Comparative

Economic
Development

Lecture No 2
Developing and
Developed World
 Which are Developing
Countries?
• GNI Per Capita
• In the World Bank’s classification system, 213
economies with a population of at least 30,000 are
ranked by their levels of gross national income (GNI)
per capita.
• low-income countries (LICs), <1085
• lower-middle-income countries (LMCs), 1086-4255
• upper- middle-income countries (UMCs), 4256-
13205
• high-income OECD countries, and >13205
• other high-income countries.
• (Often, LMCs and UMCs are informally grouped as the
middle-income countries.)
Some Other Classifications

• International Indebtness …….. Server, Moderate and Less

• Human Development ……… High Medium Low
• Least Developed Countries (ow income, low human capital, and
high economic vulnerability)
• landlocked developing countries (of which there are 30, with 15
of them in Africa)
 Characteristics of the
Developing World:
Diversity within
Commonality

• Lower Levels of Living and Productivity

• Lower Levels of Human Capital
• Higher Levels of Inequality and Absolute Poverty
• Higher Population Growth Rates
• Greater Social Fractionalization
• Larger Rural Populations but Rapid Rural-to-Urban
Migration
• Lower Levels of Industrialization and Manufactured Exports
• Adverse Geography
• Underdeveloped Markets
• Lingering Colonial Impacts and Unequal International
Relations
• External Dependence
Higher Population Growth Rates
• Global population has skyrocketed since the beginning of the industrial era,
• from just under 1 billion in 1800 to 1.65 billion in 1900
• Over 6 billion by 2000.
• World population topped 7 billion by 2012.
• In recent decades, most population growth has been centered in the developing world.
• More than five-sixths of all the people in the world now live in developing countrie s
• Implications of High Birth Rates
• A major implication of high birth rates is that the active labor force has to support proportionally almost twice
as many children as it does in richer countries.
• Dependency burden The proportion of the total population aged 0 to 15 and 65+, which is considered
economically unproductive and there- fore not counted in the labor force.
• Thus, the total dependency ratio is 72 per 100 in low-income countries and 49 per 100 in high-income
countries. But in rich countries, older citizens are supported by their lifetime savings and by public and
private pensions.
Greater Social Fractionalization
• Fractionalization Significant ethnic, linguistic, and other social divisions within a country.
• This is sometimes associated with civil strife and even violent conflict, which can lead developing
societies to divert considerable energies to working for political accommodations if not national
consolidation.
• The greater the ethnic, linguistic, and religious diversity of a country, the more likely it is that
there will be internal strife and political instability. Some of the most successful development
experiences—South Korea, Taiwan, Singapore, and Hong Kong—have occurred in culturally
homogeneous societies.
• Any Contrasting Example?
• Ethnic and religious conflicts leading to widespread death and destruction have taken place in
countries as diverse as Afghanistan, Rwanda, Mozambique, Guatemala, Mexico, Sri Lanka, Iraq,
India, Kyrgyzstan, Azerbaijan, Somalia, Ethiopia, Liberia, Sierra Leone, Angola, Myanmar,
Sudan, the former Yugoslavia, Indonesia, and the DRC.
• 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. And in the United
States, diversity is often cited as a source of creativity and innovation.
Larger Rural Populations but Rapid Rural-to-Urban
Migration
Larger Rural Populations but Rapid Rural-to-Urban
Migration
• Development > Modernisation>Agriculture to Industry and Services
• Migration from Rural to Urban Centers > Attendent Problems
Lower
Levels of
Industriali
zation and
Manufactu
red
Exports
Adverse Geography
• Many analysts argue that geography must play some role in problems of
agriculture, public health, and comparative development more generally. Land-
locked economies, common in Africa, often have lower incomes than coastal
economies.

• Developing countries are primarily tropical or subtropical, and this has meant that
they suffer more from tropical pests and parasites, endemic diseases such as
malaria, water resource constraints, and extremes of heat.

• Geography is not destiny; high-income Singapore lies almost directly on the

equator, and parts of southern India have exhibited enormous economic dynamism
in recent years. Prior to colonization, some tropical and subtropical regions had
higher incomes per capita than Europe.
Underdeveloped Markets
• Imperfect markets and incomplete information are far more prevalent in developing
countries
• In many developing countries, legal and institutional foundations for markets are
extremely weak.
• Some aspects of market underdevelopment are that they often lack
1. A legal system that enforces contracts and validates property rights;
2. A stable and trustworthy currency;
3. An infrastructure of roads and utilities that results in low transport and communication
costs so as to facilitate interregional trade;
4. A well-developed and efficiently regulated system of banking and insurance
5. Substantial market information for consumers and producers about prices, quantities, and
qualities of products and resources as well as the creditworthiness of potential borrowers
6. Social norms that facilitate successful long-term business relationships.
Underdeveloped Markets
• Imperfect market A market in which the theoretical assumptions of perfect com-
petition are violated by the existence of, for example, a small number of buyers
and sellers, barriers to entry, and incomplete information.
• Incomplete information The absence of information that producers and
consumers need to make efficient deci- sions resulting in underper- forming
markets.
• The extent to which these imperfect markets and incomplete information
systems justify a more active role for gov- ernment
 • Colonial era institutions often
favored extractors of wealth rather
than creators of wealth,
Lingering • on average, property rights have
Colonial been less secure, constraints on
elites have been weak, and a
Impacts and smaller segment of society has
been able to gain access to and take
Unequal advantage of economic
opportunities
International • Colonizers created inequalities in
Relations developing countries
External • Developing countries > Low Bargaining Power
• Enviromental Dependence > Climate Change
Dependence • WTO Dependence > Agriculture Sector