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ECON102: Principles of Macroeconomics

Unit 9: The Developing World   Less developed countries (LDCs) face a number of obstacles both in obtaining needed resources and in making better use of their current available resources.  If a country is to improve the lot of its citizens, what is the best way to do it?  Are the policies used by developed nations appropriate for LDCs?  Because each country is different in size, natural endowments, history, and other critical factors, one set of policies may not fit all.  But are there common indicators and approaches pointing a nation towards the improvement of the quality of life for its inhabitants?  Is the government a better promoter of development than the marketplace?  Should agriculture be given priority or should resources be used to build up industry?  To quote Nobel Laureate Robert Lucas, “The consequences for human welfare involved in questions like these are simply staggering: Once one starts to think about them, it is hard to think about anything else.” [1]  Economic development is one of the most diverse topics in contemporary economics and provides us with a variety of ways to both identify problems and offer fundamental solutions.
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[1] Lucas, R. E. “On the Mechanics of Economic Development.”  Journal of Monetary Economics, February 1998: 3(42), 5.

Unit 9 Time Advisory
This unit should take approximately 4 hours to complete.

☐    Subunit 9.1: 1.5 hours

☐    Subunit 9.2: 2 hours

☐    Subunit 9.3: 0.5 hours

Unit9 Learning Outcomes
Upon successful completion of this unit, the student will be able to: - Define a developing country and discuss how incomes are compared across countries. - State and explain the general characteristics of low-income countries. - Discuss what is meant by “economic development.” - Explain the relationship between population growth and the rate of increase in per capita income. - Summarize Thomas Malthus’s reasoning that led to the concept of a Malthusian trap, and explain why his dire predictions have not occurred in many countries in modern times. - Explain what is meant by a demographic transition, and describe how it has proceeded in very different ways in developed versus developing countries. - List and discuss domestic policies that contribute to economic growth. - State the dependency theory view of trade and developing nations, relate this theory to the strategy of import substitution, and evaluate that strategy. - Outline some of the factors underlying the successes of newly industrialized countries.

9.1 Less Developed Countries (LDCs)   - Reading: Principles of Macroeconomics: “Chapter 19, Sections 1-2: Economic Development” Link: Principles of Macroeconomics: “Chapter 19, Sections 1-2: Economic Development” (PDF)

 Instructions: Read this chapter to learn about the definition and
characteristics of less developed countries and the Malthusian
theory of population growth.  This reading will cover subunits
9.1.1-9.1.3.  

 Terms of Use: This text was adapted by The Saylor Foundation under
a [Creative Commons Attribution-NonCommercial-Share-Alike 3.0
License](http://creativecommons.org/licenses/by-nc-sa/3.0/) without
attribution as requested by the work’s original creator or licensee.

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9.1.1 Definition of LDC   Note: Economists define lesser developed countries (LDCs) as being poor (as measured by per capita GDP) and as being un-modern.

9.1.2 Characteristics of LDCs   Note: LDCs are primarily agricultural producers; industrial production accounts for less than 10% of GDP.

9.1.3 Vicious Circle of Poverty Argument   Note: The vicious circle of poverty argument centers around the theory that one problem causes another problem that then causes the initial problem again (i.e. post hoc ergo propter hoc, or after this, therefore because of this).  For example, if an individual has a limited education, or if an individual has no special job skill sets and is also unemployed, then the theory supposes that the person will always be unemployed or the individual will always be a low wage earner.

9.2 The Obstacles to Development   - Reading: The World Bank’s Beyond Economic Growth: “Chapter XVII: Development Goals and Strategies” Link: The World Bank’s Beyond Economic Growth: “Chapter XVII: Development Goals and Strategies” (HTML)
 
Instructions: Read this chapter in its entirety; it explains what the United Nations has planned for combating poverty around the world as part of its Millennium Development Goals.  Use the in-text links to view the definitions of any terms or concepts that you do not understand.
 
Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • Lecture: YouTube: Wellesley College: Dr. Esther Duflo’s “Poor Economics”

    Link: YouTube: Wellesley College: Dr. Esther Duflo’s “Poor Economics” (YouTube)

    Instructions: In this lecture, Dr. Esther Duflo explains the results and effectiveness of several policy changes that attmept to alleviate poverty around world.

    Watching this lecture should take approximately 1 hour and 20 minutes.

    Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

9.3 Four Strategies for Economic Development   - Reading: Principles of Macroeconomics: “Chapter 19, Section 3: Keys to Economic Development”

Link: *Principles of Macroeconomics*: [“Chapter 19, Section 3: Keys
to Economic
Development”](http://www.saylor.org/site/textbooks/Principles%20of%20Macroeconomics.pdf) (PDF)  

 Instructions: Read this section to study how an economy can
progress towards economic development.  This reading covers
sub-subunits 9.3.1-9.3.4.  

 Terms of Use: This text was adapted by The Saylor Foundation under
a [Creative Commons Attribution-NonCommercial-Share-Alike 3.0
License](http://creativecommons.org/licenses/by-nc-sa/3.0/) without
attribution as requested by the work’s original creator or licensee.

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style="font-size: 10pt; font-family: Calibri, sans-serif; background-position: initial initial; background-repeat: initial initial;"></span>

9.3.1 Industry versus Agriculture   Note: Industry and agriculture are equally important.  The theory is that without agriculture, a country cannot exist, but without industry, a country also cannot exist.  In other words, a country needs both industry and agriculture as a functioning part of its economy.

9.3.2 Import Substitution   Note: Economists find value in engaging in import substitution based on the theory of comparative advantage, which means that respective country’s seek goods that have a lower opportunity cost.  Consequently, import substitutes may enable greater domestic purchases within its borders.

9.3.3 Export Promotion   Note: Export promotion centers on the idea of attracting more firms to export their products by providing assistance in product and market identification and development, training trade fairs, and foreign representation.  In other words, firms explore opportunities to sell more products abroad, consequently enabling more revenue funds as well as GDP growth.

9.3.4 Market-Based Solutions   Note: A number of industries (food, energy, communication, environmental, etc.) engage in market-based solutions in order to drive change for economic growth.  A market-based solution is one that is brought about when a philanthropist, such as Michael Saylor of the Saylor Foundation or Bill and Melinda Gates of the Bill & Melinda Gates Foundation, enables innovation in a facet of industry to expand and be productive for the workforce and consumers.