Module 7Ch13
Module 7Ch13
Module 7Ch13
Twelfth Edition
Chapter 13
International Development
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Learning Objectives
• 13.1 Compare and contrast the experiences of China and India in achieving economic
development.
• 13.2 Identify and evaluate two different strategies that developing states have used in
attempting to achieve economic growth.
• 13.3 Outline the ways in which large amounts of debt can hinder the process of
economic development for countries of the global South.
• 13.4 Describe three reasons why countries might provide foreign aid to countries of the
global South.
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International Development
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Figure 13.1
Real GDP Growth of Selected Countries, 2016
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Figure 13.2
Per Capita GDP of South Korea, China, India, and
Ghana, 1950–2016
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The Newly Industrializing Countries
(1 of 3)
• Most successful
– Four tigers or four dragons
• South Korea
– Iron and coal resources
– Steel and automobile industries
• Taiwan
– Strong state industrial policy
– Specialization in electronics, computers, and light manufacturing
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The Newly Industrializing Countries
(2 of 3)
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The Newly Industrializing Countries
(3 of 3)
A TIGER Singapore is one of the “four tigers” (with Hong Kong, Taiwan, and South Korea). Even after the setback
of a 1997 financial crisis, their growth has made them prosperous by the standards of the global South. Other
countries are trying to emulate the success of these NICs. But no single, simple lesson applicable to other states
emerges from the NICs.
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The Chinese Experience (1 of 4)
• In the era of Chairman Mao Zedong, Chinese economic policy emphasized national
self-sufficiency and communist ideology
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The Chinese Experience (2 of 4)
Here, Chinese consumers do their part as they mob the Beijing auto show in 2017, hoping to get
in on China’s growing infatuation with that ultimate big-ticket consumer item, the automobile.
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The Chinese Experience (3 of 4)
• Situation in early twenty-first century
– New President Xi Jinping
– Continued rapid economic growth, but growing inequality within China
– Membership in WTO
– More prestige in international system
– Formation of the Asian Infrastructure Investment Bank (AIIB), its version of the
Asian Development Bank and the World Bank
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The Chinese Experience (4 of 4)
• Situation in early twenty-first century (continued)
– A key member of the Group of Twenty (G20) organization
– Hosting of 2008 Olympics
– 2008–2009 economic crisis: China’s investments in the United States lost a
substantial fraction of their value
– Throughout 2015, China’s stock markets dropped very significantly
• Not clear what lessons China’s success has for rest of global South
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Figure 13.3
China’s View of Its Neighborhood
China’s continuing growth is
the leading example of
success of economic
development in the global
South. China’s future path will
affect all of Asia.
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India Takes Off (1 of 3)
• Robust growth from 1996 to 2006
• 1991 collapse of Soviet Union, India’s major trading partner, threw India into a severe
economic crisis
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India Takes Off (2 of 3)
• Sought help from IMF, World Bank
– Economic reforms such as reducing bureaucracy, selling money-losing state-
owned industries
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India Takes Off (3 of 3)
This radiologist in Bangalore, India’s technology capital, reads body scans from a U.S. hospital
sent via the Internet and discusses the results by phone with the patient’s doctor in Connecticut,
2004.
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Figure 13.4
Comparing Chinese and Indian Development
China has a harsh, centralized political system, whereas India has a freewheeling
democracy.
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Other Experiments (1 of 4)
• Mixed success with best results from Asia
– Indonesia
– Philippines
– Malaysia
– Thailand
– Vietnam
• Not as successful
– Bangladesh, Pakistan
– Poverty and dimmer prospects for the future
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Other Experiments (2 of 4)
• Latin America
– Brazil has steady growth, democracy, and shrinking inequality.
– Mexico has oil to export.
• Africa
– Nigeria suffers from the “resource curse” and fragile political/economic
conditions.
– Ethiopia and Democratic Congo are growing fast but starting from great poverty.
– Kenya and Mauritius, are emerging as model information-sector economies with
bright prospects.
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Other Experiments (3 of 4)
• Middle East
– Israel carved out niches in world markets in cut diamonds, computer software,
and military technology.
– Small countries with large oil exports have done well.
▪ Saudi Arabia, Kuwait, Bahrain, UAE
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Figure 13.5
Largest Countries’ Income Levels and Growth Rates,
2016
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Other Experiments (4 of 4)
Debt, currency crises, IMF conditionality, foreign direct investment (FDI), and the privatization of
state-owned enterprises are among the sources of upheaval and poverty in many poor countries.
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Lessons
• Import substitution and export-led growth
• Corruption
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Import Substitution and Export-Led
Growth
• Import substitution
– Development of local industries to produce items that a country had been
importing
• Export-led growth
– Seeks to develop industries that can compete in specific niches in the world
economy
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Concentrating Capital for
Manufacturing (1 of 4)
• Manufacturing emerges as a key factor in both export-led growth and self-sustaining
industrialization.
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Concentrating Capital for
Manufacturing (2 of 4)
• Problem compounded by need to create domestic markets for manufactured goods-
need middle class that has income to buy.
• Growing disparity in income often triggers intense frustration on part of poorer people.
• Capital can come from foreign investment or loans, or start out in low-capital
industries (e.g., textiles).
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Concentrating Capital for
Manufacturing (3 of 4)
• Role of microcredit
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Concentrating Capital for
Manufacturing (4 of 4)
• Fastest-growing states have generally been authoritarian.
– Theory that authoritarianism leads to economic development does not hold up.
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Corruption (1 of 4)
• Important negative factor in economic development
– Has a deeper effect in poor countries
▪ There is less surplus to keep economic growth going.
▪ In developing countries that are dependent on exporting a few products, the
revenue arrives in a concentrated form.
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Corruption (2 of 4)
• Important negative factor in economic development
– Also, in third world countries incomes are so low that corrupt officials are more
tempted to accept payments.
– Collective-action problem for states and MNCs in the global North
– Centers on government as central actor in economic development
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Corruption (3 of 4)
• Negotiations on foreign investment
– Another player added (corrupt official) to share the benefits
• Transparency International
– Berlin-based NGO published annual surveys showing most corrupt countries.
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Corruption (4 of 4)
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North-South Capital Flows
• Capital from the global North moves to the South and potentially spurs growth there in
several forms.
– Foreign investment
– Debt
– Foreign aid
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Foreign Investment (1 of 4)
• Investment in capital goods by foreigners
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Foreign Investment (2 of 4)
• MNCs invest in a country because of some advantage of doing business there.
– Natural resources
– Cheap labor, stable local supply
– Geographical location
– Absorptive capacity
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Foreign Investment (3 of 4)
• MNCs invest in a country because of some advantage of doing business there.
– Regulatory environment
– Financial and political stability
– Economic growth of country
• Technology transfer
• Brain drain
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Foreign Investment (4 of 4)
These Japanese executives visit their Honda factory in India, where Honda has invested $400
million, in 2008.
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North-South Debt (1 of 3)
• Borrowing money to obtain funds to prime a cycle of economic accumulation
• Advantages
– Keeps control in hands of states
– Does not impose painful sacrifices on citizens (in short term)
• Disadvantages
– Debt Service is a constant drain on whatever surplus is generated by investment
of money
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North-South Debt (2 of 3)
• Disadvantages
– Borrow new funds to service old debt
– Pay more in interest than receive in investment or aid
• Concessionary loans
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North-South Debt (3 of 3)
• Debt renegotiations
– For lenders, debt renegotiations involve a collective-goods problem-all have to
agree on conditions but really care only about getting own money back.
▪ Paris Club
– State creditors
▪ London Club
– Private creditors
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Table 13.1 Debt in the Global South, 2017
Annual Debt
Foreign Debt
Service
Region Billion $ % of GDPa Billion $ % of Exports
Latin America 2,000 41% 510 51%
Asia 2,900 18 1,500 43
Africa 480 34 90 30
Middle East 1,000 39 300 29
Total “South” 6,380 33 2,400 38
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IMF Conditionality (1 of 3)
• Conditions attached to loans
– Structural adjustment program
▪ Cut inflation
– Cut government spending
– Cut subsidies
– Crackdown on corruption
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IMF Conditionality (2 of 3)
• Conditions tend to follow formula
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IMF Conditionality (3 of 3)
In Bolivia, the government had subsidized imported flour to lower the price of bread. When it ended those
subsidies in 2015, bakers in the country went on strike in protest, leaving nearly no bread available in the country.
The government then ordered the military to begin making bread to fulfill demand. Here, bread is taken under
military guard from military barracks to be delivered to stores.
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The South in International Economic
Regimes (1 of 3)
• WTO
– On the positive side, WTO has a Generalized System of Preferences.
– These and other rules are intended to ensure that participation in world trade
advances rather than impedes development.
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The South in International Economic
Regimes (2 of 3)
• UN Conference on Trade and Development (UNCTAD)
– Work to restructure world trade to benefit the South
– Lacks power
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The South in International Economic
Regimes (3 of 3)
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Foreign Assistance
• Another major source of money for third world development
• Variety of purposes
– Humanitarian
– Political
– Military
– Economic
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Patterns of Foreign Assistance (1 of 2)
• Majority of foreign assistance comes from governments in the North
• UN programs
– UN Development Program, among others
– Advantages
▪ Governments and citizens perceive UN as friend of the global South.
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Patterns of Foreign Assistance (2 of 2)
• UN programs
– Advantages
▪ Workers may be more likely to make appropriate decisions.
▪ Organization on a global scale with priority of projects and avoiding
duplication/reinvention of the wheel
– Disadvantages
▪ Funded through voluntary contributions by rich states
– Governments pledging aid may not follow through.
▪ Reputation for operating in an inefficient, bureaucratic manner
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Figure 13.6
Foreign Assistance as a Percent of Donor’s Income,
2016 and 1960–2016
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Types of Foreign Assistance (1 of 4)
• Types of aid
– Grants, technical cooperation, credits, loans, loan guarantees, military aid and
private aid
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Types of Foreign Assistance (2 of 4)
• Private aid
– Oxfam model
▪ Private charitable group Oxfam America - one of seven groups worldwide
descended from the Oxford Committee for Famine Relief
▪ Uses local people to determine needs and implement programs
▪ Funds local organizations
▪ Helps empower local groups
▪ Long-term goals of self-support
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Types of Foreign Assistance (3 of 4)
HELPING OUT Governments provide around $20 billion annually in foreign assistance and
private donors more than $50 billion in additional aid. In the West, the United States gives among
the least amount of foreign aid as a percentage of GDP, despite recent increases. Here, a U.S.
Peace Corps volunteer works in Panama, 2001.
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Types of Foreign Assistance (4 of 4)
PARTNER IN DEVELOPMENT The Oxfam model of foreign assistance emphasizes support for
local groups that can stimulate self-sustaining economic development at a local level. A mutually
beneficial North-South partnership is the global goal of such projects. These women meet to
discuss business issues with an Oxfam-affiliated group in Kenya, 2007.
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The Politics of Foreign Assistance
(1 of 3)
• The programs do not address the causes of poverty, the position of poor countries in
the world economy, or local political conditions such as military rule or corruption.
• Many donor states thus try to use some types of foreign aid to create economic and
political changes in recipient countries.
• Unpopular with portions of the public, who feel their tax dollars are going to those
abroad rather than those at home.
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The Politics of Foreign Assistance
(2 of 3)
• Short-term relief
– Food, water, shelter, clothing, and other essentials
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The Politics of Foreign Assistance
(3 of 3)
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The Impact of Foreign Assistance
(1 of 3)
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The Impact of Foreign Assistance
(2 of 3)
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The Impact of Foreign Assistance
(3 of 3)
Sometimes foreign assistance contributes goods to third world economies with little understanding of local needs
or long-term strategies. Here, free supplies including cartons of mouthwash are delivered by the U.S. ambassador
and the captain of a U.S. Navy ship participating in Project Handclasp, 1989.
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Copyright
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Appendix A (1 of 3)
Long description for Figure 13.1
The horizontal axis ranges from negative 4 percent to 10 percent in increments of 2. The
vertical axis lists various countries. The data shown is as follows:
• Developed Countries
– Australia: 2.8 percent
– United States: 1.5 percent
– Canada: 1.5 percent
– United Kingdom: 1.8 percent
– Japan: 1 percent
– Euro Countries: 1.8 percent
• Developing Countries
– China: 6.7 percent
– Philippines: 6.9 percent
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Appendix A (2 of 3)
Long description for Figure 13.1 (continued)
– Tanzania: 7 percent
– Peru: 3.9 percent
– Indonesia: 5 percent
– Kenya: 5.8 percent
– India: 7.1 percent
– Malaysia: 4.2 percent
– Colombia: 2 percent
– Ecuador: negative 1.6 percent
– Turkey: 3.2 percent
– Chile: 1.6 percent
– Saudi Arabia: 1.7 percent
– Singapore: 2.0 percent
– South Korea: 2.8 percent
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Appendix A (3 of 3)
Long description for Figure 13.1 (continued)
– Argentina: negative 2.2 percent
– Hong Kong: 2.0 percent
– Brazil: negative 3.6 percent
– South Africa: 0.3 percent
– Thailand: 3.2 percent
– Venezuela: negative 4.0 percent
– Mexico: 2.3 percent
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Appendix B
Long description for Figure 13.2
The vertical axis of the graph is labeled “GDP per capita (2016 dollar)” and ranges from 0
to 40,000 in increments of 10,000. The horizontal axis lists years from 1950 to year 2020
in 5-year increments. The line graph for Ghana shows GDP per capita as slightly more
than 2000 dollars for the year 1955 and it remains almost constant over the years with
slight increase in 1995. With a slow growth rate, the GDP per capita for Ghana reaches
close to the 5000 dollar mark by the year 2010. The line for India shows GDP per capita
as 4000 dollars for the year 1950. With a declining trend, the GDP per capita for India
falls down to 3000 dollars by the year 1982 and remains unchanged till 2007. GDP per
capita for India shows a growing trend after 2007. With a slow growth rate, GDP per
capita for India reaches close to 5000 dollars by the year 2010. The line for China shows
GDP per capita as 2000 dollars for the year 1950 and with small fluctuations it remains
unchanged till 1982 where it shows a consistent growing trend. With a good growth rate,
GDP per capita for China reaches approximately a value of 11,500 dollars by the year
2010. The line for South Korea shows GDP per capita as 4000 dollars for the year 1950.
With considerably high growth rate, the GDP per capita for South Korea reaches a value
as high as 34,000 dollars by the year 2010.
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Appendix C
Long description for Figure 13.3
The border of China is highlighted. The border with different countries is labeled as
follows:
Russia: Trade
Kazakhstan: Trade
Burma: Trade
The map also shows countries like Iran, Pakistan, and Burma labeled “Arms sales” while
Russia labeled “Arms purchases.” India is labeled “Regional rival.”
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Appendix D (1 of 2)
Long description for Figure 13.4
The first line graph is labeled “Infant mortality rate.” The vertical axis of this
graph is labeled “Deaths per 1,000 live births” and ranges from 0 to 200 in
increments of 25. The horizontal axis lists years from 1950 to 2020. The line
graph shows that mortality rate for China was slightly more than that for India in
1950. However, the mortality rate for China decreased very rapidly from 1950
to 1975 while that for India decreased with a consistent rate. The deaths per
1,000 live births for China came to zero by the year 2010 and are projected to
remain unchanged by the year 2020. The deaths per 1,000 live births for India
fell down to 35 by the year 2010 and are projected to decrease further to 25 by
the year 2020.
The second graph is labeled “Fertility rate.” The vertical axis of this graph is
labeled “Children per woman” and ranges from 0 to 7 in increments of 1. The
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Appendix D (2 of 2)
Long description for Figure 13.4 (continued)
horizontal axis lists years from 1950 to 2020. The line graph shows that fertility
rate for China was slightly more than that for India in 1950. The fertility rate for
China is shown slightly more than 6 in 1950 and it decreased to fell below the
5.5 mark by the year 1955. The fertility rate for China increased after 1955 and
reached back to the same point by the year 1965. The fertility rate, however,
showed a rapid decline and fell below 2 by the year 1995. The fertility rate for
China remained close to 2 till the year 2010 and is projected to remain
unchanged by the year 2020. The fertility rate for India is shown to be 6 for the
year 1950. It showed a consistent decline and fell down to 2.4 by the year 2010
and is projected to decrease further to close to 2.
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Appendix E (1 of 2)
Long description for Figure 13.5
The vertical axis is labeled “GDP Growth rate” and ranges from negative 6 to 12 in
increments of 2. The horizontal axis is labeled “GDP per person” and ranges from 0 to
20,000 dollars in increments of 5000. The data shown is as follows:
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Appendix E (2 of 2)
Long description for Figure 13.5 (continued)
Philippines 6.9 7804
Thailand 3.2 16913
China 6.7 15529
Egypt 4.3 11129
Brazil –3.6 15123
Turkey 3.2 25247
Mexico 2.3 17274
Iran 13.4 19949
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Appendix F (1 of 4)
Long description for Figure 13.6
For bar graph, the horizontal axis ranges from 0 to 1.25 in increments of 0.25. The
vertical axis lists various countries. The data shown is as follows:
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Appendix F (2 of 4)
Long description for Figure 13.6 (continued)
For the line graph the vertical axis ranges from 0 to 0.6 percent in increments of 0.1. The
horizontal axis lists dates from 1960 to 2020 in increments of 10. The lines for the United
States and all countries shows almost similar trend. The line for all countries starts from
0.52 percent and with quick fluctuations falls down to 0.25 percent by 1975. The line then
remains almost in this range until 1990 where is shows a quick decline to fall down to
0.22 by 2000. The line then shows a growing trend and reaches to a value of 0.30 by
2016. The line for the United States starts from 0.60 percent and with quick fluctuations
falls down to 0.2 percent by 1975. The line decreases further to fall down to by 2000. The
line then shows a growing trend and reaches to a value of 0.19 by 2016.
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