Economic Development and Transition Chapter 18

Levels of Development Chapter 18, Section 1

Levels of Development  ½ the world lives in poverty 3 billion people3 billion people  1 billion live on less than $1 a day  Economic well being is measured in terms of development The process by which a nation improves economic, political and social well being of its peopleThe process by which a nation improves economic, political and social well being of its people

Developed Nations and LDC’s  Developed nations are nations with a higher level of material well being USA, Canada, Western EuropeUSA, Canada, Western Europe  LDC’s or Less Developed Nations are nations with low economic well being Mexico, Nepal, Central/Southern AfricaMexico, Nepal, Central/Southern Africa Have not achieved high standards of livingHave not achieved high standards of living

Measuring Development  Factors used in measuring development Life expectancyLife expectancy Health careHealth care LiteracyLiteracy Energy consumptionEnergy consumption Per Capita GDP  This is the primary measurement of developmentPer Capita GDP  This is the primary measurement of development

Per Capita GDP  A nation’s GDP / its population Accounts for gaps in the standard of living when nations have similar GDP’sAccounts for gaps in the standard of living when nations have similar GDP’s  Indicate the ability for a population to meet its needs  Ex: Austria & India have similar GDP India is poor bec of very high populationIndia is poor bec of very high population India = $370 per capita GDPIndia = $370 per capita GDP Austria = $20,650 per capita GDPAustria = $20,650 per capita GDP

Other Measures  Energy consumption…developed nations use a lot of energy High energy level=high industrial prod.High energy level=high industrial prod.  Labor Force…type of work done indicates development (specialize?)  Consumer goods…Large number of consumer goods=demands are met  Literacy…developed nations are literate (well educated)

Other Measures  Life expectancy…developed nations live longer (well-fed & housed)  Infant mortality…developed countries have lower infant mortality Determined by how many babies don’t live past 1. (USA is 6.4 out of 1000)Determined by how many babies don’t live past 1. (USA is 6.4 out of 1000)  Infrastructure…the better the infrastructure, the more developed

Issues of Development Chapter 18, Section 2

Rapid Population Growth  Countries are increasing population without increasing their economy or development  LDC’s won’t be able to meet the needs of population growth

Lacking Factors of Production  Land…only 10% of the world’s land is arable (farmable) and resources are not evenly distributed  Physical Capital…lack of machinery and technology-no industrial growth  Human Capital…lack of education Low literacy ratesLow literacy rates Brain Drain…skilled people move to more developed nations to find workBrain Drain…skilled people move to more developed nations to find work

Political Factors  From colonies to independence…lack direction and stability This takes place bec of mercantilismThis takes place bec of mercantilism  Government corruption…leaders serve their own needs Decisions are not made for “the people”Decisions are not made for “the people”  Instability…civil wars and social unrest - $$ must be spent on wars

Debt  Many LDC’s have acquired debt that they cannot repay  If the US dollar appreciates, LDC’s wont be able to pay the USA back $1.5 trillion in debt to USA by LDC’s$1.5 trillion in debt to USA by LDC’s

Financing Development Chapter 18, Section 3

Developing Countries Need to Raise Financing  Internal financing…savings and investing from within… LDC’s don’t have a lot of people who can do this (done w/citizens’ savings)LDC’s don’t have a lot of people who can do this (done w/citizens’ savings)  Foreign investment Foreign direct…building in the nation…done by MNC’s for cheap laborForeign direct…building in the nation…done by MNC’s for cheap labor Foreign portfolio…investing in stocks and bonds of foreign countries to increase productionForeign portfolio…investing in stocks and bonds of foreign countries to increase production

Foreign Aid  Some nations give aid (not loans) to LDC’s for varied reasons Political (giving military aid-WWII)Political (giving military aid-WWII) EconomicEconomic Human compassion (aid for schools, hospitals)Human compassion (aid for schools, hospitals)  World Bank Institution that raises money to distribute to nations of needInstitution that raises money to distribute to nations of need Coordinates economic development throughout the world (will take $$ from developed nations to give to LDC’s)Coordinates economic development throughout the world (will take $$ from developed nations to give to LDC’s)

International Monetary Fund (IMF)  Aids desperate countries through debt rescheduling (increase time to pay back) and stabilization programs Conditions are set by the IMFConditions are set by the IMF Offers policy & advice to LDC’sOffers policy & advice to LDC’s Will help change political & economic policies in LDC’sWill help change political & economic policies in LDC’s

Transitions to Free Enterprise Chapter 18, Section 4

Moving Towards a Market Economy  Motivated by individual wants and needs  Privatization…sale and transfer of government owned businesses to individuals This is the 1 st step toward market econ.This is the 1 st step toward market econ. Gives ownership to individuals not gov’tGives ownership to individuals not gov’t  Property rights need to be protected or people won’t make investments

Transitions in Nations  Russia and Glasnost Policy of political openness and reform that encouraged citizens to say what they wished without persecutionPolicy of political openness and reform that encouraged citizens to say what they wished without persecution Perestroika…plan for transition from command to free economyPerestroika…plan for transition from command to free economy  China and the Great Leap Forward Plan for China to turn into an economic powerPlan for China to turn into an economic power All land was taken over by the governmentAll land was taken over by the government Huge disaster as there was no incentiveHuge disaster as there was no incentive  China now blends free markets and command ideals for their economic plan