Lecture note: Development economics I Class: 3rd year economics

CHAPTER TWO

DIMENSIONS OF THE DEVELOPMENT PROBLEMS

OF DEVELOPING COUNTRIES

© Shambel Alemye (MSc.) Assosa university, Economics department

Lecture note: Development economics I Class: 3rd year economics

1. Introduction

This chapter gives a short account of the dimensions of the

development problems of poor nations.
These countries have both similarities and difference among
them in economic, geographical, historical, political, social,
cultural and institutional factors.

© Shambel Alemye (MSc.) Assosa university, Economics department

Lecture note: Development economics I Class: 3rd year economics

2. The Diverse Structure of Developing Countries

 The structural diversity of developing nations on;
 The size of the country (geographic area, size of population, and
income levels)
 Its historical and economical background
 Its endowments of physical and human resources
 Its ethnic and religious composition
 The relative importance of its public and private sector
 The nature of its industrial structure
 Its degree of dependence on external economic and political
forces
 The distribution of power and the institutional and political
structure within the nation.

© Shambel Alemye (MSc.) Assosa university, Economics department

Lecture note: Development economics I Class: 3rd year economics

Size and Income Level

• Evidently, economic potential of a country is significantly determined by its
physical and population size, and its level of national income per capita.
• This size provides both advantages and disadvantages. Large size usually
presents advantages of
 diverse resource endowment,
 large potential markets, and
 lesser dependence on foreign sources of materials and products.

• But it also creates problems of

 Administrative control,
 National cohesion, and
 Regional imbalances.
• However, it is to be born that 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.

© Shambel Alemye (MSc.) Assosa university, Economics department

Lecture note: Development economics I Class: 3rd year economics

Historical Background
 Countries have their own different cultural background accumulated
in their history, making them to have different social and economic
institutions.
 Moreover, developing nations were at one time or another colony of
Western European countries.
 The European colonial powers had a dramatic and long-lasting
impact on the economies, political and institutional structures of their
African and Asian colonies.
 The economic structures of these nations, as well as their educational
and social institutions have typically been modeled on those of their
former economic rulers.
Therefore, in spite of geographic and demographic diversity the
countries possess relatively similar economic, social, and cultural
institutions and face similar problems.
© Shambel Alemye (MSc.) Assosa university, Economics department
Lecture note: Development economics I Class: 3rd year economics

Physical and Human Resources

• There are countries which are extremely and favorably endowed in
resources such as minerals, raw materials, and fertile land. On the other
hand, there are also poorly endowed nations.
• Moreover, geography and climate can also play an important role in the
success or failure of development efforts.
• Island vs landlocked countries
• Temperate vs tropical zone countries
• Developing countries are also distinguished one from the other in their
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.
© Shambel Alemye (MSc.) Assosa university, Economics department
Lecture note: Development economics I Class: 3rd year economics

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.
 Presently more than 40% of the world’s nations have more than five
significant ethnic populations.
 Ethnic and religious diversity need not necessarily lead to inequality,
turmoil, or instability.
 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.
 Too often economists neglect to recognize this fundamental fact.

© Shambel Alemye (MSc.) Assosa university, Economics department

Lecture note: Development economics I Class: 3rd year economics
Relative Importance of the Public and Private
Sectors
 Most developing countries have mixed economic systems, featuring both public
and private ownership and use of resources.
 In general, Latin American and South East Asian nations have larger private
sectors than South Asia and African nations.
 The degree of foreign ownership on the private sector is another important
variable to consider when differentiating among less developed countries.
 A large foreign owned private sector usually creates economic and political
opportunities as well as problems not found in countries where foreign investors
are less prevalent.
 Economic policies, such as those designed to promote more employment, will
naturally be different for countries with large public sectors and ones with
sizeable private sectors.
 Direct government investment projects and large rural work programs may
take precedence in economies dominated by the public sectors.
 In the private oriented economies, however, special tax allowances designed to
induce private businesses that can employ more workers might be more common.

© Shambel Alemye (MSc.) Assosa university, Economics department

Lecture note: Development economics I Class: 3rd year economics

Economic Structure
 Developing countries are predominantly agrarian in economic, social, and
cultural outlook. Labour force in most of these countries is
overwhelmingly engaged in agriculture.
 Nevertheless, there are great differences between the structure of agrarian
systems and patterns of land ownership in Latin America and Africa.
 Asia agrarian systems are somewhat closer to those of Latin America in
terms of patterns of land ownership.
 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.
 In spite of common problems, therefore, development strategies may vary
from one country to the next, depending on the nature, structure, and
degree of interdependence among its primary, secondary, and tertiary
industrial sector.

© Shambel Alemye (MSc.) Assosa university, Economics department

Lecture note: Development economics I Class: 3rd year economics

External Dependence: Economic, political, and Cultural

 The degree to which a country is dependent on foreign economic,

social, and political forces is related to its size, resources
endowment, and political history.
 For most developing countries, this dependence is substantial.
 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. This
leads to the transmission of institutions and values
 This fact alone exerts an extraordinary influence on the
character of the growth process in these dependent nations.
 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.

© Shambel Alemye (MSc.) Assosa university, Economics department

Lecture note: Development economics I Class: 3rd year economics

Political Structure, Power, and Interest Groups

 it is often not the correctness of economic policies alone that determines the
outcome of national approaches to critical development problems.
 The political structure and the vested interests and allegiances of ruling
elites will typically determine what strategies are possible and where the main
barriers to effective economic and social change may lie.
 The concentration of interests and power among different segments of the
populations of most developing countries is itself the result of their economic,
social, and political histories and is likely to differ from one country to the
next.
 Nevertheless, whatever the specific distribution of power among the military,
the industrialists, and the large landowners of Latin America; the
politicians and high level civil servants in Africa; the oil Sheiks and
financial moguls of the Middle East; or the land lords, money lenders, and
wealthy industrialists of Asia – most developing countries are ruled directly
or indirectly by small and powerful elites to a greater extent than the developed
nations are.
 Effective social and economic changes thus require either that the support of
elite groups be or that the power of the elite be offset by more powerful
democratic forces.
© Shambel Alemye (MSc.) Assosa university, Economics department
Lecture note: Development economics I Class: 3rd year economics

3. Common Characteristics of Developing

Countries
 Dimensions of the development gap between rich and poor
countries and similarities of poor nations.
o Low levels of living, characterized by low income inequality, poor
health, and inadequate education
o Low levels of productivity
o High rates of population growth and dependency burden
o High and rising levels of unemployment and underemployment
o Substantial dependence on agricultural production and primary
product exports
o Prevalence of imperfect markets and limited information
o Dominance, dependence, and vulnerability in international relations.

© Shambel Alemye (MSc.) Assosa university, Economics department

Lecture note: Development economics I Class: 3rd year economics

I. LOW LEVELS OF LIVING

In developing nations, general levels of living tend to be very low
for the vast majority of people.
This is true not only in relation to their counterparts in rich
nations but often also in relation to small elite groups within their
own societies.
Per Capita National Income: One common distinguishing
feature of developing countries as compared to developed nations
is the extremely low level of income.
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.
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.

© Shambel Alemye (MSc.) Assosa university, Economics department

Lecture note: Development economics I Class: 3rd year economics

 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.
 All nations of the world show some degree of income inequality.
 The gap between rich and poor is generally greater in less developed
nations than in developed nations.
 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.
 But how is one to measure poverty in any meaningful quantitative sense?
 During the 1970s, as interest in problems of poverty increased,
development economists took the first step in measuring its magnitude
within and across countries by attempting to establish a common
poverty line.
 It is meant to represent a specific minimum level of income needed to
satisfy the basic needs.

© Shambel Alemye (MSc.) Assosa university, Economics department

Lecture note: Development economics I Class: 3rd year economics

 Health: In addition to struggling on low income, many people in

developing nations fight a constant battle against malnutrition,
disease, and ill health.
 Life expectancy in 1998 still averaged only 48 years, compared to
63 years among other Third World countries and 75 years in
developed nations.
 Infant mortality rates (the number of children who die before their
first birthday out of every 1,000 live births) average about 96 in the
least developed countries, compared with approximately 64 in other
less developed countries and 8 in developed countries.
 The extent of human deprivation in terms of some key health
indicators is also another indicator of the low standard of living of
these nations.
 For example, 766 million people in poor countries are without
access to health services, 1.2 billion do not have access to safe
drinking water, 1.9 billion (almost half the population) live without
sanitation facilities, and 158 million children under age 5 are
malnourished.
© Shambel Alemye (MSc.) Assosa university, Economics department
Lecture note: Development economics I Class: 3rd year economics

Education: the spread of educational opportunities is the final

indicator of the very low levels of living that is pervasive in
developing nations.
Yet in spite of some impressive quantitative advances in school
enrollments, literacy levels remain strikingly low compared with
the developed nations.
 For example, among the least developed countries, literacy rates
average only 45% of the population.
The corresponding rates for other Third World nations and the
developed countries are approximately 64% and 99%, respectively.
There is high level of children dropout of primary and
secondary school, and out of the estimated illiterate adults, more
than 60% are women.

© Shambel Alemye (MSc.) Assosa university, Economics department

Lecture note: Development economics I Class: 3rd year economics

ii. Low levels of Productivity

 Developing countries are characterized by relatively low levels of labor
productivity.
 But in less developed countries the concept of technical engineering
concept of a production function must be broadened by adding some
important factors. Among its other inputs, this includes managerial
competence, access to information, worker motivation, and institutional
flexibility.
 Low levels of labor productivity can therefore be explained by the
absence or severe lack of "complementary" factor inputs such as
physical capital or experienced management.
 To raise productivity, according to this argument, domestic savings and
foreign finance must be mobilized. This is to generate new investment in
physical capital goods and build up the stock of human capital through
investment in education and training.
 Institutional changes are also necessary to maximize the potential of this
new physical and human investment.
© Shambel Alemye (MSc.) Assosa university, Economics department
Lecture note: Development economics I Class: 3rd year economics

These changes might include such diverse activities as

The reform of land tenure, corporate tax, credit, and banking
structures;
The creation or strengthening of an independent, honest, and efficient
administrative service; and
The restructuring of educational and training programs to make them
more appropriate to the needs of the developing societies.
The economic success 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.
That poor nutrition in childhood can severely restrict the mental and the
physical growth of individuals.
Poor dietary habits, inadequate food, and low standards of personal
hygiene in later years can cause further deterioration in a worker's health
and can therefore adversely influence attitudes toward the job and the
other people at work.

© Shambel Alemye (MSc.) Assosa university, Economics department

Lecture note: Development economics I Class: 3rd year economics

iii. Population Growth and Dependency Burdens

 Statistics on demographic evolution by country show that the present rhythm of
global population growth is largely the result of the acceleration of growth in the
developing regions.
 Consequently, the population of the Third World rose from 1.7 billion in 1950, to
3.313 billion in 1980 and 4.036 billion in 1990.
 During the same year, the population of the developed countries stood
respectively at 832 million, 1.137 billion and 1.210 billion.
 This swift population growth in developing countries is due to their higher birth
rate as compared to death rate, though death rate also is high.
 Death rates (the yearly number of deaths per 1,000 populations) in Third World
countries are also high relative to the developed nations.
 However, these poor nations have these high birthrates have considerable
socioeconomic implication.
 Both older people and children are often referred to as an economic dependency
burden.
 This means that they are nonproductive members of society and therefore must
be supported financially by a country's labor force (usually defined as citizens
between the ages of 15 and 64).

© Shambel Alemye (MSc.) Assosa university, Economics department

Lecture note: Development economics I Class: 3rd year economics

iv. High Unemployment and Underemployment

 In the 1980s the unemployment and underemployment problem became
increasingly pronounced and emerged as one of the most serious
development problems.
 Unemployment increased as a result of the fact that employment has been
growing during the past at a rate which is much slower than the rate of
growth of the labour force.
 For example, the ILO estimates that in the 1990s productive employment
in sub-Saharan Africa increased by only 2.4 percent per annum at a time
when Africa labour force grown by a much faster rate of 3.3 percent a year.
 The unemployed exhibit two important characteristics, namely their
youthfulness and their high level of education.
 Unemployment is also creeping up the educational ladder. When the
underemployed are added to the openly unemployed and when
"discouraged workers" -those who have given up looking for a job-are
added in, almost 35% of the combined urban and rural labor forces in poor
nations is unutilized.
© Shambel Alemye (MSc.) Assosa university, Economics department
Lecture note: Development economics I Class: 3rd year economics
v. Substantial Dependence on Agricultural Production
and Primary-Product Exports
 The vast majority of people in LDCs lives and works in rural area. Over 65% are rurally based,
compared to less than 27% in economically developed countries. Similarly, 58% of the labor force is
engaged in agriculture, compared to only 5% in developed nations. Agriculture contributes about
14% of the GNP of developing nations but only 3% of the GNP of developed nations.
 There is striking difference between the proportionate size of the agricultural population in Africa,
which constitutes (68%) and South Asia (64%) versus North America (3%). But the average
productivity of agricultural labor is almost 35 times greater in North America than in Asia and Africa
combined.
 Dependence on Primary Exports: Most economies of less developed countries are oriented toward
the production of primary products. These primary commodities form their main exports. For
example, for all non-Asian developing countries, these primary products account for over 70% of
exports.
 Most poor countries need to obtain foreign exchange in addition to domestic savings in order to
finance priority development projects. Although private foreign investment and foreign aid are a
significant but rapidly declining source of foreign exchange, exports of primary products typically
account for 60% to 70% of the annual flow of foreign currency into the developing world.
 Even though exports are so important to many developing nations, LDC export growth has barely
kept pace with that of developed countries. Consequently, even in their best years, most non-oil-
exporting developing nations have been losing ground to the more developed countries in terms of
their share of total world trade. In 1950, for example, the LDCs' share was nearly 33%. It has fallen
in almost every year since and currently stands at around 20%.

© Shambel Alemye (MSc.) Assosa university, Economics department

Lecture note: Development economics I Class: 3rd year economics

vi. Imperfect Markets and Incomplete Information

 Starting from the 1980s almost every developing country is moving toward the
establishment of a market economy for many reasons. Many countries did so at
the behest of the World Bank, which kept advocating "market-friendly"
economic policies as preconditions for loans.
 There seemed to be a growing consensus that there had been too much
government intervention in the workings of Third World economies. This
government intervention is sighted by many as the major cause of the
problems in the poor nations. Hence, free market and unfettered competition
are considered as the key to rapid economic growth.
 But the presumed benefits of market economies and market-friendly policies
depend heavily on the existence of institutional, cultural, and legal
prerequisites that are taken for granted in the industrial societies. In many
LDCs, these legal and institutional foundations are either absent or extremely
weak.
 Moreover, information is limited and costly to obtain, thereby often causing
goods, finances, and resources to be misallocated. Therefore, the existence of
imperfect markets and incomplete information systems remains a common
characteristic of developing nations and an important contributing factor to
their state of underdevelopment.
© Shambel Alemye (MSc.) Assosa university, Economics department
Lecture note: Development economics I Class: 3rd year economics

Vii. Dominance, Dependence, and Vulnerability in

International Relations
 Economically, the dominant powers of rich nations control the pattern of
international trade. They have also the ability to dictate the terms
whereby technology, foreign aid, and private capital are transferred to
developing countries.
 Other equally important aspects of the international transfer process can
serve to inhibit the development of poor nations. One subtle but
nonetheless significant factor has been the transfer of First World
values, attitudes, institutions, and standards of behavior to Third World
nations.
 Finally, the penetration of rich-country’s' attitudes, values, and standards
also contributes to a problem widely recognized and referred to as the
international brain drain.
 The net effect of all these factors is to create a situation of
vulnerability among Third World nations in which forces largely
outside their control can have decisive and dominating influences on
their economic and social well being.
© Shambel Alemye (MSc.) Assosa university, Economics department
Lecture note: Development economics I Class: 3rd year economics

4. Obstacles of development
• Third World nations in general have much difficulty activating their largely
stagnant economies and meeting the challenges of feeding, educating and housing
their growing populations.
• Nevertheless, all such nations face problems that emanate primarily from
attachment to outdated values, attitudes, ways of thinking, as well as lack of
appreciation for time and work.
• Many also face challenges emanating from high population growth rates, often
high illiteracy rates, ethnic and religious conflict, outdated traditional educational
systems, and political corruption.
• Generally, the major challenging problems,
o Colonial legacy;
o Sociocultural heritage;
o Economic structure;
o Sociopolitical structure and organization;
o The political context; and
o Conceptions of time.

© Shambel Alemye (MSc.) Assosa university, Economics department

Lecture note: Development economics I Class: 3rd year economics

Colonial Legacy
• Most Third World nations had lived under colonial rule for a long time and were
subjected to political suppression and economic exploitation, oftentimes for
generations.
• This legacy of a hated past was used and continues to be used by traditional
intellectuals, religious leaders and nationalist forces as an excuse to resist western
ideas, reject progressive values and new ways of thinking, and undermine
authentic calls for political reform.
• Traditional leaders tend to claim that the West has no real interest in helping poor
nations develop their economies; instead, it is interested in reasserting its political
influence, economic hegemony and cultural domination.
• Because of such claims, the masses have been more inclined to stick to older
cultural values and traditions, oppose social and cultural change, and suspect
new ideas and economic thinking and non-traditional political systems.

© Shambel Alemye (MSc.) Assosa university, Economics department

Lecture note: Development economics I Class: 3rd year economics

• Colonialism has also created another obstacle that continues to

outlive colonialism itself; it created an economic elite whose role
was to mediate between the colonizer and the colonized masses
and enable the former to exploit the latter and control their fate
without having to interact with them.
• Under colonialism, modern healthcare systems were introduced in
underdeveloped countries causing life expectancy to rise and child
mortality rates to decline, and rates of population growth to
increase rapidly.
• But while these developments were taking place, no new
technologies and training programs were introduced to raise the
productivity of labor and land to keep pace with the population
growth rates.

© Shambel Alemye (MSc.) Assosa university, Economics department

Lecture note: Development economics I Class: 3rd year economics

Socio-cultural Heritage
• Generally speaking, people tend to respond positively to economic
incentives. However, most people belonging to old cultures tend to
slow down or stop working at certain levels of income and wealth,
preferring less work and more leisure time.
• Since the most important goal of such people is to satisfy their
basic needs, they often see no reason to continue working after
such needs are satisfied; contentment rather than unfulfilled
expectations governs the attitudes of most Third World peoples
toward work.
• People living in the agricultural age tend to work to live, not live to
work.
o For example, cleaning public places like streets and health
facilities is an undesirable job in most developing countries.

© Shambel Alemye (MSc.) Assosa university, Economics department

Lecture note: Development economics I Class: 3rd year economics

Economic Structure
• The rich and poor in developing courtiers live in two different
worlds separated by income, education, culture, knowledge and
often concrete walls.
• The socioeconomic, sociocultural and sociopolitical gaps separating
the former from the latter represent an incredible obstacle to
development as well as to political stability; they limit the potential
size of domestic markets and create negative feelings among the
poor that cause resentment and often apathy. Resentment and apathy
weaken workers desire to work hard and be productive and loyal to
the businesses and public organizations they work for.
• Moreover, the income and educational gaps separating the rich from
the poor undermine efforts to develop middle classes capable of
playing active roles in the economic life of society; they often make
the poor feel that no matter how hard they may try to improve the
quality of their lives, life conditions will not change.

© Shambel Alemye (MSc.) Assosa university, Economics department

Lecture note: Development economics I Class: 3rd year economics

Socio-political Structure
• Following independence, many Third World leaders adopted socialism
and economic planning as a strategy to develop their economies and
attain economic independence, not knowing that economic
independence was a misconceived idea, and that it has seized to be
an option since the late middle ages.
• But driven by a legacy of colonialism and struggle for independence,
and encouraged by the Soviet Union, rulers of many newly independent
states in Africa, Asia and Latin America moved to reject the capitalist
system and adopt state capitalism and central planning in its
stead.
• And since democracy is a western idea, it was portrayed and
sold to peoples suffering from illiteracy and ignorance as an alien
idea, incompatible with their indigenous cultures and belief systems.
• Soviet encouragement and western indifference made it possible for
such rulers to ignore democracy and its system of checks and balances.

© Shambel Alemye (MSc.) Assosa university, Economics department

Lecture note: Development economics I Class: 3rd year economics

• Dictators are rulers who often lack political legitimacy but act as
gods that see their peoples as slaves, not worthy of political or
human rights. Their sense of greatness and condescending
attitudes make authoritarian rulers feel as if they are the
only people entitled to rights.
• Rights of others, as a consequence, become prerogatives that
leaders control and can grant or hold as they wish; rulers are the
ones who decide to give citizens passports or not, to allow them to
drive cars or not, to provide them with jobs or not, and sometimes to
let them live or not to live.
• In many developing states, rulers have no problem sending people
to live and die in exile, denying them the right to live in their
homelands and die among their families and friends. And where
ideology controls politics, dictators’ cruelty is often beyond
comprehension.

© Shambel Alemye (MSc.) Assosa university, Economics department

Lecture note: Development economics I Class: 3rd year economics

The Political Context

• Low economic growth rates is a phenomenon most developing nations,
with few exceptions, share.
• Yet, they are nations that have little in common in terms of natural
resources, capital accumulation, population size, literacy rates, quality of
education, technical and scientific knowledge, history or culture.
• However, the role of politics in the development process has received
little attention. Politics in most countries represent the larger context
within which the economy and most other systems function.
• When politics dominate society, it dominates the economy as well,
enabling politicians to use the economy as an efficient tool to serve their
interests.
• And as economies grow and their role in societal life expands, the
dominant political elite in every developing society is able to gain a great
deal of power and wealth, controlling both politics and economics to
enrich itself at the expense of individual rights, the poor, the
environment, the country, and the future of generations to come.
© Shambel Alemye (MSc.) Assosa university, Economics department
Lecture note: Development economics I Class: 3rd year economics

• For example, the economic performance of Nigeria, which is rich in

natural resources and has a large population and substantial revenues from
oil exports, is less impressive than that of Bangladesh which is densely
populated and has less land and natural resources and no oil.
• Saudi Arabia, with a relatively small population, a vast land area, and a
tremendous income from oil exports, has failed to perform as well as
Taiwan which is largely resource poor and has more people.
• Austria and Hungary are so close in population size, culture, location and
resources, yet they differ in terms of standards of living and quality of life.
• While natural resources, technology, capital, education, and populations
play important roles in determining the capacity of each nation to develop,
they cannot by themselves explain the vast differences in the levels of
development achieved by so many diversified countries and peoples.
• Theories of economic development in general have failed to seriously
consider the role of politics in societal development; politics can be a force
to invigorate economic growth, as well as an impediment retarding
sociocultural transformation.
© Shambel Alemye (MSc.) Assosa university, Economics department
Lecture note: Development economics I Class: 3rd year economics

• Most developing nations, due primarily to political instability and

authoritarian rule, are neither at peace with themselves nor at ease with the
world around them; they seem unable to develop workable plans to initiate
sociocultural change or economic development.
• Building strong armies and well trained security agencies, controlling the
media, and using coercion to co-opt intellectuals and silence dissent became
standard procedures used by dictators to stay in power.
• Most of the funds received in the form of loans and foreign aid during that
period were stolen by dictators and corrupt politicians and their business
partners to further enrich the rich and impoverish the poor. Foreign aid “an
excellent method for transferring money from poor people in rich countries to
rich people in poor countries.”
• For example, in a largely poor Arab country the financial assets of the speaker
of parliament were estimated to have reached $3 billion in 2006. And when a
leader of another economically and politically struggling Arab country was
asked by a journalist about the size of his wealth, he answered, “Do you mean
before asking me this question or after?” another president, his foreign assets
were far more than the entire GDP of the country he ruled for decades.

© Shambel Alemye (MSc.) Assosa university, Economics department

Lecture note: Development economics I Class: 3rd year economics

Conceptions of Time
• Peoples living in different civilizations view time differently; some
are able to understand the value of time and the imperatives of the
times they live in; others are more likely to view time as a problem
and treat it as a liability.
• The first is more likely to utilize time efficiently; the latter is more
likely to waste time without feeling the loss of anything of value.
• Time and how different peoples perceive it and deal with it have
affected people’s lives and influenced the degree of progress they
made throughout history.
• No nation could escape the imperatives of the times, and no future
could be constructed without a clear conception of time.

© Shambel Alemye (MSc.) Assosa university, Economics department

Lecture note: Development economics I Class: 3rd year economics

5. Development Gap
• The Development Gap refers to the widening difference in levels of
development between the world's richest and poorest countries.
• There are many different measures used to assess the development
gap
• Factors that hinder development
o Historical,
o Environmental,
o Industrial or linked to issues of debt.

© Shambel Alemye (MSc.) Assosa university, Economics department

Lecture note: Development economics I Class: 3rd year economics

Historical factors
• Colonialism hindered a LEDCs (less economically developed
countries) level of development.
• A colony helped supply food and minerals to countries like Britain
and France.
• There was investment in colonies, but this was focused on things
that would help trade between the countries.
• In many cases gold, diamonds and other valuable resources were
taken back to the home countries leaving the colony with little
material wealth.
• Land was often taken away from the locals and given as gifts to
people involved in the colonization.

© Shambel Alemye (MSc.) Assosa university, Economics department

Lecture note: Development economics I Class: 3rd year economics
Environmental factors
• People often live subsistence lifestyles in LEDCs where they only
produce enough food to eat. Any slight imbalance such as flood,
drought or hurricane can tip these people over the edge.
Natural Hazards
• Many poor countries have no defenses for floods, storms or
earthquakes. When a natural hazard hits, people will struggle even
more than usual.
Climate extremes
• Many LEDCs experience climatic extremes in deserts, tundra or
tropical rainforest areas. It is difficult to grow food in these
environments.
• Many people will suffer from malnutrition and starvation. Scientists
are increasingly concerned that climate change will impact people
who live in LEDC's more than MEDCs (more economically
developed countries).
© Shambel Alemye (MSc.) Assosa university, Economics department
Lecture note: Development economics I Class: 3rd year economics

Natural resources
• Often raw materials that people in LEDCs extract to sell to MEDCs
for profit have lost their ownership rights. Therefore large
multinational companies will profit from the resources.
• Resources will often be exported in a raw state so that people in the
MEDCs will have jobs processing the materials and turning them
into a more useful product.
Dependence on primary activities
• Countries that have a high percentage of people working in
the primary sector will be less developed than those who have more
people in the tertiary and quaternary sector.
• Nepal has 81% of its population engaged in the primary sector whilst
the USA has only 2%.
• Some rich countries have gone out of their way to ensure that poor
countries do not develop secondary and tertiary industries that might
rival their success and income.
© Shambel Alemye (MSc.) Assosa university, Economics department
Lecture note: Development economics I Class: 3rd year economics

Debt
• Many LEDCs are in debt to MEDCs. Some of their income has to
pay off these debts.
• As poor countries develop, they are often keen to borrow money to
help them to develop further. Infrastructure such as schools,
hospitals, roads and railway lines all cost money to build.
• Countries may run up huge debts with banks and MEDCs and
struggle to pay back the debt owed.
• These payments will often mean that there is less money available
to the government to help improve the lives of their citizens.

© Shambel Alemye (MSc.) Assosa university, Economics department

Lecture note: Development economics I Class: 3rd year economics

© Shambel Alemye (MSc.) Assosa university, Economics department