1. Economic Problems of Developing Countries

2. Economic Problems of Developing Countries The Problem of Underdevelopment

3. THE PROBLEM OF UNDERDEVELOPMENT n The gulf between rich and poor countries < differences in GNY n The gulf between rich and poor countries < differences in GNY

4. GNY per head as % of US GNY per head: 2000 (using ppp exchange rates)

5. THE PROBLEM OF UNDERDEVELOPMENT n The gulf between rich and poor countries < differences in GNY < differences in mortality and health n The gulf between rich and poor countries < differences in GNY < differences in mortality and health

6. THE PROBLEM OF UNDERDEVELOPMENT n The gulf between rich and poor countries < differences in GNY < differences in mortality and health < other differences n The gulf between rich and poor countries < differences in GNY < differences in mortality and health < other differences

7. Selected world statistics

17. THE PROBLEM OF UNDERDEVELOPMENT n Differences between developing countries < resources and climate < infrastructure < cultural and social factors < degree of industrialisation < relations with developed world n Differences between developing countries < resources and climate < infrastructure < cultural and social factors < degree of industrialisation < relations with developed world

18. THE PROBLEM OF UNDERDEVELOPMENT n Measuring development < basic needs approach F advantages of this approach F disadvantages of this approach < using GNY statistics F advantages of this approach F disadvantages of this approach < the Human Development Index n Measuring development < basic needs approach F advantages of this approach F disadvantages of this approach < using GNY statistics F advantages of this approach F disadvantages of this approach < the Human Development Index

19. Human Development Index (HDI) for selected countries (1999)

28. Economic Problems of Developing Countries International Trade and Development

29. INTERNATIONAL TRADE AND DEVELOPMENT n Role of international trade in economic development < importance of trade < trade strategies F primary outward-looking strategy F secondary inward-looking strategy import-substituting industrialisation (ISI) F secondary outward-looking strategy exporting manufactures n Role of international trade in economic development < importance of trade < trade strategies F primary outward-looking strategy F secondary inward-looking strategy import-substituting industrialisation (ISI) F secondary outward-looking strategy exporting manufactures

30. INTERNATIONAL TRADE AND DEVELOPMENT n Primary outward-looking strategy < importance of primary exports < justification for exporting primaries F comparative advantage (Heckscher–Ohlin) F vent for surplus; engine for growth < weakness of traditional trade theory < problems for primary exporters: long term F slow growth in exports F rapid growth in imports < problems for primary exporters: short term F price and output fluctuations n Primary outward-looking strategy < importance of primary exports < justification for exporting primaries F comparative advantage (Heckscher–Ohlin) F vent for surplus; engine for growth < weakness of traditional trade theory < problems for primary exporters: long term F slow growth in exports F rapid growth in imports < problems for primary exporters: short term F price and output fluctuations

31. World primary commodity prices (1990 = 100)

33. INTERNATIONAL TRADE AND DEVELOPMENT n Primary outward-looking strategy < importance of primary exports < justification for exporting primaries F comparative advantage (Heckscher–Ohlin) F vent for surplus; engine for growth < weakness of traditional trade theory < problems for primary exporters: long term F slow growth in exports F rapid growth in imports < problems for primary exporters: short term n Primary outward-looking strategy < importance of primary exports < justification for exporting primaries F comparative advantage (Heckscher–Ohlin) F vent for surplus; engine for growth < weakness of traditional trade theory < problems for primary exporters: long term F slow growth in exports F rapid growth in imports < problems for primary exporters: short term

34. INTERNATIONAL TRADE AND DEVELOPMENT n Primary outward-looking strategy < importance of primary exports < justification for exporting primaries F comparative advantage (Heckscher–Ohlin) F vent for surplus; engine for growth < weakness of traditional trade theory < problems for primary exporters: long term F slow growth in exports F rapid growth in imports < problems for primary exporters: short term F price and output fluctuations n Primary outward-looking strategy < importance of primary exports < justification for exporting primaries F comparative advantage (Heckscher–Ohlin) F vent for surplus; engine for growth < weakness of traditional trade theory < problems for primary exporters: long term F slow growth in exports F rapid growth in imports < problems for primary exporters: short term F price and output fluctuations

35. INTERNATIONAL TRADE AND DEVELOPMENT n Import-substituting industrialisation < the process of ISI < justification F problems of primary-outward looking policies F greater dynamic potential with industrial production F infant industries n Import-substituting industrialisation < the process of ISI < justification F problems of primary-outward looking policies F greater dynamic potential with industrial production F infant industries

36. INTERNATIONAL TRADE AND DEVELOPMENT n Import-substituting industrialisation < adverse effects F against comparative advantage F cushions inefficiency F urban bias F damages exports F wide variations in effective protection F social / cultural problems F environmental costs n Import-substituting industrialisation < adverse effects F against comparative advantage F cushions inefficiency F urban bias F damages exports F wide variations in effective protection F social / cultural problems F environmental costs

37. INTERNATIONAL TRADE AND DEVELOPMENT n Exporting manufactures

38. Growth rates and export performance of selected secondary outward-looking countries Growth rates and export performance of selected secondary outward-looking countries

39. Growth rates and export performance of selected secondary outward-looking countries Growth rates and export performance of selected secondary outward-looking countries

40. Growth rates and export performance of selected secondary outward-looking countries Growth rates and export performance of selected secondary outward-looking countries

41. INTERNATIONAL TRADE AND DEVELOPMENT n Exporting manufactures < transition from inward-looking to outward-looking industrialisation n Exporting manufactures < transition from inward-looking to outward-looking industrialisation

42. INTERNATIONAL TRADE AND DEVELOPMENT n Exporting manufactures < transition from inward-looking to outward-looking industrialisation < benefits from a secondary outward-looking policy n Exporting manufactures < transition from inward-looking to outward-looking industrialisation < benefits from a secondary outward-looking policy

43. INTERNATIONAL TRADE AND DEVELOPMENT n Exporting manufactures < transition from inward-looking to outward-looking industrialisation < benefits from a secondary outward-looking policy < drawbacks of a secondary outward-looking policy n Exporting manufactures < transition from inward-looking to outward-looking industrialisation < benefits from a secondary outward-looking policy < drawbacks of a secondary outward-looking policy

44. Economic Problems of Developing Countries Structural Problems in Developing Countries

45. STRUCTURAL PROBLEMS IN DEVELOPING COUNTRIES n The neglect of agriculture < problems of urban bias < policies to promote agriculture < problems with these policies n Inappropriate technology < capital-intensity biases < arguments for capital-intensive technology < arguments for labour-intensive technology n The neglect of agriculture < problems of urban bias < policies to promote agriculture < problems with these policies n Inappropriate technology < capital-intensity biases < arguments for capital-intensive technology < arguments for labour-intensive technology

46. n Unemployment < rapid population growth < capital-intensity bias n Unemployment < rapid population growth < capital-intensity bias STRUCTURAL PROBLEMS IN DEVELOPING COUNTRIES

47. O Capital (K) Q1Q1 Q1Q1 Q2Q2 Q2Q2 Q3Q3 Q3Q3 Labour (L) Limited choice of techniques: one technique only

48. O Capital (K) Q1Q1 Q1Q1 Q2Q2 Q2Q2 Q3Q3 Q3Q3 Expansion path Labour (L) K1K1 K2K2 K3K3 L1L1 L2L2 L3L3 a b c Limited choice of techniques: one technique only

49. O Capital (K) Labour (L) Q1Q1 Q1Q1 Q2Q2 Q2Q2 Q3Q3 Q3Q3 K L Assume that total capital supply is K total labour supply is L Limited choice of techniques: one technique only

50. O Capital (K) Labour (L) Q1Q1 Q1Q1 Q2Q2 Q2Q2 Q3Q3 Q3Q3 K L L1L1 With K of capital, only Q 2 can be produced. Only L 1 will be required L   L 1 will be unemployed. Limited choice of techniques: one technique only

51. O Capital (K) Labour (L) K L Q1Q1 Q2Q2 Assume that the total supply of capital is K, and the total supply of labour is L. Capital intensity bias

52. O Capital (K) Labour (L) K L With competitively determined prices, the market will clear at point d with output of Q 1 and price ratio given by the slope of AB Q1Q1 Q2Q2 A B d Capital intensity bias

53. O Capital (K) Labour (L) K L A B d With a lower relative price of capital (given by slope of line CD) or a bias in favour of capital-intensive techniques, less labour will be employed (L 1 ) and output will be lower (Q 2 ). Q1Q1 Q2Q2 C D L1L1 Capital intensity bias

54. n Unemployment < rapid population growth < capital-intensity bias < rural–urban migration n Unemployment < rapid population growth < capital-intensity bias < rural–urban migration STRUCTURAL PROBLEMS IN DEVELOPING COUNTRIES

55. n Unemployment < rapid population growth < capital-intensity bias < rural–urban migration < external influences n Unemployment < rapid population growth < capital-intensity bias < rural–urban migration < external influences STRUCTURAL PROBLEMS IN DEVELOPING COUNTRIES

56. n Unemployment < rapid population growth < capital-intensity bias < rural–urban migration < external influences n Inflation n Unemployment < rapid population growth < capital-intensity bias < rural–urban migration < external influences n Inflation STRUCTURAL PROBLEMS IN DEVELOPING COUNTRIES

57. n Unemployment < rapid population growth < capital-intensity bias < rural–urban migration < external influences n Inflation < problems of hyper-inflation n Unemployment < rapid population growth < capital-intensity bias < rural–urban migration < external influences n Inflation < problems of hyper-inflation STRUCTURAL PROBLEMS IN DEVELOPING COUNTRIES

58. n Unemployment < rapid population growth < capital-intensity bias < rural–urban migration < external influences n Inflation < problems of hyper-inflation < monetarist explanations n Unemployment < rapid population growth < capital-intensity bias < rural–urban migration < external influences n Inflation < problems of hyper-inflation < monetarist explanations STRUCTURAL PROBLEMS IN DEVELOPING COUNTRIES

59. n Unemployment < rapid population growth < capital-intensity bias < rural–urban migration < external influences n Inflation < problems of hyper-inflation < monetarist explanations < structuralist explanations n Unemployment < rapid population growth < capital-intensity bias < rural–urban migration < external influences n Inflation < problems of hyper-inflation < monetarist explanations < structuralist explanations STRUCTURAL PROBLEMS IN DEVELOPING COUNTRIES

60. Economic Problems of Developing Countries The Problem of Debt

61. Growth in debt of developing countries: (average annual)

65. Debt ratios and the growth of debt : (average of all developing countries)

68. THE PROBLEM OF DEBT n Effects of the first oil shock 1971–78 n Effects of the second oil shock 1979–84 < deep world recession < decline in commodity prices < high interest rates n Effects of recessions in early 1990s and early 2000s n Effects of the first oil shock 1971–78 n Effects of the second oil shock 1979–84 < deep world recession < decline in commodity prices < high interest rates n Effects of recessions in early 1990s and early 2000s

69. n The effects of the debt problem on developing countries < effects on growth < effects on poverty n Coping with debt crises: rescheduling < rescheduling official loans < rescheduling commercial loans n The effects of the debt problem on developing countries < effects on growth < effects on poverty n Coping with debt crises: rescheduling < rescheduling official loans < rescheduling commercial loans THE PROBLEM OF DEBT

70. n Dealing with debt < structural reform in developing countries F IMF policy recommendations F interventionist solutions < debt swaps < debt forgiveness F the HIPC initiative F Jubilee 2000 F subsequent events < should all debt be cancelled and aid increased? n Dealing with debt < structural reform in developing countries F IMF policy recommendations F interventionist solutions < debt swaps < debt forgiveness F the HIPC initiative F Jubilee 2000 F subsequent events < should all debt be cancelled and aid increased? THE PROBLEM OF DEBT