Chapter two
2. Structural features and common
characteristics of Developing
Countries
2.1. An Overview of the Diverse Structure
of developing countries.
Con,t
The problem of the economic development of the poor
countries of today’s world is one of the most widely
discussed topics of our time.
Experts in various fields such as economics, politics,
sociology and engineering have held different views
about the nature of underdevelopment and poverty, its
causes and its remedies.
It has now been fully recognized that the nature and
causes of the “Poverty of Nations” are very complex
and the remedies are neither easy nor quick.
Con’t
The understanding of the problem of underdevelopment
requires a good knowledge of certain basic
characteristics and Structural features of LDCs.
Because the analysis of these characteristics will shed
some light on the peculiar economic and social
conditions of production, consumption and distribution
of income and wealth in the LDCs, which will help us to
draw some policy implications.
There are various classifications made based on the
economic performance of nations by different
organizations, However, all developing countries are
poor in money terms, but diverse in culture, economic
conditions, social and political structure.
Con’t
Third world nations share a set of common and well defined goals these
include:
reduction of poverty, inequality and unemployment
the provision of minimum levels of education , health housing and food
to every citizen.
The broadening of economic & social opportunities and the formation of
cohesive nation state.
Third world countries share the following problems:
Widespread and chronic absolute poverty.
High and rising levels of unemployment and underemployment
Wide and growing disparities in the distribution if income.
Low and stagnating levels of agricultural productivity
Sizeable and growing disparities between urban and rural levels of living
and economic opportunities.
Antiquated and inappropriate educational and health systems.
Severe balance of payments and international debt problems.
Substantial and increasing dependence on foreign and inappropriate
technologies institutions and value systems.
Structural diversity of the developing countries
Structural diversity of developing nations has generally the
following eight components.
1) The size of the country in terms of geography, population,
& income
2) Historical and, Colonial background.
3) Physical and human resource endowments
4) The relative importance of public & private sectors
5) The Nature of industrial structure
6) The degree of dependence on external economic &
political forces.
7) The distribution of power and institutional and political
structure within the nation.
8) The ethnic and religious composition.
1. Size and income level
Physical and population size of a country together with
the level of national income per capita are important
determining factors of economic potential of a
country.
Large and populated nations like Brazil, India, Egypt
and Nigeria exist side by side with small countries like
Paraguay, Nepal, Jordan and Chad.
Being a large has the following advantages: diverse
resource endowments, large potential markets & less
dependence on foreign sources of materials and
products.
On the other hand, problems of administrative control,
problems of national cohesion and regional
imbalances may be pointed out as a disadvantage.
NB. there is no relationship between a
country’s size, its level of per capita income
and the degree of equality or inequality in its
distribution of national income.
For example: India with a 1996 population of
over 950 million had a 1994 per capita
income level of $ 310. While near by
Singapore with fewer than 3 million people,
had a 1994 per capita income of $ 23,360
Cont’d
However, there is no necessary relationship
among a country’s size, its level of per capita
income, and the degree of equality or inequality
in the distribution of that income.
For example, as compared to Ethiopia, the
neighboring country, Kenya is smaller in
geographic and population size.
But Kenya has about 3 times the per capita
income of Ethiopia at official exchange rate.
Again Kenya has also lesser per capita income
than Brazil and some other larger developing
countries.
Historical Background
LDCS differ in their traditional and colonial
heritages.
This difference make them to have different social
and economic institutions.
Moreover, developing nations were at one time or
other colonies of Western European countries.
The colonial powers had a dramatic & long-lasting
impact on the economies, political & institutional
structures of their African and Asian colonies.
The economic structures of these nations, and
their educational and social institutions have
typically been modeled on those of their former
economic rulers.
Cont’d
Hence, the diversity in colonial heritage together
with the indigenous cultural differences have
resulted different structural problems in these
countries.
Depending on their colonial heritage therefore the
countries are required to take different measures.
Countries like those in Africa that only recently
gained their independence are likely to be more
concerned with consolidating and evolving their
own national economic and political structures
than with simply promoting rapid economic
development.
Cont’d
Latin American countries have a longer history
of political independence plus a more shared
colonial heritage.
Therefore, in spite of geographic and
demographic diversity the countries possess
relatively similar economic, social, and cultural
institutions and face similar problems.
In Asia, on the other hand, different colonial
heritages and the diverse cultural traditions of
the indigenous peoples have combined to create
different institutional and social patterns.
Physical and Human Resources
A Country’s potential for economic growth is greatly
influenced by its physical resource. When we say human
resource endowments it includes: Size of its population,
the level of skill of its people, cultural attitudes to work
and desire for self-improvement. Thus the nature and
character of a country’s population resource are
important determinants of its economic structure
Geography and climate can also play an important role
in the success or failure of development efforts.
Its mostly fact that island economies seem to do better
than landlocked economies.
With respect to climate also temperate zone countries
do better than tropical zone nations.
Cont’d
Developing countries are also differed in
human resource endowments.
The human resource endowments includes not
only the number of people and their skill levels
but so also their cultural outlooks, attitudes
toward work, access to information, willingness
to innovate, and desire for self-improvement.
Furthermore, the level of administrative skill
will often determine the ability of the public
sector to alter the structure of production and
the time it takes for such structural alteration
to occur.
Cont’d
Thus the nature and character of a country’s
human resources are important determinants
of its economic structure and these clearly
differ from one region to the next.
Ethnic and Religious composition
Ethnicity and religion often play a major role in the
success or failure of development efforts.
The greater the ethnic and religious diversity of a country
the more likely it is that there will be internal strife and
political instability.
There is also distinction in ethnic and religious
composition among nations.
Presently more than 40% of the world’s nations have more
than five significant ethnic populations.
In most cases, one or more of these groups face serious
problems of discrimination.
Over half of the worlds less developed countries have
recently experienced some form of interethnic conflict
especially in Africa
Cont’d
If development is about improving human lives
and providing a widening range of choice to all
peoples, racial, ethnic, or religious ...,
discriminations can be equally destructive.
For example throughout Latin America,
indigenous populations have significantly lagged
behind other groups on almost every measure of
economic and social progress.
In these countries, being indigenous makes it
much more likely that an individual will be less
educated, in poorer health, and in a lower socio
economic structure than other citizens. This is
particularly true for indigenous women.
Cont’d
There have been numerous instances of
successful economic and social integration of
minority or indigenous ethnic populations in
countries as diverse as Malaysia and
Mauritius.
The point is that the ethnic and religious
composition of a developing nation and
whether or not that diversity leads to conflict
or cooperation can be important
determinants of the success or failure of
development efforts.
Relative Importance of the Public and Private Sectors
Most developing countries have mixed economic systems i.e
public and private ownership and use of resources.
The division between the two and their relative importance are
mostly determined by the historical and political circumstances
of the countries.
For instance :Latin American and South East Asian nations have
larger private sectors than South Asia and African nations.
Africa with severe shortages of skilled human resources tend
to put greater emphases on public sector activities and state
run enterprises on the assumption that limited skilled
manpower can best used by coordinating rather than
fragmenting administrative and entrepreneurial activities
The degree of foreign ownership on the private sector is
another important variable to consider when differentiating
among less developed countries.
Economic Structure
Developing countries are predominantly
agrarian in economic, social, and cultural
out look.
Labour force is overwhelmingly engaged in
agriculture.
The agricultural sector contributes
significantly also to the GDP
Nevertheless, there are still great
differences between the structure of
agrarian systems and patterns of land
ownership in Latin America and Africa.
Cont’d
It is in the relative importance of both the
manufacturing and service sectors that we
find the widest variation among developing
nations.
Most Latin American countries possess
more advanced industrial sectors.
But in the 1970s and 1980s countries like
Taiwan, South Korea, and Singapore are
rapidly becoming industrialized states.
External Dependence: Economic, political, and Cultural
The degree that a country is dependent on foreign
economic, social, and political forces is related to its
size, resources endowment, and political history.
Most small nations are highly dependent on foreign
trade with the developed world.
Almost all small nations are dependent on the
importation of foreign and often inappropriate
technologies of production.
But even beyond the strictly economic manifestations
of dependence in the form of the international
transfer of goods and technologies is the
international transmission of institutions and values.
Cont’d
Most notably are systems of education and
governance, and attitudes toward life, work,
and self.
The transmission phenomenon brings mixed
blessings to most less developed countries
especially to those with the greatest potential
for self reliance.
A country’s ability to chart its own economic
and social destiny is significantly affected by its
degree of dependence on these and other
external forces.
Political Structure, Power, and Interest Groups
The political structure and the vested interests and
allegiances of ruling elites (e.g., large landowners, urban
industrialists, bankers, foreign manufacturers, the military,
trade unionists) determines what strategies are possible
and where the main barriers to effective economic and
social change may lie.
most developing countries are ruled directly or indirectly
by small and powerful elites to a greater extent than the
developed nations are.
E.g: specific distribution of power among the military, the
industrialists, and the large landowners of Latin America;
politicians and high level civil servants in Africa;
oil Sheiks and financial moguls of the Middle East; or the
land lords, money lenders, and wealthy industrialists of
Asia
con’t
Effective social and economic changes thus require
either that the support of elite groups be enlisted or
that the power of the elite be offset by more powerful
democratic forces.
NB. Either way Economic And Social Development
will often be impossible without corresponding changes
in the social, political, and economic institutions of a
nation.
Such institutional changes may include: land tenure
systems, forms of governance, educational structures,
labour market relationships, property rights, the
distribution and control of physical financial asset, laws
of taxation and inheritance and provision of credit.
2.2. Common Characteristics of
Developing Countries
There are seven broad categories by which we can classify
the common characteristics of developing countries.
1. Low levels of living characterized by low incomes, high
inequality, poor health and inadequate education.
2. Low levels of Productivity.
3. High rates of population growth and dependency burden
4. High and rising levels of unemployment and
underemployment
5. Significant dependence on agricultural production and
primary product exports.
6. Dominance, dependence and Vulnerability in international
relations.
7. Prevalence of imperfect markets and limited information.
1. Low levels of Living:
In developing Nations, general levels of living tend to be very low
for the vast majority of people.
Low levels of living are manifested qualitatively and
quantitatively in the form of low incomes (poverty) inadequate
housing, poor health and limited or no education, high
infant mortality, low life and work expectancy, and in many
cases, a general sense of malaise and hopelessness
Let us look at some statistics comparing certain aspects of life in
the developing countries and in the more economically advanced
Nations.
a) Per capita National incomes
In 1997, the total national product of all the nations of the world
was valued at more than $29 trillion, of which more than $22
trillion originated in the economically developed regions and less
than $7 trillion was generated in the less developed nations.
Con’t
The difference in income between rich and poor
nations will be apparent when one takes account of
the distribution of world population.
this means that almost 80% of the world’s income is
produced in the economically developed regions by
20% of the world’s people.
Thus the remaining four-fifths of the world’s
population is producing only one-fifth of total world
output.
In the year of 1997, the collective per capita incomes
of the under developed countries averaged less than
one-twentieth of the per capita incomes of rich
nations.
Con’t
b) Growth Rates of Income: Many developing
countries not only have much lower levels of per
capita income but also have experience slower
GNP growth than the developed nations.
c) Distribution of National Income: The growing
gap in per capita incomes between rich and poor
nations is not the only manifestation of the
widening economic disparity between the world's
rich and poor.
To appreciate the breadth and depth of Third World
poverty, it is also necessary to look at the growing
gap between rich and poor within individual LDCs.
Con’t
All nations of the world show some degree of income inequality.
There are large disparities between the income of the rich and of
the poor in both developed and underdeveloped countries.
Nevertheless, the gap between rich and poor is generally
greater in less developed nations than in developed nations
d) Extent of Poverty: The magnitude and extent of poverty in any
country depend on two factors: the average level of national
income and the degree of inequality in its distribution.
Clearly, for any given level of national per capita income, the
more unequal the distribution, the greater the incidence
of poverty.
Similarly, for any given distribution, the lower the average
income level, the greater is the incidence of poverty. But
how is one to measure poverty in any meaningful quantitative
sense?
Con’t
e) Health: In addition to struggling on low income, many
people in developing nations fight a constant battle against
malnutrition, disease, and ill health.
f) Education: the spread of educational opportunities is the
final indicator of the very low levels of living that is
pervasive in developing nations.
The attempt to provide primary school educational
opportunities has probably been the most significant of all
LDC development efforts.
In most countries, education takes significant share of the
governments’ budget.
Yet in spite of some impressive quantitative advances in
school enrollments, literacy levels remain strikingly low
compared with the developed nations
2. Low levels of Productivity
In addition to low levels of living, relatively low levels of labor
productivity characterize developing countries.
The concept of a production function is often used to
describe the way in which societies go about providing for their
material needs.
But the mechanical technical concept of a production function
for example; Q= f (L, k) where Q = output, L = Labor and K =
Capital ,must be supplemented by a broader conceptualization
that includes among its other inputs managerial competence,
worker motivation, and institutional flexibility.
Throughout the developing world, levels of labor productivity
(output per worker) are extremely low compared with those in
developed countries.
This can be explained by a number of basic economic problems.
Con’t
For example, the principle of diminishing
marginal productivity states that, if increasing
amounts of a variable factor (labor) are
applied to fixed amounts of other factors
(e.g. Capital, land, materials) , the extra or
marginal product of the variable factor
declines beyond a certain number.
Therefore, low levels of labor productivity
can therefore be explained by the absence
or severe lack of “ Contemporary” factor
inputs such as physical capital or
experienced management in LDCs.
The economic success of stories of the four “
Asian tigers” South Korea, Singapore, Hong
Kong, and Taiwan-are often attributed to the
quality of their human resources, the
organization of their production systems, and
the institutional arrangements undertaken to
accelerate their productivity growth.
[Link] and Rising levels of Unemployment
and Underemployment
Underutilization of labor is manifested in two forms.
a) Open unemployment those people who are able and
often to work but for whom no suitable job is available.
b) Underemployment those people who work less than
they could.
Large-scale unemployment is a common feature of most
LDCs. Factors like the population pressure, the absence
of job opportunities either because of the low level of
economic activity or because of the poor growth rate or
both, the choice of techniques which are capital rather
than labor intensive, education which is unrelated to
economic needs, rigid wages set without much regard
to the social opportunity cost of labor and lack of
investment could explain such unemployment problems.
Con’t
The phenomenon of under employment
noticed in LDCs is a situation whereby the
type of employed has not much relation to
the qualification of the employees, wages
are above the marginal productivity of labor
and a large portion of labor hours remain
unused.
4. Substantial dependence on
Agricultural production and Primary
products Exports
The vast majority of people in third world nations lives and works
in rural areas.
Over 65% are rural based, compared to less than 27% in
economically developed countries.
Similarly, 62% of the labor force is engaged in agriculture
contributes about 20% of the GNP of developing Nations but only
3% of the GNP of developed Nations.
The basic reason for the concentration of people and production
in agricultural and other primary production activities in
developing countries is the simple fact that at low-income levels,
the first priorities of any person are food, clothing and shelter.
Con’t
Agriculture in many LDCs is characterized by high pressure on
land, use of very backward technology, low saving and
investment and hence poor productivity.
A large majority of the peasants live in object poverty and the
rate of literacy is also very poor.
The land is usually scattered and the fragmented and the
distribution of land ownership is haphazard in most cases.
In short, Agricultural productivity is low in LDCs because?
Too many people in relation to available land
Primitive technologies, poor organization and limited physical
& human capital inputs.
Land tenure arrangements are not favorable to peasants taking
away much of the economic incentives for output expansion &
productivity improvement.
Technological backwardness persists because third world
agriculture is predominantly non-commercial farming.
Con’t
Most economy of developing countries are
oriented toward a primary products
(agriculture, fuel, forestry & raw materials)
as opposed to secondary (manufacturing) and
tertiary (service) activities, these primary
commodities form their main exports to other
nations
5. Dominance Dependence and Vulnerability in international relations.
For many least developed countries, a significant factor
contributing to the persistence of low levels of living, rising
unemployment and growing income inequality is the highly
unequal distribution of economic and political power between rich
and poor nations.
These unequal strengths are manifested in:
The dominant power of the rich nations to control the pattern of
international trade.
Their ability to dictate the terms in which technology, foreign aid
and private capital are transferred to developed Nations.
The transfer of values, attitudes and institutions as inappropriate
educational structures, curricula, and school systems, the
formation of western style trade unions, the organization and
orientation of health services and western styles administrative
and bureaucracy
Con’t
Developing countries possessing greater
assets and relatively more bargaining power
due to their dominances have become poor
due to tendency of the rich to get richer at the
expense of the poor.
This tendency has also brought a similar
pattern that dominating sectors and groups
within the LDC economy grow richer often at
the expense of the much larger but politically
and economically less powerful masses of poor
people.
6. Prevalent of Imperfect Markets and
Incomplete Information
In the 1980's and 1990’s, almost every developing country was moving at varying
speeds toward the establishment of market economies. In many LDCs legal &
institutional foundation are either absent or extremely weak. For example, they
include:
The existence of a legal system that enforce contracts and validates property rights.
A stable and trust worthy currency.
An infrastructure of roads and utilities that results in low transport and
communication costs so as to facilitate inter regional trade.
A well developed system of banking and credit allocation that selects projects on
the basis of relative economic profitability and enforces rules of repayment
Substantial market information for consumers and producers about prices,
quantities, and qualities of products and resources as well as the credit worthiness
of potential borrowers.
The above factors, along with the existence of
economies of scale in major sectors of the economy
(e.g. The extractive industries), thin markets for
many products due to limited demand and few
sellers, widespread externalities (costs or benefits
that accrue to companies or individuals not doing)
the prevalence of common property resources ( eg.
grazing lands, water holes) mean that markets are
often highly imperfect. Moreover, information is
limited and costly to obtain there by often causing
goods, finances, and resources to be misallocated.
7. Population Growth and Dependency Burdens
Most LDCs generally experience a high population growth
rate or where the population growth rate is not very high
in comparison with other LDCs, the size of the population
may be very high.
Of the world’s population of approximately 5.5 billion in
1993 more than three-fourths live in third world countries
and less than one-fourth in the more developed nations.
LDCs usually experience high birth rates but the
advancement of medical services has led to a significant
reduction in the death rate (except in some African
Countries). This has engendered a situation, which has
been generally termed-“population explosion”.
One of the main implications of such population explosion has
been the growth of the proportion of people who live on the
subsistence or poverty line”, defined as the line of minimum
calorie intake to stay alive in LDCs.
Another aspect of population growth has been the growth of the
proportion of unemployed people in the LDCs who tend to
migrate chiefly from the villages to the cities in search of a
livelihood.
Developing countries are not only characterized by higher rate of
population growth, but greater dependency burdens than rich
nation. Dependency burden is the proportion of the total
population aged 0 to 15 and 65 and above, which is economically
unproductive and therefore not counted in the labor force.
Thank
You!!