CHAPTER I

INTRODUCTION TO DEVELOPING COUNTRIES

Teacher: Luong Thi Ngoc Oanh (PhD.)

1
Questions to be addressed
1 How is the global income
distributed?

2 How are countries classified?

3 What is the brief history of

developing countries?

4 What are the characteristics

of developing countries?

5 How are they compared to

developed countries in their
earlier stages?

2
 The global distribution of income

Classification of countries

MAIN
CONTENT The emergence of developing countries

Characteristics of developing countries

Comparing developing countries today and

developed countries in their earlier stages:
both internal and external factors 3
 1 The global distribution of income

1.1 How are two halves of the world living?

• There is a sharp contrast between lives in North
America, Northern Europe, Western Europe Australia
and in Latin America, South and South East Asia and
Africa illustrated by two respective typical families.
• Differences can be seen in various aspects, such
as...
• Contrast also be witnessed within a single country in
Asia, Latin America and Africa
• What’s more?

4
How are two halves of the world living? (cont.)

NORTH AMERICA RURAL AREA IN ASIA

A typical family in North America: 8 or more people, including 3 generations

“nuclear” family with 4 members, USD and uncles, aunts, cousins…, annual income
(both in cash and in kind) of USD300/head,
50,000/head/annum, comfortable
simple house on tenant land, no or unstable
house with garden and two cars, with
electricity supply, no fresh water supply;
imported comfortable amenity, specialty
members suffering regular illness but
food imported from all over the world;
lacking qualified doctors (as they are in
parents having sufficient education and
cities taking care of wealthy families),
hence, secure jobs and savings for later children attending schools irregularly and for a
life few years, food shortage, hunger, children having
to work with parents
Inequality

5
 1 The global distribution of income

1.2. Some statistics on income distribution

6
Table: Global income distribution in 2019
(WB data 2021)

Medium and low

World High income countries
income countries
absolute as a percentage as a percentage
value absolute value of the world absolute value of the world

GDP
(USD 87,735 55,140 62,84% 32,6 37%
trillion)

Population
(millions) 7,674 1,235 16% 6,446 84%

Income per
capita 11,433 44,612 5,070
(USD)

7
 Table: Annual per capita incomes in selected countries
(WB data 2021)

GDP per capita GDP per capita

Country Country
Official Official exchange
exchange rate PPP rate PPP
Switzerland 81,993 72,376 Malaysia 11,414 29,619
Japan 40,246 43,593 the Philippines 3,485 9,302
USA 65,297 65,297 Vietnam 2,715 8,397
UK 42,330 49,931 Bangladesh 1,855 4,964
Singapore 65,233 101,649 Uganda 794 2,284
Poland 15,692 35,165 Nepal 1,071 3,568
Mexico 9,946 20,944 Ethiopia 855 2,319

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Table: Is the global income gap being narrowed or widened?
Income of the richest 20% /income of poorest 20%
(Source: Y.Hayami, 2006)

1960 30
1970 32
1980 45
1991 61
2000 70
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 1 The global distribution of income

How severe global poverty is?

10
 1 The global distribution of income

Some more facts and figures on global poverty

(1/4)
1. A quarter of the world — over 2 billion people — live on less than
$3.20 a day (At least 40% of humanity lives on less than $5.50 a day)
(World Bank, Oct. 7, 2020)

2. More than 70 percent of the world’s population lives in countries

where income differentials are widening.(UN World Social Report
2020)

3. The poorest 56 percent of the world’s population accounts for 2

percent of global income. The richest 1 percent accounts for 44
percent of world income. (The Global wealth report 2020)

11
 1 The global distribution of income

Some more facts and figures on global poverty (2/4)

4. According to UNICEF, 14,000 children die each day due to poverty.
And they “die quietly in some of the poorest villages on earth, far
removed from the scrutiny and the conscience of the world. Being
meek and weak in life makes these dying multitudes even more
invisible in death. (UNICEF Child Mortality Report 2020)

5. The proportion of children who are underweight has been cut

almost in half between 1990 and 2015 => It is possible that the
Millennium Development Goals target has been achieved. Yet over
90 million children under age five—one in seven children worldwide
—remain underweight. Being underweight puts children at greater
risk of dying (UN MDGs Report 2015)
12
 1 The global distribution of income

Some more facts and figures on global poverty (3/4)

6. Based on enrolment data, about 57 million children of primary
school age in the developing world were not in school in 2015; 55 per
cent of them were girls. => the pace of improvement has been
insufficient to achieve universal primary enrolment target by 2015.
(UN MDGs Report 2015)

7. Nearly a billion people entered the 21st century unable to read a

book or sign their names. In 2015, there are still estimated 103
million illiterate youth.

13
 1 The global distribution of income

Some more facts and figures on global poverty (4/4)

8. Less than one per cent of what the world spent every year on
weapons was needed to put every child into school by the year 2000
and yet it didn’t happen. (UN MDGs report 2007)

9. Infectious diseases continue to blight the lives of the poor across

the world. Covid-19 pandemic is still spreading and has cost over 1.5
million lives, with an unprecedented economic downturn- pushed 100
million people into extreme poverty. (UN Human Development Report
2020)

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 2 Country classification

• WB
• UNDP

15
 2 Country classification

2.1 WB Classification: by Income

• WB classify all 189 World Bank member countries, plus 28
other economies with populations of more than 30,000 by
annual GNI per capita
• Economies are divided according GNI per capita, calculated
using the World Bank Atlas method. For July 1, 2020, the
groups are: 
low income, $1,035 or less; 
lower middle income, $1,036 - $4,045; 
upper middle income, $4,046 - $12,535; and 
high income, $12,536 or more.
• The critical incomes levels used to group countries are
updated every year on 1 July and applied for the next year
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Table: Income groups by Worldbank
(WB data 2021)

2010 ($) 2012 ($) 2014 ($) 2016 ($) 2018 ($) 2020 ($)

< 995 < 1025 < 1,045 < 1,025 < 1,025 < 1,035
Low
income
996 1,026 – 1,046 – 1,026 – 1,026 – 1,036 –
Lower -3,945 4,035 4,125 4,035 3,995 4,045
middle
income
3,946 4,036 – 4,126 – 4,036 – 3,996 – 4,046 –
Upper -12,195 12,475 12,745 12,475 12,375 12,535
middle
income
> 12,195 > 12,475 > 12,745 > 12,475 >12,375 >12,535
High
income

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 2 Country classification

2.1 WB Classification: by Income

• In general discussions in Bank reports, the term "developing
economies" has been used to denote the set of low and
middle income economies.

• Bank publications with notes on the classification of

economies state that the term "developing economies...
does not imply either that all the economies belonging to the
group are actually in the process of developing, nor that
those not in the group have necessarily reached some
preferred or final stage of development."

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 2 Country classification

2.2 UN classification: by HDI

The Human Development Index (HDI): a summary measure of
average achievement in key dimensions of human
development: (1) a long and healthy life, (2) being
knowledgeable and (3) have a decent standard of living.
1. Health dimension: life expectancy at birth;
2. Education: mean of years of schooling for adults aged 25
years and more & expected years of schooling for children
of school entering age.
3. Standard of living: gross national income per capita (the
HDI uses the logarithm of income, to reflect the
diminishing importance of income with increasing GNI)
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 2 Country classification

2.2 UN classification: by HDI

189 countries are divided into four groups of countries:

1. Very High Human Development (0.8-1.0)
2.  High Human Development (0.7-0.8)
3.  Medium Development (0.55-0.7)
4.  Low Human Development (<0.55)
In 2021 (data updated till Jan. 31, 2019): Norway (0.957) ranks 1 st, Ireland (0.955) 2nd,
Switzerland (0.955) 3rd, VN: 0.704, 117th/195
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 2 Country classification

UN definition of developing countries

Developing economies: Sometimes countries with Medium
and Low HDI are called developing countries  
These economies have standards of living lower than
developed economies and economies in transition. Many
have deep and extensive poverty. Developing countries are
usually importers, rather than developers, of innovations in
science and technology. They also tend to be more
vulnerable to economic shocks.

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 2 Country classification

Some more words on HDI

Each year since 1990 the Human Development Report
has published the human development index (HDI) which
looks beyond GDP to a broader definition of well-being.

However, the index is not in any sense a comprehensive

measure of human development. It does not, for example,
include important indicators such as gender or income
inequality and more difficult to measure indicators like
respect for human rights and political freedoms.

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 3 What is the brief history of
developing countries?

3.1 History
• Most of the present developing countries were
colonies of Western European countries such Britain,
France, Belgium, the Netherlands, Germany,
Portugal and Spain.
• Group discussion: Can you argue how this
historical background of developing can impact
on the present development progress and
prospects?

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 3 What is the brief history of
developing countries?

Suggested Answer (1/3)

Expecting discussions, arguments, comments and examples by creative
students

 Formerly being exploited by the rulers and bearing the

negative effects

 Affected by colonial heritage: economic, educational and

social institutions are modeled or shaped or impacted by the
former colonial rulers. Evidence: Colonies of Spain and
Portugal share relatively similar economic, social and
cultural institutions and face similar problems, colonies of
Britain have progressed faster than those of France.

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 3 What is the brief history of
developing countries?

Suggested Answer (2/3)

Expecting discussions, arguments, comments and examples by creative
students

 Obtaining late independence and emergence in international

arena -> their interests were not taken into account by major
international economic institutions: Bretton Woods Institutions (set
up by the agreements at Bretton Woods conference) WB, IMF,
GATT (WTO)

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 3 What is the brief history of
developing countries?

Suggested Answer (3/3)

Expecting discussions, arguments, comments and examples by creative
students

 Facing “disadvantages of late comers” in technological

application, market access, natural resources...

 Being induced/impacted by recent globalization process to

develop in the more competitive and interdependent context
internal and external context does not allow a country to be
isolated/ to close the economy and grow on its own feet. This is
severe in the case the countries are relatively weak.

26
 3 What is the brief history of
developing countries?
Eg: 10 biggest players in world’s markets for consumer goods

27
 3 What is the brief history of
developing countries?
3.2 Different terminologies: developing countries
vs. the rest of the world
backward/traditional advanced/modern
economy economy
under-developed developed country
country
less-developed country more-developed
country
the third world the first & second world

the South the North

developing country developed country
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 3 What is the brief history of
developing countries?
Some more words on defining developing world
• The group of countries referred to as “developing
and transitional economies” is a combination of
several groups of countries defined by income and
non-income factors
• What most clearly identifies these countries is that
they do not belong to the group of countries that are
generally recognized as “developed”.

29
 3 What is the brief history of
developing countries?
Least developed countries - a subgroup of developing world
Having the following characteristics
• A Low Income Country (Per Capita GDI of under $900)
• Weak human assets (defined by a Human Assets Index)
 Poor nutrition – per capita caloric intake
 Health – child mortality rate
 Access to education – secondary school enrollment ratio
 Literacy – adult literacy rate
• Economic vulnerability (defined by an Economic
Vulnerability Index)
 Instability in agricultural production
 Instability in exports of goods and services
 Limited economic importance of non-traditional activities
(manufacturing and modern services)
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 4 What are the characteristics
of developing countries?

4.1 Common characteristics

4.2 Diversity

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 4 What are the characteristics
of developing countries?

4.1 Common characteristics

Developing countries demonstrate several common
attributes:
Lower levels of living and productivity
Lower levels of human capital
Higher levels of inequality and absolute poverty
Higher population growth rates
Greater social fractionalization
Larger rural population & rapid migration to cities
Lower levels of industrialization and manufactured exports
Adverse geography
Underdeveloped financial and other markets
Colonial legacies & unequal international relations
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 4 What are the characteristics
of developing countries?

4.1 Common characteristics

4.1.1 Low Levels of Living

Let’s start with an easy Q:

• What indicator/measurement of national
living standard can you think of? Which of
them indicate means and which depict
ends?
• Answer:

33
 4 What are the characteristics
of developing countries?

Suggested answers:
Nationwide, low levels of living means low income,
inequality, poor health and inadequate education,
measured in different aspects using different indicators:
• Income: GNI/head, caloric intake
• Health: Life expectancy, malnutrition rate, infant
mortality rate, access to clean drinking water, number of
doctors or hospital beds/100,000 citizens (4.4 vs. 217 in
developed countries, in 1995), spread of diseases:
HIV/AIDS
• Education: Education opportunities, Literacy rate,
school drop-out rate
• Inequality: Income inequality (by Gini, Lorenz),
inequality in access to health care and education service
34
 4 What are the characteristics
of developing countries?
Table: Vietnam's HDI component indexes compared to other countries in the region
in 2018 (Source: www.undp.org)

Countries HDI Life Expected Mean years GNI per capita HDI
expectancy at years of of schooling (2011 PPP $) Ranking
birth schooling

Korea 0,906 82,8 16,4 12,2 36.757 22

Malaysia 0,804 76 13,5 10,2 27.227 61
Thailand 0,765 76,9 14,7 7,7 16.129 77
China 0,758 76,7 13,9 7,9 16.127 86
Philippines 0,712 71,1 12,7 9,4 9.540 106
Indonesia 0,707 71,5 12,9 8 11,256 111
Vietnam 0,693 75,3 12,7 8,2 6.220 118

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 4 What are the characteristics
of developing countries?

4.1 Common characteristics

4.1.2 Low levels of productivity
• Value added per worker (in relative terms) tends to be low in all
sectors – agriculture, industry, services and are reflected in lower
wages
• low even in comparison with regional countries

VIETNAM PRODUCTIVITY

= 2/5 compared to Thailand

= 1/5 compared to Malaysia
= 1/18 compared to Singapore

Vietnam ranked 11/12 among 12 Asian countries

according to WB
Source: VTV
36
 4 What are the characteristics
of developing countries?
Table: Level of productivity of some Asian countries, 2012 and 2016 (Source: WB)

Unit: 2011 PPP $

Productivity in 2012 and 2016 Productivity growth in 2012 and 2016

China
China

Thailand Thailand
Vietnam
Vietnam

It can be seen that productivity of some countries in Southeast Asia is

quite low compared to other countries for example, Singapore. 37
 4 What are the characteristics
of developing countries?

4.1 Common characteristics

4.1.2 Low levels of productivity

Another easy Q:
• What leads to low productivity?
• Answer:

38
 4 What are the characteristics
of developing countries?

4.1 Common characteristics

4.1.2 Low levels of productivity
Self-reinforcing triangle

Low level
of incomes

Low
Poor
producti-
health
vity

39
 4 What are the characteristics
of developing countries?

4.1 Common characteristics

4.1.3 High Rate of Population Growth

Few developing countries have completed the

demographic transition (permanently low
natural population growth rates) whereas all
developed countries have.

40
 4 What are the characteristics
of developing countries?
Table: Population growth rate of Asian countries in 2018 (Source: World
Development Indicators, 2018)

Country Population growth (%)

Viet Nam 0.99

Cambodia 1.49

Pakistan 2.06

East Timor 1.97

Germany 0.3

Japan -0.2

Korea 0.48

Most developing countries have high population growth rates, on average> 1%.
Meanwhile, in developed countries, this index is much lower, averaging <0.6%
(especially in countries with negative population growth rates like Japan).
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 4 What are the characteristics
of developing countries?

4.1 Common characteristics

4.1.3 High Rate of Population Growth
 High dependency burden
Birthrates is sufficiently high as compared to
death rates  children under 15 make up
40% in developing countries as opposed to
20% in developed countries  overall
dependency is 45% in developing countries
as opposed to 33% in developed world
(Todaro M.P, (2006))
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 4 What are the characteristics
of developing countries?

4.1 Common characteristics

4.1.3 High Rate of Population Growth

43
 4 What are the characteristics
of developing countries?

4.1 Common characteristics

4.1.4 Persistent dependence on agriculture
and primary export products

44
 4 What are the characteristics
of developing countries?
Table: Distribution of primary commodity export-dependent and non dependent
countries within each group, 2013–2017 (percentage) (Source: UNCTAD State of
Commodity Dependence 2019)

Primary commodity export-dependent is almost exclusively a developing-country

phenomenon. 91 per cent of low-income countries are dependent on their primary
commodity exports, compared with less than one third of high-income countries.
45
 4 What are the characteristics
of developing countries?

4.1 Common characteristics

4.1.4 High Rate of Population Growth

More Q for brain storming

• What are the disadvantages of primary
export?
• Answer:

46
 4 What are the characteristics
of developing countries?

4.1 Common characteristics

4.1.5 Persistent market imperfections
Limited institutional development in areas such as:
• Banking and insurance
• Law and enforcement
• Standard setting institutions (engineering, medicine etc.)
• Information gathering and dissemination
• Information asymmetries
 high transaction cost (costs incurred in negotiating or enforcing
a contract or agreement)

Markets that are commonplace in developed economies (bond

markets, mortgage markets) do not exist or work very imperfectly in
these economies Limit the ability of these countries to compete in
the production of certain goods and services due to limited
investment/mobilization of capital for investment
47
 4 What are the characteristics
of developing countries?
Table: Financial Inclusion Index of some developing countries in 2017 (Source:
World Bank)
Country Internet Banking ATMs per Banks per ATM cards Internet
acess account owner 100,000 adults 100,000 adults owner banking user
( %) (%) (% ) (% )

Cambodia 28.71 21.67 16.73 7.52 0.60 1.41

India 14.14 79.88 22.07 14.72 12.33 6.72
Indonesia 32.23 48.86 55.61 16.89 12.28 6.63
Lao PDR 25.18 29.06 26.09 3.13 2.40 2.57
Myanmar 36.69 25.99 4.38 4.70 0.16 0.66
Nepal 24.33 45.39 10.28 11.37 2.65 4.40
Vietnam 51.52 30.80 24.34 3.41 6.20 15.16

World Avg. 55.69 61.15 54.44 17.89 33.9 24.73

=> Financial Inclusion Index of developing countries are all low and far below the
World Average 48
 4 What are the characteristics
of developing countries?

4.1 Common characteristics

4.1.5 Persistent market imperfections
Limited institutional development in areas such as:
• Banking and insurance
• Law and enforcement
• Standard setting institutions (engineering, medicine etc.)
• Information gathering and dissemination
• Information asymmetries
 high transaction cost (costs incurred in negotiating or enforcing
a contract or agreement)

Markets that are commonplace in developed economies (bond

markets, mortgage markets) do not exist or work very imperfectly in
these economies Limit the ability of these countries to compete in
the production of certain goods and services due to limited
investment/mobilization of capital for investment
49
 4 What are the characteristics
of developing countries?

4.1 Common characteristics

4.1.6 Persistent market imperfections
o Dominance
• Most of developing countries are small or weak
economically and have limited bargaining power in
international institutions and other forums
o For example
• Despite being the no 1 coffee exporter, Vietnam cannot
decide the price of coffee. Vietnamese farmers have to
accept the low price from New York or London coffee trading
center.

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 4 What are the characteristics
of developing countries?

4.1 Common characteristics

4.1.6 Persistent market imperfections
o Dependence
• Most of these countries remain in rather subservient
relationships with former colonial powers
• Often dependent on aid transfers and other historical
economic and cultural linkages
o For example
• A study in 2010 proved that colonial powers had malicious
effects on human development even centuries after they
were discontinued (Reading material Todaro, Chapter 2, Box
2.3: The Persistent Effects of Colonial Forced Labor on
Poverty and Development )

51
 4 What are the characteristics
of developing countries?

4.1 Common characteristics

4.1.6 Persistent market imperfections
o Vulnerability
• Greater likelihood of financial and other economic crises and
limited ability to mitigate against these and more natural
disasters etc.
• Danger of “brain drain”
o For example
• LDCs suffer the most from COVID pandemic because they
are export-dependent and have underdeveloped health
system
• By the late 1980s, Africa had lost nearly one-third of its
skilled workers, with up to 60,000 middle- and high-level
managers migrating to Europe and North America between
1985 and 1990. The Philippines lost 12% of its professional
workers to the United States, and 60% of Ghanaian doctors
came to practice abroad. 52
 4 What are the characteristics
of developing countries?

4.1 Common characteristics

4.1.6 Persistent market imperfections

Q for relaxing
• What are the disadvantages of attribute
4.1.6 for developing countries?
• Answer:

53
 4 What are the characteristics
of developing countries?

4.1 Common characteristics

4.1.6 Persistent market imperfections

Suggested answer:
Economic dependence leads to:
• dependence in other aspects
• Low negotiation power in the global markets or
in any cooperation, which in turn, re-enforce the
economic dependence or disadvantageous
economic order
• Failure to attain sustainability in development
…
54
 4 What are the characteristics
of developing countries?

4.1 Common characteristics

4.1.7 Lower levels of human capital
Advanced countries have higher
human capital scores than emerging
market countries (Source: IMF 2020)

55
 4 What are the characteristics
of developing countries?

4.1 Common characteristics

4.1.8 Greater social fractionalization
Country GINI
UK 0,35
Korea 0,36
Russia 0,38
US 0,39
Mexico 0,46
Brazil 0,47
India 0,5
China 0,51
Vietnam 0.42
Countries with low per capita income often have high Gini coefficients.
Most countries with high Gini coefficients are developing countries.
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 4 What are the characteristics
of developing countries?
4.1 Common characteristics
4.1.9 Adverse geography

As can be observed on the map, developing countries are primarily

tropical or subtropical. They suffer more from tropical pests and parasites,
endemic diseases such as malaria, water resource constraints,… 57
 4 What are the characteristics
of developing countries?
4.1 Common characteristics
4.1.10 Lower levels of industrialization and
manufactured exports
Table: Competitive Industrial Performance (CIP) ranking, 2015 (Source: UNIDO)

Majority of developing countries are middle-ranking. LDCs are

predominantly found at the lowest end of the ranking, representing
the less competitive industrial economies. 58
 4 What are the characteristics
of developing countries?

4.2 The diversity of developing countries

• The fact that these countries are all “less

developed” in some sense means that they all face a
common challenge of “development”

• However, this is by no means a homogeneous group

of countries and the nature of the challenges will
vary with the structural attributes  diversity come
shortly

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 4 What are the characteristics
of developing countries?

4.2 The diversity of developing countries

The differences between developing countries (and, in a large
part, the nature of their growth experience) can be seen in
various aspects, including:
• Country size
• Historical background
• Resource endowment
• Ethnic and religious composition
• Public-private mix
• Industrial structure
• Political and institutional structures
• Dependence on external economic and political forces

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 4 What are the characteristics
of developing countries?

4.2 The diversity of developing countries

4.2.1 Size differentials
Country Surface area Population
(thousand sq.km) (million)
China 9,563 1,393
Brazil 8,515 209.5
India 3,287 1,353
Ethiopia 1,104 109.2
Nigeria 924 195.9
Paraguay 407 7
Vietnam 331 95.5
Nepal 147 28.1
Fiji 18 0.9 61
 4 What are the characteristics
of developing countries?

4.2 The diversity of developing countries

4.2.1 Size differentials
• Large countries
• Tend to be more diverse (resources, ethnicity, religion etc),
more self sufficient and less trade dependent
• Diversity in production and consumption can be achieved
more easily.
• Economic growth is more internally driven.
• Ethnic and religious conflicts are more likely.
• Small countries
• Tend to be more uniform, less self-sufficient and more
trade dependent
• Less likelihood of internal discord.
• Openness becomes a necessary condition for
development (by any definition)
• Less economic diversity and therefore greater vulnerability
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 4 What are the characteristics
of developing countries?

4.2 The diversity of developing countries

4.2.2 Historical Experience: Colonialism
• Effects of colonialism varied with the colonial power, such as:
governance was administered by local people or expatriates:
the political and institutional structures were purely exotic or
impacted by local authorities/communities as well.
• The degree to which this process of adaptation has been
successful (or complete) has been also dependent on the
nature and length of colonization itself: the longer, the more
difficult to adjust after gaining independence
• The colonial heritage can also affect current economic
ideology: in spite of different geographical and demographic
diversity, Spanish and Portuguese colonies are sharing similar
economic and cultural institutions
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 4 What are the characteristics
of developing countries?

4.2 The diversity of developing countries

4.2.2 Historical Experience: Colonialism

Communism in Eastern Europe and Central Asia (as

well as parts of Asia) meant:
• The removal of basic institutions of capitalism (private
property, private banking etc.)
• Development of centrally planned economies
• Extremely large (and dominant) public sectors

64
 4 What are the characteristics
of developing countries?

4.2 The diversity of developing countries

4.2.3 Resource Endowment (1/2)

• Mineral Exporters
• Mineral wealth is not easily translated into broad based economic
growth. These countries also tend to be more unequal.
• Oil Exporting Countries: Saudi Arabia, Venezuela
• Other Mineral exporters: Chile, Angola, Congo

• Land Resource Endowment

• Some countries are blessed with large tracts of fertile land while
others have either limited or poor land resources, such as:
Argentina – the pampas help the country have good cows and beef

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 4 What are the characteristics
of developing countries?

4.2 The diversity of developing countries

4.2.3 Resource Endowment (2/2)
• Human Capital Endowment
• Human capital endowment can come in various forms:
• A highly educated and skilled labor force
• India, Chile
• A large population
• China, India, Indonesia
• little of either
• Ethiopia, Chad

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 4 What are the characteristics
of developing countries?

4.2 The diversity of developing countries

4.2.4 The Mix of Public and Private Sectors
• Most developing countries have mixed economic systems but they have various
combinations of public and private sectors, and different degree of foreign
ownership in the private sector.
• A large foreign-owned private sector creates economic and political opportunities
but also cause potential problems
• A large private sector can allow for more rapid rates of economic innovation but
can perpetuate inequality
• A large public sector can be created based on the assumption that limited skilled
manpower can be best used by coordinating rather than fragmenting
administrative and entrepreneurial activities. A large public sallow for more rapid
resource mobilization and better income distribution but can lead to stagnation
and inefficiency.
• Large public sectors: Sri Lanka, Vietnam, Cuba, Tanzania
• Large private sectors: : Chile, South Africa, Colombia
• Latin American and Southeast Asia have larger private sectors than South Asia due
to historical circumstances and political ideology
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 4 What are the characteristics
of developing countries?

4.2 The diversity of developing countries

4.2.5 Ethnic and Religious Diversity

Ethnic and religious diversity may make it more difficult

to develop a national consensus and, at worst, lead to
conflict
• Religious diversity:
• India
• Ethnic Diversity
• Kenya, Malaysia, Vietnam
• Both
• Nigeria, Indonesia

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 4 What are the characteristics
of developing countries?

4.2 The diversity of developing countries

4.2.6 Industrial Structure

• Developing Countries vary from highly industrialized

economies to many with no significant industrial
development:
• NIEs of Asia and Latin America: Malaysia, South Korea, Taiwan,
Thailand, Singapore, Argentina Brazil, Chile and Mexico
• Industrialized economies of Eastern Europe
• Besides, there are agrarian economies of Africa, Asia and Latin
America
• Ethiopia, Cambodia, Nicaragua etc.
• Several countries (China, India) have large industrial sectors but
these are still very small as compared to the agrarian sectors (in
terms of employment, though not necessarily output)
69
 4 What are the characteristics
of developing countries?

4.2 The diversity of developing countries

4.2.7 Political and Institutional Structures

• Developing countries vary from well functioning

democracy to dictatorship
• Each of these political systems present their own challenges and
opportunities
• While the determination and implementation of policy may be
easier in non-democratic frameworks, the development of a
national consensus may be more difficult.
• Institutional endowment may vary from highly
efficient legal, administrative and financial systems
(Taiwan) to near anarchy (Somalia)
70
 4 What are the characteristics
of developing countries?

4.2 The diversity of developing countries

4.2.8 Dependence on external economic and
political forces

• Extent of dependence on foreign economic, social and political

forces is related to size, resource endowment and political
history.
• Most small nations are dependent on the developed world
• Dependence is not confined to economic matters but also for
other aspects such as education, governance values, patterns
of consumption and attitude toward life, work and self.

71
 4 What are the characteristics
of developing countries?

4.2 The diversity of developing countries

To conclude: How severe is the poverty and
malaise in developing countries?

• The common challenges that developing countries are facing

can be described as “a vicious circle of poverty” from both
demand and supply sides

72
 4 What are the characteristics
of developing countries?

4.2 The diversity of developing countries

From supply side...

Low
investment

Limited Low productivity

savings

Low
income per
capita
73
 4 What are the characteristics
of developing countries?

4.2 The diversity of developing countries

From demand side...

Limited
size of
markets

Low Potential
productivity- investors are not
>low income encouraged

No incremental
investment

74
 5 How are they compared to
developed countries in their
earlier stages?
5.1 How are two halves of the world living?

5.2 How are developing countries today

compared to developed countries in their
earlier stages?

75
 5 How are they compared to
developed countries in their
earlier stages?
The world been changing dramatically:
globalization
What is economic globalization?
• “Globalization is the integration of national economies into the
international economy through trade in goods and services, direct
foreign investment, short-term capital flows, international
movement of people and flow of technology” (Perkins, 2006, p.9)
• “Globalization is the pervasive decline in barriers to the global flow
of information, ideas, factors (of production) (especially capital and
skilled labor), technology and goods” (Kaplinsky, 2001, p.14)
• “Globalization is much more than internationalization: it implies
functional integration between internationally dispersed activities”
(Gereffi, 2002, p.3)

76
 5 How are they compared to
developed countries in their
earlier stages?
More specifically, the world has been changed
as follows:
• Global trade increased rapidly, transportation & communication costs
fell sharply; global production networks emerged; higher extent of
integration with global markets
• Capital move more quickly and easily: developing countries can utilize
foreign capital (but danger of financial crisis in case local financial
institutions are weak and foreign capital is withdrawn quickly)
• Technology can make ideas and information spread more quickly and
developing countries can engage in service provision via internet or
telephone lines
• There have been substantial demographic shifts toward lower
population growth rates in many countries pressures on pensions and
other social programs
• Many low-income countries have adopted democratic political systems
since 1990s, but the impact of the move on economic development is
still controversial
• The spread of diseases, especially HIV/AIDS, threatens development
progress in many countries. Why? Answer:…. 77
 5 How are they compared to
developed countries in their
earlier stages?
5.2 How are they compared to developed
countries in their earlier stages?
• The situation of developing countries today differ
significantly from that of developed countries when they
start their stage of modern economic growth. Nine
significant differences can be identified.

78
 5 How are they compared to
developed countries in their
earlier stages?
5.2 How are they compared to developed
countries in their earlier stages?
The nine aspects are...
• Physical and human resource endowments
• Relative levels of per capita income and GDP
• Climate differences
• Population size, distribution and growth
• The historical role of migration
• The growth stimulus of international trade
• Basic scientific and technological research and development
capability
• Stability and flexibility of political and social institutions
• Efficacy of domestic eco. institution
79
 5 How are they compared to
developed countries in their
earlier stages?
5.2 How are they compared to developed
countries in their earlier stages?
5.2.1 Physical and Human Resource Endowments (1/2)
• Developing countries today have less natural
resources as compared to developed countries
when they began their rapid economic growth.
Only a few are endowed with supplies of petroleum
and other minerals.

• Some countries having abundant natural resources

face limit of capital investments to exploit or to
sacrifice substantial control to get external
financing 80
 5 How are they compared to
developed countries in their
earlier stages?
5.2 How are they compared to developed
countries in their earlier stages?
5.2.1 Physical and Human Resource Endowments (2/2)
• There is substantial gap regarding HR endowments.
This weakness hamper the exploitation of natural
resources to sustain long-term economic growth.
• HR development gap (idea gap) + physical object
gap = technology gap low capacity to generate
economic value.
(HR are human characteristics that raise a worker’s
productivity; HR depends on worker’s knowledge, skills and
attitudes)
81
 5 How are they compared to
developed countries in their
earlier stages?
5.2 How are they compared to developed
countries in their earlier stages?
5.2.2 Relative levels of income per capita and GDP
• Present developing countries: having much lower levels of
real per capita income + having to grow and develop in a
more interdependent world = disadvantage become more
severe. (a metaphor of the income levels between these
two groups of countries…)

• Such economic difficulties make these poor countries

sometimes determine or desire to grow at any cost: making
a trade off between current survival and long term
improvement in levels of living
82
 5 How are they compared to
developed countries in their
earlier stages?
5.2 How are they compared to developed
countries in their earlier stages?
5.2.3 Climatic differences
• Most of developing countries are located in tropical zones.
Heat and high humidity discourage workers to work hard or
to be creative.

• Tropical climate bring about danger of spread of diseases 

costs for remedy or prevention

83
 5 How are they compared to
developed countries in their
earlier stages?
5.2 How are they compared to developed
countries in their earlier stages?
5.2.4 Population size, distribution and growth
• Relatively higher population growth (2,5 to 3% as compared
to less than 2% for developed countries in the past).
• More importantly, population growth in developing
countries nowadays is exogenous (supported by foreign aids
in health care and others), while in developed countries it
was endogenous (induced by accelerated eco. growth in the
economy)
• Population concentration means low person to land ratios
 low labor productivity
• Relatively bigger population size
84
 5 How are they compared to
developed countries in their
earlier stages?
5.2 How are they compared to developed
countries in their earlier stages?
5.2.6 The growth stimulus of international trade
• Previously, developed countries can use free trade as engine
of growth as: export markets were expanding,
consequential local market expansion larger scale
manufacturing industries cheap capital costs 
production expansion increase in imports  more
diversifies industrial structure...
• Present developing countries are facing: Deteriorating trade
position, declining terms of trade, being unable to afford
advanced techno, low ability to compete internally
• More will be discussed in chap.6…
85
 5 How are they compared to
developed countries in their
earlier stages?
5.2 How are they compared to developed
countries in their earlier stages?
5.2.7 Basic scientific and technological research and
development capacity
• Previously, in developed countries: mass application of
technological innovations  high productivity  economic
growth  investment in further R&D  more techno.
innovations
• Present developing countries: (1) low financial resources for
investment in R&D and (2) dependence on rich countries for
technologies that do not match their resource endowments

86
 5 How are they compared to
developed countries in their
earlier stages?
5.2 How are they compared to developed
countries in their earlier stages?
5.2.8 Social and political institutions

• Previously, developed countries: independent, politically

unified societies, fully devoted to economic development
• Present developing countries: being either distracted by
internal wars or externally influenced, no full concentration
on economic growth

87
 5 How are they compared to
developed countries in their
earlier stages?
5.2 How are they compared to developed
countries in their earlier stages?
5.2.9 Efficacy of domestic eco. institution

• Previously, developed countries: institutions are more

transparent; ensure property rights, low cost, effective and
rapid access to dispute resolution such as contract
enforcement through courts
• Present developing countries: unclear institutions, outdated
institutions imposed by former colonizers, and difficult to
change  discourage business development and
innovations; result in low investment and high transaction
costs
88
 5 How are they compared to
developed countries in their
earlier stages?

A very easy Q to close our class today

• Can historical economic growth experience of
developed nations in their earlier stage be applied
in developing countries today? Why or why not?

89