ECONOMIC DEVELOPMENT - Most developing countries are located in the tropical and

subtropical climatic zones while economically advanced

Prelim Lecture Notes 08 countries are located in temperate zones. The extreme heat
and humidity pose significant problems such as soil quality
The difference between the developed countries in their early
deterioration, depreciation of many natural goods, low
stages and of the low-income countries today
productivity of selected crops, weak regenerative growth of
The status of developing countries today is significantly different from forest, and poor health of animals. It also causes workers’
that of the present developed countries when they made a start on discomfort, weak health, and weaken desire in strenuous
their era of modern economic growth. physical work that contribute to their low productivity and
efficiency. A necessary development assistance should be
Eight significant differences in their initial conditions (developed and considered to alleviate such conditions.
developing countries):
Prelim Lecture Notes 09
a. Physical and human resource endowments
d. Population size, distribution, and growth
- the current developing countries ae less endowed with
natural resources, though some developing countries are - European and North American countries have natural
lucky to have abundant supplies of petroleum, minerals, and population growth rate of not more than 2% annually before
raw materials needed to meet world demand, however most and during their early growth years. Western nations
of the developing countries where large population resides experienced a slow rise in population growth. The increase
have a poorly endowed natural resources specifically in Asia. of their population growth rates resulted from decreasing
Some developing countries specifically in Africa enjoys a vast death rates and a slow rise in birth rates.
range of natural resources but high investment capital is
- Populations of many developing countries increases in
necessary to exploit them which until now inhibited by a
excess of 2.5 % in recent decades and increasing still at a fast
wide domestic conflict and attitudes of western nations
rate. Developing countries have a considerable high ratio of
toward them.
person-to-land than the European nations in their early
- In case of human resources, Paul Romer said that developing growth years since population growth is concentrated in few
countries of today “are poor because their citizens do not areas. In absolute size comparison, no nation that set out on
have access to the ideas that are used in industrial nations to a long-term economic growth reached the present-day
generate economic value”. According to Paul Romer, the population size of India or Egypt or Pakistan or Brazil nor
technology between rich and poor nations can be classified approached the natural rates of increase in comparison with
into two components:1. Physical Object Gap which includes that of Bangladesh or Philippines or Kenya or Guatemala.
factories, roads, machineries and others, 2. Idea Gap which Many observers doubt whether high long-term growth rate
includes knowledge about transaction processes, worker and industrial revolution of contemporary developed
motivation, inventory control, market distribution, and countries could have been attained had their population
others. The Idea Gap which Thomas Homer Dixon referred to been expanding rapidly.
as Ingenuity Gap which is about application of innovative
e. Role of International Migration
ideas to solve practical social and technical problems lies at
the core of development divide between rich and poor - The 19th and early 20th centuries are characterized by a
nations. It is necessary that a country has an ability to exploit widespread and large-scale international migration of rural
its own natural resources with the use of its own people’s populations. Periods of famine, pressure on land, and limited
managerial and technical skills and ingenuity to achieve economic opportunities in urban industry in countries like
sustain economic growth. Italy, Germany, Ireland had pushed unskilled rural workers to
migrate to labor scarce countries like North America and
b. Relative levels of per capita income and GDP
Australia. Up to World War II, international emigration was
- In comparison with what developed country had in 19th both distant and permanent. Since World War II,
century, the people living in most of today’s developing international migration exists between European countries
countries have low level of per capita income. A large part of which is both short distance and temporary in nature. The
population of developing countries today are living at a driving force to such migration is the transfer of surplus labor
minimum level of subsistence, though developed countries to labor shortage nations which is both permanent and
also experienced such living conditions but it’s not as wide nonpermanent in nature. The labor migration gave rise to
and as large of a fraction of the population of today. dual benefits for the country the unskilled workers came
from: their home governments were relieved of the cost of
- The developed countries in their modern growth era are unemployment and at the same time earned a much-needed
economically advance than the rest of the world as such they foreign exchange from the remittances sent home by the
could take advantage of their relatively strong financial workers. The restrictive nature of immigration laws
position, while developing countries of today started their nowadays became a debated issue globally. Yet despite the
growth process at the low end of international per capita restrictions migrations continues today either of illegal
income level. migrants or documented migrants.
c. Climatic differences
 - The present-day international migrations is characterized by who have entrepreneurial drive. While developing countries
a migration of highly educated and skilled professionals and inherited high inequality and poor institutions that facilitate
technicians from developing countries to developed extraction rather than provide incentives for production
countries, a brain drain. Majority of such migrants move on established by colonial powers. Today such extraction can be
a permanent basis which is a loss of valuable resources carried out by local elites and foreign interest groups.
necessary for future economic progress of developing
countries. Migration, if permitted, brings poverty-reducing Prelim Lecture Notes 10
benefits both to migrants and their families and to those Living standards divergence and convergence between developed
relatives, left behind in the origin country, through and developing nations
remittances. The brain drain can be brain gain if migration
encourages more people to acquire skills and knowhow. Today, the ratio of real living standards between richest countries and
poorest countries approaches 100 to one. As noted by Lant Pritchett,
f. The Growth Stimulus of International Trade developed countries have enjoyed far higher rates of economic
- European and North American nations, in 19th century, with growth averaged over two centuries than today’s developing
stable political structure and flexible institutions, were able countries which is a process known as divergence (a tendency for per
to participate in the dynamic growth of international trade capita income to grow faster in high-income countries than in lower-
exchanges on the basis of relatively free trade (trade in which income countries so that the income gap widens across countries
goods can be exported without any barriers in the form of overtime. In comparing development performance among developing
tariffs, quotas, and other restrictions), free capital countries and between developed and developing countries, we can
movements, and the unfettered international migration of also consider that with strenuous economic development effort,
unskilled labor surplus. living standards between developed and developing nations will
exhibit convergence (the tendency of per capita income to grow faster
- Developing countries, in 20th century, encounter difficulties in lower-income countries than in higher-income countries so that
to achieve rapid growth rate on the basis of world trade. The lower -income are catching up overtime).
exports expanded but not as fast as the exports of developed
countries, and their terms of trade (the ratio of the price
receive from exports and the price to pay for imports) Two possible reasons of “catching up” (convergence)
declined over decades as such export volume should grow
faster just to earn foreign currency for imports. 1. Technology transfer- moving immediately to high-productivity
techniques of production is possible or doable. It decreases the
- Add up to it is that the world commodity prices are subject time needed to double the output of worker.
to large and potentially destabilizing price fluctuations.
Moreover, when developing countries achieve low cost 2. Factor accumulation- in developed countries, the need for more
production of competitive product with the developed capital on output decline because of their existing high levels of
countries, the developing countries in turn resort to various physical and human capital. Instead, a high investment rate
forms of trade restrictions such as tariff and nontariff growth is expected in developing countries that will help
barriers. In recent years, some developing countries increase capital accumulation until equal levels of capital and
benefited from expanded manufactures exports to output per worker is achieved.
developed countries, particularly china and other east and
southeast Asian countries. Development should be perceived as a multidimensional process
involving the reorganization and reorientation of entire economic and
g. Basic Scientific and technological research and development social system that means beside improvements in incomes and
capabilities output it must include changes in institutional, social, administrative
structures and also popular attitudes, customs, and beliefs.
- The process of scientific and technological advance in all its
stages, from product development to research, is It is helpful to explore historical and intellectual evolution about how
concentrated in the rich nations. Also, research funds flow and why development does and does not take place.
toward solving technological and economic problems of
concern rich nations for their own economic priorities and
resource endowments.

- When it comes to significant area of technological and

scientific research, developing nations are extremely in
disadvantageous position in comparison to developed
countries.

h. Efficacy

- The developed countries enjoy relatively stronger political

stability and flexible institutions. Even in their early
industrialization stage, they had economic rules in place that
provided relatively broad access to opportunity for those