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Copyright 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics 7/e by Jackson and McIver Slides prepared by Muni Perumal, University of Canberra, Australia 17-3 Less Economically Developed Countries (LDCs) Those nations that have low per capita income Less developed in their ability to provide incomes and economic consumption for their population
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Copyright 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics 7/e by Jackson and McIver
Slides prepared by Muni Perumal, University of Canberra, Australia17-1
Chapter 17
Growth and the Less Developed Countries
Copyright 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics 7/e by Jackson and McIver
Slides prepared by Muni Perumal, University of Canberra, Australia17-2
Learning Objectives• Identify the less economically developed
countries (LDCs) and their characteristics.• Understand why these developing
countries have achieved lower levels of development and income.
• Discuss policies and strategies by which the less developed countries might achieve more rapid growth.
Copyright 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics 7/e by Jackson and McIver
Slides prepared by Muni Perumal, University of Canberra, Australia17-3
Less Economically Developed Countries (LDCs)
• Those nations that have low per capita income
• Less developed in their ability to provide incomes and economic consumption for their population
Copyright 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics 7/e by Jackson and McIver
Slides prepared by Muni Perumal, University of Canberra, Australia17-4
Economically Advanced Countries (EACs)• Those nations that have high per
capita income• Better able to provide incomes
and economic consumption for their population compared to LDCs
Copyright 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics 7/e by Jackson and McIver
Slides prepared by Muni Perumal, University of Canberra, Australia17-5
Comparing EACs and LDCs• Difficult to compare due to
– differences in resource endowments– population growth rates – labour utilisation– political and cultural differences
Copyright 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics 7/e by Jackson and McIver
Slides prepared by Muni Perumal, University of Canberra, Australia17-6
Income Gap• Income gap between EACs and
LDCs is increasing• Increases the intensity of
discontent of the people of LDCs• Aspirations – Standard of living =
Social unrest
Copyright 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics 7/e by Jackson and McIver
Slides prepared by Muni Perumal, University of Canberra, Australia17-7
Breaking the Poverty Barrier• Increasing the efficient use of
existing supplies of resources• Altering (usually increasing) the
supplies of productive resources
Copyright 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics 7/e by Jackson and McIver
Slides prepared by Muni Perumal, University of Canberra, Australia17-8
Natural Resources• Distribution of natural resources
among LDCs is uneven• In general, a sufficient natural
resource base is important for economic growth– Exceptions: Japan, Israel and Switzerland
Copyright 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics 7/e by Jackson and McIver
Slides prepared by Muni Perumal, University of Canberra, Australia17-9
Employment of Human Resources • Typically, LDCs
– are overpopulated– experience underemployment
disguised unemployment rural–urban migration
– have low labour force quality absence of a vigorous entrepreneurial class
Copyright 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics 7/e by Jackson and McIver
Slides prepared by Muni Perumal, University of Canberra, Australia17-10
Capital Good Accumulation• LDCs suffer from a critical
shortage of capital goods• Important because of the limited
possibility of increasing the supply of arable land
• Capital accumulation can feed on itself
Copyright 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics 7/e by Jackson and McIver
Slides prepared by Muni Perumal, University of Canberra, Australia17-11
Capital Good Accumulation (cont.)• LDCs accumulate capital goods
by saving and investing• Saving as a % of output by LDCs
may be as high as for EACs; however, very low in actual terms
Copyright 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics 7/e by Jackson and McIver
Slides prepared by Muni Perumal, University of Canberra, Australia17-12
Capital Good Accumulation (cont.)• Investment: obstacles
Businesses unwilling to take risks Weak incentives to invest Low levels of basic social capital
– Capital flight: Large outflows of investment from LDCs to the comparative safety of EACs
– Non-financial investment: Excess labour resources could be redirected to improve basic social capital
Copyright 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics 7/e by Jackson and McIver
Slides prepared by Muni Perumal, University of Canberra, Australia17-13
Technological Advance• The discovery and application of new
ideas concerning production methods• Much of the expense of technological
discovery could be reduced by LDCs using knowledge base of EACs
• Capital-saving vs capital-using
Copyright 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics 7/e by Jackson and McIver
Slides prepared by Muni Perumal, University of Canberra, Australia17-14
Sociocultural Obstacles• Ethnicity over national identity• Religious beliefs• Allocational obstacles
– e.g. caste systems restricting the free movement of human resources
Copyright 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics 7/e by Jackson and McIver
Slides prepared by Muni Perumal, University of Canberra, Australia17-15
Institutional Obstacles• Political corruption• Bribery• National prestige • Inequity of land allocation
Copyright 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics 7/e by Jackson and McIver
Slides prepared by Muni Perumal, University of Canberra, Australia17-16
Solutions: Government’s Role• Improve law and order• Encourage entrepreneurship• Invest in public goods• Increase savings and investment• Manage sociocultural problems• Reform public sector management
Copyright 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics 7/e by Jackson and McIver
Slides prepared by Muni Perumal, University of Canberra, Australia17-17
Solutions: EACs’ Role• EACs can:
– increase trade volumes– encourage the flow of private capital into LDCs
LDCs should eliminate:• discriminatory taxation• prohibitions on the withdrawal of profits• cumbersome government regulations• threats of nationalisation without adequate
compensation– expand foreign aid through grants and loans
Copyright 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics 7/e by Jackson and McIver
Slides prepared by Muni Perumal, University of Canberra, Australia17-18
LDC Debt Crisis• Causes
– Higher oil prices– Declines in LDCs’ export earnings– Decreases in LDCs’ terms of trade– Higher interest rates– Fluctuations of value of US dollar– Falling confidence in LDCs’ ability to pay
debt
Copyright 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics 7/e by Jackson and McIver
Slides prepared by Muni Perumal, University of Canberra, Australia17-19
LDC Debt Crisis (cont.)• Consequences
– Rescheduling of LDC debt– Austerity programs started– Reduced consumption and investment
Copyright 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics 7/e by Jackson and McIver
Slides prepared by Muni Perumal, University of Canberra, Australia17-20
New International Economic Order• An argument made by some
LDCs to redefine the relationships between LDCs and EACs such that all countries would be treated as equals, decreasing exploitation by EACs
Copyright 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics 7/e by Jackson and McIver
Slides prepared by Muni Perumal, University of Canberra, Australia17-21
New International Economic Order (cont.)• Voting rights on international bodies• Trade barriers• Exploitation and dependence• Terms of trade• Debt relief• Aid and redistribution
Copyright 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics 7/e by Jackson and McIver
Slides prepared by Muni Perumal, University of Canberra, Australia17-22
Next Chapter:
Models of the Exchange Rate
