

importance of trade

trade strategies

primary outward-looking strategy

secondary inward-looking strategy

• import-substituting industrialisation (ISI)

secondary outward-looking strategy

• exporting manufactures

INTERNATIONAL TRADE AND DEVELOPMENTINTERNATIONAL TRADE AND DEVELOPMENT

Primary outward-looking strategy importance of primary exports justification for exporting primaries

comparative advantage (Heckscher–Ohlin)vent for surplus; engine for growth

weakness of traditional trade theory problems for primary exporters: long term

slow growth in exports rapid growth in imports

problems for primary exporters: short termprice and output fluctuations

Primary outward-looking strategy importance of primary exports justification for exporting primaries

comparative advantage (Heckscher–Ohlin)vent for surplus; engine for growth

weakness of traditional trade theory problems for primary exporters: long term

slow growth in exports rapid growth in imports

problems for primary exporters: short termprice and output fluctuations

World primary commodity prices (1990 = 100)World primary commodity prices (1990 = 100)

World primary commodity prices (1990 = 100)World primary commodity prices (1990 = 100)

INTERNATIONAL TRADE AND DEVELOPMENTINTERNATIONAL TRADE AND DEVELOPMENT

Primary outward-looking strategy importance of primary exports justification for exporting primaries

comparative advantage (Heckscher–Ohlin)vent for surplus; engine for growth

weakness of traditional trade theory problems for primary exporters: long term

slow growth in exports rapid growth in imports

problems for primary exporters: short term

Primary outward-looking strategy importance of primary exports justification for exporting primaries

comparative advantage (Heckscher–Ohlin)vent for surplus; engine for growth

weakness of traditional trade theory problems for primary exporters: long term

slow growth in exports rapid growth in imports

problems for primary exporters: short term

INTERNATIONAL TRADE AND DEVELOPMENTINTERNATIONAL TRADE AND DEVELOPMENT

Primary outward-looking strategy importance of primary exports justification for exporting primaries

comparative advantage (Heckscher–Ohlin)vent for surplus; engine for growth

weakness of traditional trade theory problems for primary exporters: long term

slow growth in exports rapid growth in imports

problems for primary exporters: short termprice and output fluctuations

Primary outward-looking strategy importance of primary exports justification for exporting primaries

comparative advantage (Heckscher–Ohlin)vent for surplus; engine for growth

weakness of traditional trade theory problems for primary exporters: long term

slow growth in exports rapid growth in imports

problems for primary exporters: short termprice and output fluctuations

INTERNATIONAL TRADE AND DEVELOPMENTINTERNATIONAL TRADE AND DEVELOPMENT

Import-substituting industrialisation

the process of ISI

justification

problems of primary-outward looking policies

greater dynamic potential with industrial production

infant industries

Import-substituting industrialisation

the process of ISI

justification

problems of primary-outward looking policies

greater dynamic potential with industrial production

infant industries

INTERNATIONAL TRADE AND DEVELOPMENTINTERNATIONAL TRADE AND DEVELOPMENT

Import-substituting industrialisation

adverse effects

against comparative advantage

cushions inefficiency

urban bias

damages exports

wide variations in effective protection

social / cultural problems

environmental costs

Import-substituting industrialisation

adverse effects

against comparative advantage

cushions inefficiency

urban bias

damages exports

wide variations in effective protection

social / cultural problems

environmental costs

INTERNATIONAL TRADE AND DEVELOPMENTINTERNATIONAL TRADE AND DEVELOPMENT

Exporting manufactures Exporting manufactures

Growth rates and export performance ofselected secondary outward-looking countries

Growth rates and export performance ofselected secondary outward-looking countries

Growth rates and export performance ofselected secondary outward-looking countries

Growth rates and export performance ofselected secondary outward-looking countries

Growth rates and export performance ofselected secondary outward-looking countries

Growth rates and export performance ofselected secondary outward-looking countries

INTERNATIONAL TRADE AND DEVELOPMENTINTERNATIONAL TRADE AND DEVELOPMENT

Exporting manufactures

transition from inward-looking to outward-looking industrialisation

Exporting manufactures

transition from inward-looking to outward-looking industrialisation

INTERNATIONAL TRADE AND DEVELOPMENTINTERNATIONAL TRADE AND DEVELOPMENT

Exporting manufactures

transition from inward-looking to outward-looking industrialisation

benefits from a secondary outward-looking policy

Exporting manufactures

transition from inward-looking to outward-looking industrialisation

benefits from a secondary outward-looking policy

INTERNATIONAL TRADE AND DEVELOPMENTINTERNATIONAL TRADE AND DEVELOPMENT

Exporting manufactures

transition from inward-looking to outward-looking industrialisation

benefits from a secondary outward-looking policy

drawbacks of a secondary outward-looking policy

Exporting manufactures

transition from inward-looking to outward-looking industrialisation

benefits from a secondary outward-looking policy

drawbacks of a secondary outward-looking policy

Economic Problems of Developing CountriesEconomic Problems of Developing Countries

Structural Problems in Developing CountriesStructural Problems in Developing Countries

STRUCTURAL PROBLEMS IN DEVELOPING COUNTRIESSTRUCTURAL PROBLEMS IN DEVELOPING COUNTRIES

The neglect of agriculture

problems of urban bias

policies to promote agriculture

problems with these policies

Inappropriate technology

capital-intensity biases

arguments for capital-intensive technology

arguments for labour-intensive technology

The neglect of agriculture

problems of urban bias

policies to promote agriculture

problems with these policies

Inappropriate technology

capital-intensity biases

arguments for capital-intensive technology

arguments for labour-intensive technology

Unemployment rapid population growth

capital-intensity bias

Unemployment rapid population growth

capital-intensity bias

STRUCTURAL PROBLEMS IN DEVELOPING COUNTRIESSTRUCTURAL PROBLEMS IN DEVELOPING COUNTRIES

O

Ca

pita

l (K

)

Q1

Q1 Q2

Q2

Q3

Q3

Labour (L)

Limited choice of techniques: one technique onlyLimited choice of techniques: one technique only

O

Ca

pita

l (K

)

Q1

Q1 Q2

Q2

Q3

Q3

Expansion path

Labour (L)

K1

K2

K3

L1 L2 L3

a

b

c

Limited choice of techniques: one technique onlyLimited choice of techniques: one technique only

O

Ca

pita

l (K

)

Labour (L)

Q1

Q1 Q2

Q2

Q3

Q3

K

L

Assume that

total capital supply is K

total labour supply is L

Limited choice of techniques: one technique onlyLimited choice of techniques: one technique only

O

Ca

pita

l (K

)

Labour (L)

Q1

Q1 Q2

Q2

Q3

Q3

K

LL1

With K of capital, only Q2 can be

produced. Only L1 will be required

L L1 will be unemployed.

Limited choice of techniques: one technique onlyLimited choice of techniques: one technique only

O

Ca

pita

l (K

)

Labour (L)

K

L

Q1

Q2

Assume that

the total supply of capital is K, and

the total supply of labour is L.

Capital intensity biasCapital intensity bias

O

Ca

pita

l (K

)

Labour (L)

K

L

With competitively determined prices,the market will clear at point d

with output of Q1 and price ratio given by the slope of AB

Q1

Q2

A

B

d

Capital intensity biasCapital intensity bias

O

Ca

pita

l (K

)

Labour (L)

K

L

A

B

d

With a lower relative price of capital(given by slope of line CD)

or a bias in favour ofcapital-intensive techniques,

less labour will be employed (L1) andoutput will be lower (Q2).

Q1

Q2

C

DL1

Capital intensity biasCapital intensity bias

Unemployment rapid population growth

capital-intensity bias

rural–urban migration

Unemployment rapid population growth

capital-intensity bias

rural–urban migration

STRUCTURAL PROBLEMS IN DEVELOPING COUNTRIESSTRUCTURAL PROBLEMS IN DEVELOPING COUNTRIES

Unemployment rapid population growth

capital-intensity bias

rural–urban migration

external influences

Unemployment rapid population growth

capital-intensity bias

rural–urban migration

external influences

STRUCTURAL PROBLEMS IN DEVELOPING COUNTRIESSTRUCTURAL PROBLEMS IN DEVELOPING COUNTRIES

Unemployment rapid population growth

capital-intensity bias

rural–urban migration

external influences

Inflation

Unemployment rapid population growth

capital-intensity bias

rural–urban migration

external influences

Inflation

STRUCTURAL PROBLEMS IN DEVELOPING COUNTRIESSTRUCTURAL PROBLEMS IN DEVELOPING COUNTRIES

Unemployment rapid population growth

capital-intensity bias

rural–urban migration

external influences

Inflation problems of hyper-inflation

Unemployment rapid population growth

capital-intensity bias

rural–urban migration

external influences

Inflation problems of hyper-inflation

STRUCTURAL PROBLEMS IN DEVELOPING COUNTRIESSTRUCTURAL PROBLEMS IN DEVELOPING COUNTRIES

Unemployment rapid population growth

capital-intensity bias

rural–urban migration

external influences

Inflation problems of hyper-inflation

monetarist explanations

Unemployment rapid population growth

capital-intensity bias

rural–urban migration

external influences

Inflation problems of hyper-inflation

monetarist explanations

STRUCTURAL PROBLEMS IN DEVELOPING COUNTRIESSTRUCTURAL PROBLEMS IN DEVELOPING COUNTRIES

Unemployment rapid population growth

capital-intensity bias

rural–urban migration

external influences

Inflation problems of hyper-inflation

monetarist explanations

structuralist explanations

Unemployment rapid population growth

capital-intensity bias

rural–urban migration

external influences

Inflation problems of hyper-inflation

monetarist explanations

structuralist explanations

STRUCTURAL PROBLEMS IN DEVELOPING COUNTRIESSTRUCTURAL PROBLEMS IN DEVELOPING COUNTRIES

Economic Problems of Developing CountriesEconomic Problems of Developing Countries

The Problem of Debt

The Problem of Debt

Growth in debt of developing countries:(average annual)

Growth in debt of developing countries:(average annual)

Growth in debt of developing countries:(average annual)

Growth in debt of developing countries:(average annual)

Debt ratios and the growth of debt: (average of all developing countries)

Debt ratios and the growth of debt: (average of all developing countries)

Debt ratios and the growth of debt: (average of all developing countries)

Debt ratios and the growth of debt: (average of all developing countries)

Debt ratios and the growth of debt: (average of all developing countries)

Debt ratios and the growth of debt: (average of all developing countries)

THE PROBLEM OF DEBTTHE PROBLEM OF DEBT

Effects of the first oil shock 1971–78

Effects of the second oil shock 1979–84

deep world recession

decline in commodity prices

high interest rates

Effects of recessions in early 1990s and early 2000s

Effects of the first oil shock 1971–78

Effects of the second oil shock 1979–84

deep world recession

decline in commodity prices

high interest rates

Effects of recessions in early 1990s and early 2000s

The effects of the debt problem on developing countries

effects on growth

effects on poverty

Coping with debt crises: rescheduling

rescheduling official loans

rescheduling commercial loans

The effects of the debt problem on developing countries

effects on growth

effects on poverty

Coping with debt crises: rescheduling

rescheduling official loans

rescheduling commercial loans

THE PROBLEM OF DEBTTHE PROBLEM OF DEBT

Dealing with debt structural reform in developing countries

IMF policy recommendations interventionist solutions

debt swaps debt forgiveness

the HIPC initiativeJubilee 2000subsequent events

should all debt be cancelled and aid increased?

Dealing with debt structural reform in developing countries

IMF policy recommendations interventionist solutions

debt swaps debt forgiveness

the HIPC initiativeJubilee 2000subsequent events

should all debt be cancelled and aid increased?

THE PROBLEM OF DEBTTHE PROBLEM OF DEBT