ECO 120│ Economic Development

INSTRUCTOR’S NAME: MARY GRACE D. VALENZUELA, LPT, M-AE

CHARACTERISTICS OF THE DEVELOPING WORLD: DIVERSITY WITHIN

COMMONALITY

I. Overview

There are important historical and economic commonalities among developing countries that have led to
their economic development problems as being studied within a common analytical framework in
development economics. These widely shared problems are examined here in detail on an issue-by-issue
basis. At the same time, however, it is important to bear in mind that there is a great deal of diversity
throughout the developing world even within these areas of broad commonality. The wide range of income,
health, education and HDI indicators already reviewed is sometimes called a “ladder of development”.
Different development problems call for different specific policy responses and general development
strategies.

This module examines the 10 major areas of “diversity within commonality” in the developing world.

II. Learning Outcomes

At the end of this module, you will be able to:

1. State the 10 major areas of diversity within commonality in the developing world.

III. Self-Assessment
Activities (SAA)

In this module, we will focus on the diversity within commonality in the developing world.

To see if you have basic knowledge about it, here is a pre-assessment test which you will answer before
you proceed to the discussion.

Pre-Assessment #1 (Not graded)

Part I. ENUMERATION.
1. Enumerate at least 5 major areas of diversity within commonality in the developing world.

___________________________________________________________________________________________

IV. Discussion

Lower Levels of Living and Productivity

At very low-income levels, a vicious cycle may set in, whereby low income leads to low investment in
education and health as well as plant and equipment and infrastructure which in turn leads to low
productivity and economic stagnation. This is known as a poverty trap or what Nobel laureate Gunnar
Myrdal called “circular and cumulative causation”.
One common misperception is that low incomes result from a country’s being too small to be self-sufficient
or too large to overcome economic inertia.

Lower levels of Human Capital

Human capital-health, education and skills-is vital to economic growth and human development. We have
already noted the great disparities in human capital around the world while discussing the Human
Development Index.
Compared with developed countries, much of the developing world has lagged in its average levels of
nutrition and education.
The well-performing developing countries are much closer to the developed world in health and education
standards than they are to the lowest-income countries.
Although health conditions in East Asia are relatively good, sub-Saharan Africa continues to plagued by
problems of malnourishment, malaria, tuberculosis, AIDS and parasitic infections. Despite progress, South
Asia continues to have high levels of illiteracy, low schooling attainment and undernourishment. Still, in
fields such as primary school completion, low-income countries are also making great progress.

Higher Levels of Inequality and Absolute Poverty

Very high levels of inequality-extremes in the relative incomes of higher and lower-income citizens-are
found in many middle-income countries, partly because, example, Latin America countries historically tend
to be both middle-income and highly unequal. Several African countries including Sierra Leone, Lesotho
and South Africa also have among the highest levels of inequality in the world. Inequality is particularly high
in many resource-rich developing countries, notably in the Middle East and sub-Saharan Africa. Indeed, in
many of these cases, inequality is substantially higher than in most developed countries (where inequality
has in many cases been rising). But inequality varies greatly among developing countries with generally
much lower inequality in Asia.

Globally, the poorest 20% of people receive just 1.5% of world income. The lowest 20% now roughly
corresponds to the approximately 1.2 billion people living in extreme poverty on less than $1.25 per day at
purchasing power parity. Bringing the incomes of those living on less than $1.25 per day up to this minimal
poverty line would require less than 2% of the incomes of the world’s wealthiest 10%. Thus, the scale of
global inequality is also immense.
But the enormous gap in per capita incomes between rich and poor nations is not the only manifestation of
the huge global economic disparities. To appreciate the breadth and depth of deprivation in developing
countries, it is also necessary to look at the gap between rich and poor within individual developing
countries.
Corresponding to their low average income levels, a large majority of the extreme poor live in the low-
income developing countries sub-Saharan Africa and South Asia.
Great progress has already been made in reducing the fraction of the developing world’s population living
on less than $1.25 per day and raising the incomes of those still below that level but much remains to be
done.
Development economists use the concept of absolute poverty (recall this) to represent a specific minimum
level of income needed to satisfy the basic physical needs of food, clothing and shelter in order to ensure
continued survival. A problem, however, arises when one recognizes that these minimum subsistence
levels will vary from country to country and region to region, reflecting different physiological as well as
social and economic requirements. Economists have therefore tended to make conservative estimates of
world poverty in order to avoid unintended exaggeration of the problem.
The incidence of extreme poverty varies widely around the developing world.
Extreme poverty is due in part to low human capital but also to social and political exclusion and other
deprivations.
Extreme poverty represents great human misery and so redressing it is a top priority of international
development. Development economists have also increasingly focused on ways in which poverty and
inequality can lead to slower growth. That is, not only do poverty and inequality result from distorted growth
but they can also cause it. This relationship along with measurements of inequality and poverty and
strategies to address these problems is examined deeply and because of their central importance in
development, poverty reduction strategies are examined also throughout the text.

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 and to over 6 billion in 2000. World population topped 7 billion in 2012. Rapid
population growth began in Europe and other now developed countries. But in recent decades, most
population growth has been centered in the developing world. Compared with the developed countries
which often have birth rates near or even below replacement (zero population growth) levels, the low-
income developing countries have very high birth rates. More than five-sixths of all the people in the world
now live in developing countries and some 97% of net population growth (births minus deaths) in 2021 took
place in developing regions.
But population dynamics varies widely among developing countries. Populations of some developing
countries particularly in Africa continue to grow rapidly.
Middle-income developing countries show greater variance with some having achieved lower birth rates
closer to those prevailing in rich countries. The birth rate is about three times as high in the low-income
countries as in the high-income countries.
The very wide range of crude birth rates around the world is illustrated in Table 1. As of 2010, the average
rate of population growth was about 1.4% in the developing countries.

TABLE 1
CRUDE BIRTH RATE AROUND THE WORLD, 2012

Crude birth rate is the number of children born alive each year per 1,000 population.

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. By contrast, the proportion of people over the age of
65 is much greater in the developed nations. Both older people and children are often referred to as an
economic dependency burden in the sense that they must be supported financially by the country’s labor
force (usually defined as citizens between the ages of 15 and 64). When we say dependency burden it is
the proportion of the total population aged 0 to 15 and 65+ which is considered economically unproductive
and therefore not counted in the labor force.

We therefore conclude that not only are developing countries characterized by higher rates of population
growth, but they must also contend with greater dependency burdens than rich nations, though with a wide
gulf between low-and middle-income developing countries. The circumstances and conditions under which
population growth becomes a deterrent to economic development is a critical issue.

Greater social fractionalization

Low-income countries often have ethnic, linguistic and other forms of social divisions, sometimes known as
fractionalization. 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.
It is one of a variety of governance challenges many developing nations face.
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.

But today, more than 40% of the world’s nations have more than five significant ethnic populations. In most
cases, one or more of these groups face serious problems of discrimination, social exclusion or other
systematic disadvantages. Over half of the world’s developing countries have experienced some form of
interethnic conflict. Ethnic and religious conflicts leading to widespread death and destruction have taken
place in countries as diverse.

If development is about improving human lives and providing a widening range of choice to all peoples,
racial, ethnic, caste or religious discrimination is pernicious. For example, throughout Latin America,
indigenous populations have significantly lagged behind other groups on almost every measure of
economic and social progress.
Ethnic and religious diversity need not necessarily lead to inequality, turmoil or instability and unqualified
statements about their impact cannot be made. 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. The broader point is that the ethnic and religious composition of a developing nation and
whether or not that diversity leads to conflict or cooperation can be important determinants of the success
or failure of development efforts.

Larger Rural Populations but Rapid Rural-to-Urban Migration

One of the hallmarks of economic development is a shift from agriculture to manufacturing and services. In
developing countries, much higher share of the population lives in rural areas and correspondingly fewer in
urban areas as seen in Table 2.

TABLE 2
THE URBAN POPULATION IN DEVELOPED COUNTRIES AND DEVELOPING REGIONS

Although modernizing in many regions, rural areas are poorer and tend to suffer from missing markets,
limited information and social stratification. A massive population shift is also under way as hundreds of
millions of people are moving from rural to urban areas, fueling rapid urbanization with its own attendant
problems. The world as a whole has just crossed the 50% threshold. For the first time in history, more
people live in cities than in rural areas. But sub-Saharan Africa and most of Asia remain predominantly
rural.
Lower levels of Industrialization and Manufactured Exports
Industrialization is associated with high productivity and incomes has been a hallmark of modernization and
national economic power. It is not accident that most developing country governments have made
industrialization a high national priority with a number of prominent success stories in Asia.
Generally, developing countries have a far higher share of employment in agriculture than developed
countries. At the same time, the share of employment in industry in many developed countries is smaller
now than in some developing countries, particularly among women as developed countries continue their
secular trend to switch to from industry to service sector employment. However, many developed country
industrial jobs require high skills and pay high wages.
Along with lower industrialization, developing nations tended to have a higher dependence on primary
exports.

Adverse Geography
Many analysts argue that geography must play some role in problems of agriculture, public health and
comparative development more generally.
The extreme case of favorable physical resource endowment is the oil-rich Persian Gulf states. When we
say resource endowment is a nation’s supply of usable factors of production including mineral deposits,
raw materials and labor. At the other extreme, countries like Chad, Yemen, Haiti and Bangladesh where
endowments of raw materials and minerals and even fertile land are relatively minimal. However, as the
case of the DRC shows vividly, high mineral wealth is no guarantee of development success. Conflict over
the profits from these industries has often led to a focus on the distribution of wealth rather than its creation
and to social strife, undemocratic governance, high inequality and even armed conflict, in what is called the
“curse of natural resources”.

Clearly, geography is not destiny as high-income Singapore lies almost directly on the equator and parts of
Southern India have exhibited enormous economic dynamism in recent years.

Underdeveloped Markets
Some aspects of market underdevelopment are that they often lack:
1. Legal system that enforces contracts and validates property rights.
2. Stable and trustworthy currency.
3. Infrastructure of roads and utilities that results in low transport and communication costs so as to
facilitate interregional trade.
4. Well-developed and efficiently regulated system of banking and insurance, with broad access
and with formal credit markets that select projects and allocate loanable funds on the basis of
relative economic profitability and enforce rules of repayment.
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 and
6. Social norms that facilitate successful long-term business relationships.

These six factors along with the existence of economies of scale in major sectors of the economy, thin
markets for many products due to limited demand and few sellers, widespread externalities (costs or
benefits that accrue to companies or individuals not doing the producing or consuming) in production and
consumption and poorly regulated common property resources (e.g., fisheries, grazing lands, water holes)
mean that markets are often highly imperfect. Moreover, information is limited and costly to obtain, thereby
often causing goods, finances and resources to be misallocated. And we have to understand that small
externalities can interact in ways that add up to very large distortions in an economy and present the real
possibility of an underdevelopment trap.
The extent to which these imperfect markets and incomplete information systems justify a more active role
for government (which is also subject to similar problems of incomplete and imperfect information) is an
issue that we will be dealing with in later modules.
When we say imperfect market, it is a market in which the theoretical assumptions of perfect competition
are violated by the existence of, for example, a small number of buyers and sellers, barriers to entry and
 incomplete information while incomplete information is the absence of information that producers and
consumers need to make efficient decisions resulting in underperforming markets.
Their existence remains a common characteristic of many developing nations and an important contributing
factor to their state of underdevelopment.

Lingering Colonial Impacts and Unequal International Relations

1. Colonial legacy.
Colonial history matters not only or even primarily because of stolen resources but also
because the colonial powers determined whether the legal and other institutions in their
colonies would encourage investments by (and in) the broad population or would instead
facilitate exploitation of human and other resources for the benefit of the colonizing elite
and create or reinforce extreme inequality. Development-facilitating or development-
inhibiting institutions tend to have a very long-life span. For example, when the
conquered colonial lands were wealthier, there was more to steal. In these cases,
colonial powers favored extractive (or “kleptocratic”) institutions at the expense of ones
that encouraged productive effort.
In a related point of great importance, European colonization often created or reinforced
differing degrees of inequality, often correlated with ethnicity which have also proved
remarkably stable over the centuries. In some respects, post-colonial elites in many
developing countries largely look over the exploitative role formerly played by the
colonial powers. High inequality sometimes emerged as a result of slavery in regions
where comparative advantage in crops such as sugarcane could be profitably produced
on slave plantations.
The diversity of colonial experiences is one of the important factors that help explain the
wide spectrum of development outcomes in today’s world.

2. External dependence
Relatedly, developing countries have also been less well organized and influential in
international relations with sometimes adverse consequences for development. For
example, agreements within the World Trade Organization (WTO) and its predecessors
concerning matters such as agricultural subsidies in rich countries that harm developing-
country farmers and oner-sided regulation of intellectual property rights have often been
relatively unfavorable to the developing world.
Developing nations are also dependent on the developed world for environmental
preservation on which hopes for sustainable development depend.
Thus, the developing world endures what may be called environmental dependence in
which it must rely on the developed world to cease aggravating the problem and to
develop solutions including mitigation at home and assistance in developing countries.

V. Summary/Key
Points

 Lower levels of living and productivity

 Lower levels of human capital (health, education, skills)
 Higher Levels of Inequality and Absolute
 Poverty
 Absolute Poverty - the situation of being unable or only barely able to meet the
subsistence essentials of food, clothing, shelter and basic health care.
 Higher Population Growth Rates
 Crude Birth rates - is the number of children born alive each year per 1,000 population.
 Greater Social Fractionalization
 Larger Rural Populations but Rapid Rural-to-Urban Migration
 Lower levels of Industrialization and Manufactured Exports
 Adverse Geography
 Resource endowments - is a nation’s supply of usable factors of production including
mineral deposits, raw materials and labor.
 Underdeveloped Financial and Other markets
  Imperfect markets - it is a market in which the theoretical assumptions of perfect
competition are violated by the existence of, for example, a small number of buyers and
sellers, barriers to entry and incomplete information.
 Incomplete information - is the absence of information that producers and consumers
need to make efficient decisions resulting in underperforming markets.
 Lingering Colonial Impacts and Unequal International Relations
 Colonial Legacy
 External dependence

VI. End of Module

Assessment (EMA)

Gentle Reminders: All answers should be written in notebook. Take a clear picture and send it to me via
messenger chat. Submit your answers on or before Saturday, April 17, 2021 at 12nn.

Task # 1 Short Essay. 10 points.

Instruction: Answer the questions using 5 sentences only.
1. Select 2 major areas of diversity within commonality in the developing world and give
recommendation to it.

Rubric for short essays:

Needs
Very Satisfactory Satisfactory
Criteria Excellent (90-100) Improvement
(80-89) (60-79)
(0-59)
The content
The content The content
answers the
answers the answers the
question. The content
question directly. question directly.
Demonstrates does not
Content (80%) Demonstrates Demonstrates
little answer the
comprehension comprehension
comprehension question.
and explanation is and explanation is
and does not
very clear. clear.
explain.
The essay is
The essay is The essay is
logical and well-
logical and logical and The essay is
Organization and organized. It is
organized. It is organized. difficult to
Grammar (20%) consistent and
consistent and can Does not show understand.
can be easily
be understood. consistency.
understood.

VII. Looking Ahead

In preparation for the next module, read books/e-books about How Low-Income Countries Today Differ
from Developed Countries in Their Earlier Stages.

VIII. Self-Learning
Module Evaluation

Rate your learning experience in using this module according to the following scale.

Put a check mark on your response.

 4 – I learned a lot from this module.

 3 – I learned just right.
 2 – I still need guidance on certain topics.
  1 – I did not understand anything.

VIII. References

Todaro Michael, Smith Stephen, Economic Development 11th Edition 2010, Addison-Wesley, New York
University, The George Washington University, pdf

Nafziger E. Wayne, Economic Development 4th Edition 2006, Kansas State University, Cambridge
University Press, pdf

The International Economic Development Council’s, Economic Development Reference Guide, pdf

Images retrieved from Google

https://slidetodoc.com/chapter-2-comparative-economic-development-2-1-defining/
https://www.coursehero.com/file/54105317/DIversity-within-commonalitypdf/

IX. Answer Keys on

Module 09

Pre-assessment#1 (Not Graded)

Part I. DEFINITION.
1. An index measuring national socioeconomic development, based on combining measures of
education, health, and adjusted real income per capita. HUMAN DEVELOPMENT INDEX (HDI)
2. The concept that the subjective value of additional consumption lessens as total consumption
becomes higher. DIMINISHING MARGINAL UTILITY