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Economic Problems of Third World

Countries

Presented to: Miss Asma Kamal

Presented by: Afia Ilyas

Economic Problems of Third World Countries:

1. Poverty:In most of Africa and large parts of Asia and Latin America, majority of people live inpoverty. For them life is a daily struggle for survival. Affluence does exist in thesecountries, but here it is the fortunate few who can afford good food, good housing andthe various luxury items that characterize life in the industrialized world. All the familymembers of their families work to earn living, in order to fulfill the basic needs for living.

2. Lack of Capital:One of the major economic problems that third world countries face is the shortage ofcapital, as the per capita income of the residents of such countries is low which resultsin low level of savings and investments. According to Economics by John Sloman 85 percent of the worlds population lives in developing countries but earns only 20 per cent of

the worlds income and the GNY per head of the 20 poorest countries of the world in2003 averaged only $220. For the richest 20 it was $29 100. Therefore developmentprograms cannot be executed and require foreign loans and aids in order to getcompleted. This gives rise to increased debt burden and thus creates another economicissue for the country.

3. Lack of Technology:Third world countries use inappropriate and obsolete technology that becomes anobstacle in the path of economic development. Rate of industrialization is already low inthese countries, which is further worsening by the usage obsolete technology. Thereason behind is that advanced technology is capital intensive and requires high capital

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employment, therefore these countries relies on labor intensive technology that resultsin low productions and resultantly low revenue and profits.

4. Unemployment:

Unemployment is also a major problem of the third world countries. As most of thesecountries are agrarian countries and their economies rely mainly on agriculture, so dueto little industrialization employment rate is very low. Besides this, due to low foreigndirect investment and establishment of multinational companies employmentopportunities are little, as high investment gives rise to creation of new factories thatprovides labor and management jobs. Another reason behind unemployment in thesecountries is high rate of illiteracy.

5. High Inflation:Inflation is a key economic problem in the developing countries. Inflation arises fromdevaluation of domestic money that gives rise to high prices of goods and services. Dueto inflation the goods required to fulfill the basic needs becomes expensive thus leads tohigh rate of poverty. Besides this high inflation leads to disturbed balance of payment,and therefore the debt burden increases.

6. Underdeveloped Natural and Human Resources:In third world countries natural and human resources are underdeveloped. Forests areconsidered as a necessary natural resource, but these countries have little area coveredwith forests. Moreover the human resources are underdeveloped due to high rate ofilliteracy and lack of training. Even the farmers in most of the agriculture dependentcountries are not well trained, that leads to low agricultural yield. Besides this literacyrate is low and higher education is expensive that leads to less trained staff inorganizations.

7. Underutilization of Natural Resources:Natural resources are one of the main assets of a country. Countries rich with theseresources can earn high revenues and fulfill domestic needs with these resources andthus can strengthen its economy. Many of the third world countries such as Pakistan arerich in terms of natural resources, but they lack proper utilization of these resources.Natural resources such as coal, oil, mineral and gas are either not properly discovered orare being underutilized due to lack of advanced technology.

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8. The neglect of Agriculture:Most of the countries among developing countries are agriculture based, i.e. theireconomies basically rely on agricultural yield. The drive to industrialize by manydeveloping countries has often been highly damaging to agriculture, especially in the

poorest countries such as those of sub-Saharan Africa. With a backward and run-downagricultural sector, with little or no rural infrastructure, many countries today face afood crisis of immense proportions. Agricultural sector is being given little attention dueto which obsolete techniques are being used. Farmers are getting little payment fortheir crops which lead them to abandon agriculture as their source of income.

9. Weak Infrastructure:Third world countries have poor infrastructure, which brings hurdles to economicdevelopment. Roads are not properly built, railway system is obsolete, transport andcommunication system is inefficient. Ports are either small in number or negligible.Proper Infrastructure is considered as a backbone for economic development, as mostof the countries activities are dependent on it, therefore weak infrastructure is a majoreconomic problem in the developing countries.

10. Tax Structure:Sound tax structure is vital for the development of a country. With the help of propertax system, tax is collected from the salaried, industrial and other classes of the countryand the tax money is then invested for the development projects in the country. In thirdworld countries improper tax structure is a major problem, as tax is mostly paid only bythe salaried class, most of the industrial and business class, avoid tax payment due towhich government receives fewer amounts to invest on development projects.

11. Unfavorable international Trade:The international trade done by third world countries is mostly unfavorable for thecountrys economic conditions, as these countries export low expenditure shareproducts such as basic raw material for different products, and primary goods, andimport high expenditure goods, such as machinery, medicines etc. this gives rise to adisturbed balance of payment and therefore leads to high debt burden.

12. Debt issues:Third world countries are mostly dependent on loans and foreign aids for the fulfillmentof its projects, and basic needs. Debt burden is increased by imports of food items,technological products etc. high debt burden causes economic pressure on thesecountries and make them unable to cover the path of economic development.

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