© 2011 Pearson Education, Inc. H3/15/12 Obstacles for Less Developed Countries (Ch. 9.4 – pp....

© 2011 Pearson Education, Inc.

H3/15/12

Obstacles for Less Developed Countries

(Ch. 9.4 – pp. 294-305)


Human Development Index

Figure 9-1


Progress Toward Development

Figure 9-26

4© 2011 Pearson Education, Inc.

Intro• Two (2) major approaches to development:

– 1. self-sufficiency• self-sufficiency most common model in 20th C.• China, India, Africa & Eastern Europe in immediate

post-WWII era• not as common today

– 2. international trade• more common recently (beginning in 1990s)• often based on a natural resource or one industry

bringing in more capital for development

4


I. Development through Self-Sufficiency• A. Elements of Self-Sufficiency Approach

• modest pace of development• even distribution of development

– goal is to spread development equally over all sectors– shared economic benefits; urban & rural advance equally

– Barriers are established to protect local business

• Three most common barriers – (1) tariffs– (2) quotas– (3) restricting the number of importers

• Two major problems with this approach:– Inefficient businesses are protected– A large bureaucracy is developed


II. Development through International Trade

A. Rostow’s model of development– 5 major stages

• 1. traditional society – focus on agric.; little capital generated

• 2. preconditions for takeoff– Elite group introduces innovations– New technologies & infrastructure– Some investments in transportation & water supply

• 3. takeoff– Rapid growth in limited economic areas– Often in textiles or food– Little spread to other areas of economy



A. Rostow’s model of development (cont.)

• 4. drive to maturity– Modern technology diffuses to many industries– Rapid growth similar to early takeoff industries– More skilled workers developed

• 5. mass consumption– Economy shifts from production of heavy industry to

consumer goods

– Most MDCs are in stages 4 or 5– Most LDCs are in one of lower stages (1-3)– Countries often succeed on Rostow’s model

through finding foreign markets


II. Development through International Trade– Two major factors:

• 1. Southern & Eastern Europe along w/ Japan served as models for Rostow’s example

– other countries thought they could also follow

• 2. many raw materials in LDCs– Could sell raw materials to MDCs and generate capital

– Critics of Rostow• Not all countries follow model• Often skip stages; not necessary to follow each stage• development often uneven



• B. Examples of international trade approach– The “four Asian dragons”

• South Korea, Taiwan, Singapore, Hong Kong– Few natural resources– Focused on manufacturing – clothing, electronics– Low labor costs

– Petroleum-rich Arabian Peninsula states• Saudi Arabia, Kuwait, Bahrain, Oman, U.A.E.

– Oil was main focus– Use oil profits to pay for large scale projects

– Three major problems:• Uneven resource distribution

• Increased dependence on MDCs

• Market decline


III. International Trade Approach Triumphs

A. Overview– The path most commonly selected by the end of

the twentieth century• Countries convert because evidence indicates that

international trade is the more effective path toward development – 4% vs. 1% growth

• Many saw self-sufficiency as inefficient • India switched and saw tremendous growth



B. World Trade Organization (WTO)• Established in 1995• Goal is to reduce international trade restrictions• Increase int’l banking opportunities• Has some enforcement powers, esp. w/ trade• Critics on left (liberal) and right (conservative)



C. Foreign Direct Investment (FDI)• promotes trade & investment by companies in other

countries• Transnational, or multinational, companies (TNC or

MNC) important• grew rapidly in 1990s• briefly hurt by tech bubble & recession of 2000, but

returned to previous high• Uneven flow of investments – still weighted toward

MDC


Triumph of International Trade Approach

Figure 9-27 Figure 9-28


Foreign Direct Investment

Figure 9-30


IV. Financing Development

– LDCs require money to fund development– Two sources of funds: loans & SAP’s

• A. Loans– World Bank – generally given for development w/ a focus

on investment & projects» IBRD (Int’l Bank for Reconstruction & Development)» IDA (Int’l Development Ass’n)

– International Monetary Fund (IMF) – often given to stabilize economy & helps w/ national financial troubles

– Began as part of Bretton Woods Agreement (end of WWII)

– Want to avoid int’l problems of Great Depression & WWII


IV. Financing Development

– B. Structural Adjustment Programs (SAP)• to continue foreign direct investment from

transnational corporations & countries, LDCs must explain their SAP

• SAP must include economic goals, strategies & financing

• many believe poverty increases during development– esp. through cuts in health, education & social services

• others argue poverty can only end through development

• debate continues today


Debt as a Percentage of Income

Figure 9-31


V. Fair Trade Approach– Products are made and traded in a way that

protects workers and small businesses in LDCs– Two sets of standards

• 1. Fair trade producer standards– often cooperatives– locals learn leadership & organizational skills– greater profits for co-ops & workers b/c no middleman

• 2. Fair trade worker standards– paid fair local wage– can form union– safety standards

– Producers and workers usually earn more– Consumers usually pay higher prices


Core and Periphery Model

Figure 9-32


The End.

Up next: Agriculture

© 2011 Pearson Education, Inc. H3/15/12 Obstacles for Less Developed Countries (Ch. 9.4 – pp....

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