Unit 2: Understanding Development countries often undertake programs of

Among Developing Countries development, with greater or lesser

interventions on the part of the national
Unit 3: The Development Gap and the
governments. They are major borrowers
Measurement of Poverty from organizations such as the World Bank.

Outline: While no strict definition of which countries

are less developed exists, most countries
1. Developing World Defined
that do not belong to the OECD are
2. Basic Indicators of Development
considered less developed. See also:
3. Holistic Measures of Living Levels
International development.
and Capabilities
4. Characteristics of the Developing According to World Bank (2019):

World: Diversity within Commonality By Gross National Income (GNI) per capita
5. How Low-Income Countries Today
Low income - $1,025 or less
Differ from Developed Countries in
Their Earlier Stages Lower middle-income - $1,026 and $3,995
6. Are Living Standards of Developing
Upper middle income - $3,996 and $12,375
and Developed Nations Converging?
High-income economies - $12,376

Developing World
Basic Indicators of Development
The most common way to define the
developing work is by per capita income. a) Gross National Income (GNI)
Several international agencies, including the Gross National Income (GNI) per
Organization for Economic Cooperation and capita is the most common measure
Development (OECD) and the United of the overall level of economic
Nations, offer classifications of counties by activity, is often used as a summary
their economic status, but the best known is index of relative economic well-being
that of the World Bank. of people in different nations.
It is calculated as the total domestic
A country with lower GDP relative to other
and foreign value added claimed by a
countries. Less developed countries are
country’s residents without making
characterized by little industry and
deductions for depreciation (wearing
sometimes a comparatively high
out) of the domestic capital stock.
dependence on foreign aid. Less developed

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Ma. Eliza Grace B. Buaron, CTT
 b) Gross Domestic Product (GDP) Exchange rates are determined by
Gross Domestic Production the supply and demand for different
measures the total value for final use currencies. But the supply and
of output produced by an economy, demand for currencies are influenced
by both residents and non-residents. by factors such as currency
Thus, GNI comprises GDP plus the speculation, interest rates,
difference between the income government intervention and capital
residents receive from abroad for flows between countries rather than
factor services (labor and capital) by the currency requirements of
less payment made to non-residents international trade. Moreover, non-
who contribute to the local economy. tradable goods and services, such as
c) PPP method instead of exchange buildings, all government services,
rates as conversion factors and most market services, are not
It is calculated using a common set of traded internationally. For these
international prices for all goods and reasons, Exchange rates do not
services produced, valuing goods in reflect the relative purchasing powers
all countries at US prices of currencies in their national
In a simple version, PPP is defined as markets. So, Exchange rate
the number of units of a foreign converted data are usually
currency required to purchase the misleading on the relative sizes of
identical quantity of goods and economies.
services in the local LDC market as
$1 would buy in the US. Penn effect- Price levels are usually
higher in high-income countries than
What is the different between PPP they are in low-income countries. If
and RER? no account is taken of this when
converting the GDPs of countries to a
Effectively Exchange Rate (ER) is common currency, then the size of
calculated by converting currency high-income countries will be
from Country A to country B first, than overstated, and the size of low-
purchasing the same goods in income countries will be understated.
Country B, whereas PPP is the ratio
of the price of goods in each country. Purchasing Power Parity (PPP). In
their simplest form PPPs are nothing

2
Ma. Eliza Grace B. Buaron, CTT
 more than price relatives that show
the ratio of the Prices in national
currencies of the same good or
service in different countries.
E.g., if the price of a hamburger in
France is 2.84 euros and in the
United States it is 2.20 dollars, the
PPP for hamburgers between France
and the United States is 2.84 euros to
2.20 dollars or 1.29 euros to the
dollar. In other words, for every dollar
spent on hamburgers in the United
States, 1.29 euros would have to be
spent in France to obtain the same
quantity and quality – or volume - of
hamburgers.
If all goods were freely tradable, and
foreign and domestic residents
purchased identical baskets of
goods, purchasing power parity
(PPP) would hold for the exchange
rate and GDP deflators (price levels)
of the two countries, and the real
exchange rate would always equal 1.
Unfortunately, barriers to trade (as
well as potential Ricardian
advantages in production) often
mean one good is "cheaper" in a
given country than another, so RER
and PPP can and do differ.
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Ma. Eliza Grace B. Buaron, CTT
Holistic Measures of Living Levels and
Capabilities
Besides average incomes, it is necessary to
evaluate a nation’s average health and
educational attainments, which reflect core
capabilities.
a) Life expectancy is the average
number of years newborn children
would live if subjected to the mortality
risks prevailing for their cohort at the
time of their birth.
b) Undernourishment means
consuming too little food to maintain
normal levels of activity; it is what is
often called the problem of hunger.
c) High fertility can be both a cause
and a consequence of
underdevelopment, so the birth rate
is reported as another basic indicator.
d) Literacy is the fraction of adult
males and females reported or
estimated to have basic abilities to
read and write; functional literacy is
generally lower than the reported
numbers.
e) Human Development Index
(HDI) is an index measuring national
socioeconomic development, based
on combining measures of education,
health, and adjusted real income per
capita.
HDI can be calculated for groups and
regions in a country
 a) HDI varies among groups 2. Other key changes
within countries
a) Gross national income per capita
b) HDI varies across regions in a
replaces gross domestic product per
country
capita
c) HDI varies between rural and
urban areas b) Revised education components: now
using the average actual educational
What is new in the New HDI?
attainment of the whole population,
1. Calculating with a geometric mean
and the expected attainment of
a) How does the New HDI compare with today’s children
the better-known (but no longer
c) The maximum values in each
active) Traditional HDI?
dimension have been increased to
Probably most consequential: The the observed maximum rather than
index is now computed with a given a predefined cutoff
geometric mean, instead of an
d) The lower goalpost for income has
arithmetic mean.
been reduced due to new evidence
A geometric mean is also used to on lower possible income levels
build up the overall education index
from its two components. Traditional
HDI added the three components and
divided by 3
Characteristics of the Developing World:
New HDI takes the cube root of the Diversity within Commonality
product of the three component These eight characteristics are common
indexes. The traditional HDI among developing countries – on average
calculation assumed one component and with great diversity - in comparison with
traded off against another as perfect developed countries:
substitutes, a strong assumption. The 1. Lower levels of living and productivity
reformulation now allows for 2. Lower levels of human capital (health,
imperfect substitutability which education, skills)
development specialists widely 3. Higher Levels of Inequality and Absolute
consider a more plausible way to Poverty
frame the tradeoffs. 4. Higher Population Growth Rates
5. Greater Social Fractionalization

4
Ma. Eliza Grace B. Buaron, CTT
6. Larger Rural Populations but Rapid Rural- Moreover, in parts of Africa, where natural
to-Urban Migration resources are more plentiful, and geologists
7. Lower Levels of Industrialization and anticipate that there is far more yet to be
Manufactured Exports discovered, heavy investments of capital are
8. Adverse Geography needed to exploit them, which until very
9. Underdeveloped Financial and Other recently has been strongly inhibited by
markets domestic conflict and perhaps Western
10. Colonial Legacy and External attitudes. A new wave of investments from
Dependence China and other “non-traditional investors”
has begun to change the picture, though
critics are raising concerns about the
How Low-Income Countries Today Differ process and foreign appropriation of gains.
from Developed Countries in Their Earlier
Stages The difference in skilled human resource
The position of developing countries today is endowments is even more pronounced. The
in many important ways significantly different ability of a country to exploit its natural
from that of the currently developed resources and to initiate and sustain long-
countries when they embarked on their era term economic growth is dependent on,
of modern economic growth. among other things, the ingenuity and the
managerial and technical skills of its people
1. Physical and Human Resource and its access to critical market and product
Endowments information at minimal cost. Paul Romer
Contemporary developing countries are argues that today’s developing nations “are
often less well endowed with natural poor because their citizens do not have
resources than the currently developed access to the ideas that are used in industrial
nations were at the time when the latter nations to generate economic value.” For
nations began their modern growth. Some Romer, the technology gap between rich and
developing nations are blessed with poor nations can be divided into two
abundant supplies of petroleum, minerals, components, a physical object gap, involving
and raw materials for which world demand is factories, roads, and modern machinery, and
growing; most less developed countries, an idea gap, including knowledge about
however— especially in Asia, where more marketing, distribution, inventory control,
than half of the world’s population resides— transactions processing, and worker
are poorly endowed with natural resources. motivation. This idea gap, and what Thomas

5
Ma. Eliza Grace B. Buaron, CTT
Homer-Dixon calls the ingenuity gap (the
ability to apply innovative ideas to solve
practical social and technical problems),
between rich and poor nations lies at the core
of the development divide. There were no
comparative human resource gaps for the
now developed countries on the eve of their
industrialization.
2. Relative Levels of Per Capita Income
and GDP
The people living in low-income countries
have, on average, a lower level of real per
capita income than their developed-country
counterparts had in the nineteenth century.
First of all, nearly 40% of the population of
developing countries is attempting to subsist
at bare minimum levels. Obviously, the
average standard of living in, say, early-
nineteenth-century England was nothing to
envy or boast about, but it was not as
economically debilitating or precarious as it
is today for a large fraction of people in the
40 or so least developed countries, the
people now often referred to as the “bottom
billion.” Second, at the beginning of their
modern growth era, today’s developed
nations were economically in advance of the
rest of the world. They could therefore take
advantage of their relatively strong financial
position to widen the income gaps between
themselves and less fortunate countries in a
long period of income divergence. By
contrast, today’s developing countries began
6
Ma. Eliza Grace B. Buaron, CTT
their growth process at the low end of the
international per capita income scale.
3. Climatic Differences
Almost all developing countries are situated
in tropical or subtropical climatic zones. It has
been observed that the economically most
successful countries are in the temperate
zone. Although social inequality and
institutional factors are widely believed to be
of greater importance, the dichotomy is more
than coincidence. Colonialists apparently
created unhelpful “extractive” institutions
where they found it uncomfortable to settle.
But also, the extremes of heat and humidity
in most poor countries contribute to
deteriorating soil quality and the rapid
depreciation of many natural goods. They
also contribute to the low productivity of
certain crops, the weakened regenerative
growth of forests, and the poor health of
animals. Extremes of heat and humidity not
only cause discomfort to workers but can
also weaken their health, reduce their desire
to engage in strenuous physical work, and
generally lower their levels of productivity
and efficiency. There is evidence that tropical
geography does pose significant problems
for economic development and that special
attention in development assistance must be
given to these problems, such as a concerted
international effort to develop a malaria
vaccine.
4. Population Size, Distribution, and
Growth
Before and during their early growth years,
Western nations experienced a very slow
rise in population growth. As industrialization
proceeded, population growth
increased primarily because of falling death
rates but also because of slowly rising birth
rates. However, at no time did European and
North American countries have natural
population growth rates more than 2% per
annum, and they generally averaged much
less. By contrast, the populations of many
developing countries have been increasing
at annual rates more than 2.5% in recent
decades, and some are still rising that fast
today. Moreover, the concentration of these
large and growing populations in a few areas
means that many developing countries have
considerably higher person-to-land ratios
than the European countries did in their early
growth years. Finally, in terms
comparative absolute size, no country that
embarked on a long-term period
successful economic growth approached the
present-day population size of India, Egypt,
Pakistan, Indonesia, Nigeria, or Brazil. Nor
were their rates of natural increase anything
like that of present-day Kenya,
Philippines, Bangladesh, Malawi,
Guatemala. In fact, many observers doubt
whether the Industrial Revolution and the
high long-term growth rates of contemporary
developed countries could have
7
Ma. Eliza Grace B. Buaron, CTT
achieved or proceeded so fast and with so
few setbacks and disturbances, especially
for the very poor, had their populations been
expanding so rapidly.
rates 5. The Historical Role of International
Migration
In the nineteenth and early twentieth
centuries, a major outlet for rural populations
was international migration, which was both
widespread and large scale. More than 60
million people migrated to the Americas
between 1850 and 1914, a time when world
population averaged less than a quarter of its
current levels. In countries such as Italy,
Germany, and Ireland, periods of famine or
pressure on the land often combined with
limited economic opportunities in urban
industry to push unskilled rural workers
toward the labor scarce nations of North
America and Australia. In Brinley Thomas’s
of famous description, the “three outstanding
contributions of European labor to the
of American economy—1,187,000 Irish and
919,000 Germans between 1847 and 1855,
418,000 Scandinavians and 1,045,000
Germans between 1880 and 1885, and
1,754,000 Italians between 1898 and 1907—
the had the character of evacuations.” Whereas
or the main thrust of international emigration up
to World War I was both distant and
permanent, the period since World War II
witnessed a resurgence of international
been migration within Europe itself, which is
essentially over short distances and to a
large degree temporary. However, the
economic forces giving rise to this migration
are basically the same; that is, during the
1960s, surplus rural workers from southern
Italy, Greece, and Turkey flocked into areas
of labor shortages, most notably western
Germany and Switzerland. Similar trends
have been observed following the expansion
of the European Union. The fact that this later
migration from regions of surplus labor in
southern and southeastern Europe was
initially of both a permanent and
nonpermanent nature provided a valuable
dual benefit to the relatively poor areas from
which these unskilled workers migrated. The
home governments were relieved of the
costs of providing for people who in all
probability would remain unemployed, and
because a large percentage of the workers’
earnings were sent home, these
governments received a valuable and not
insignificant source of foreign exchange.
Historically, at least in the case of Africa,
migrant labor both within and between
countries was rather common and did
provide some relief for locally depressed
areas. Until recently, considerable benefits
accrued and numerous potential problems
were avoided by the fact that thousands of
unskilled laborers in Burkina Faso were able
to find temporary work in neighboring Côte
d’Ivoire. The same was true for Egyptians,
8
Ma. Eliza Grace B. Buaron, CTT
Pakistanis, and Indians in Kuwait and Saudi
Arabia; Tunisians, Moroccans, and Algerians
in southern Europe; Colombians in
Venezuela; and Haitians in the Dominican
Republic. However, there is far less scope for
reducing the pressures of growing
populations in developing countries today
through massive international emigration,
largely due to the very restrictive nature of
immigration laws in modern developed
countries.
a Despite these restrictions, well over 50
million people from the developing world
have managed to migrate to the developed
world since 1960. The pace of migration from
developing to developed countries—
particularly to the United States, Canada,
and Australia—has picked up since the mid-
1980s to between 2 and 3 million people per
year. And the numbers of undocumented or
illegal migrants have increased dramatically
since 1980. Some people in recipient
industrialized nations feel that these
migrants are taking jobs away from poor,
unskilled citizen workers. Moreover, illegal
migrants and their families are often believed
to be taking unfair advantage of free local
health, educational, and social services,
causing upward pressure on local taxes to
support these services—despite emerging
evidence that legalizing immigration actually
provides a net positive effect on reducing
deficits as well as to overall economic
activity. As a result, major debates are now
under way in both the United States and
Europe regarding the treatment of illegal
migrants. Many citizens want severe
restrictions on the number of immigrants that
are permitted to enter or reside in developed
countries. The anti-immigration law passed
in Arizona in 2010 reinforced the deterrent
effect of the Mexico U.S. border fence and
also led many legal immigrants to feel
vulnerable; a vociferous political debate
surrounded proposed immigration reform
legislation in the United States in 2013. In
Europe, anti-immigrant parties have scored
major gains, as in the Netherlands and
Sweden in 2010.
The irony of international migration today,
however, is not merely that this traditional
outlet for surplus people has effectively been
closed off but that many of the people who
migrate from poor to richer lands are the very
ones that developing countries can least
afford to lose: the highly educated and
skilled. Since the great majority of these
migrants move on a permanent basis, this
perverse brain drain not only represents a
loss of valuable human resources but could
also prove to be a serious constraint on the
future economic progress of developing
nations. For example, between 1960 and
1990, more than a million high-level
professional and technical workers from the
developing countries migrated to the United
9
Ma. Eliza Grace B. Buaron, CTT
States, Canada, and the United Kingdom. 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. Sudan, for example, lost 17% of
its doctors and dentists, 20% of its university
teachers, 30% of its engineers, and 45% of
its surveyors. The Philippines lost 12% of its
professional workers to the United States,
and 60% of Ghanaian doctors came to
practice abroad. India has been concerned
that it may be unable to meet its burgeoning
requirements for information technology
workers in its growing high-tech enclaves if
emigration to the United States, Canada, and
the United Kingdom continues at its current
pace. Globally, remittances from illegal and
legal migrants have been topping $100
million annually in this century and
approached $200 billion in 2006. Migration,
when it is permitted, reduces poverty for
migrants and their families, and most of the
poverty-reducing benefits of migration for
those remaining in the origin countries come
through remittances.
Paradoxically, a potential benefit is that the
mere possibility of skilled emigration may
encourage many more workers to acquire
information technology or other skills than
are ultimately able to leave, leading to a net
increase in labor force skills. At least in
theory, the result could actually be a “brain
gain.” The fundamental point remains, free capital movements, and the unfettered
however, that the possibility of international international migration of unskilled surplus
migration of unskilled workers on a scale labor.
proportional to that of the nineteenth and
early twentieth centuries no longer exists to In the twentieth century, the situation for
provide an equivalent safety valve for the many developing countries was very
unskilled contemporary populations of Africa, different. With the exception of a few very
Asia, and Latin America. successful Asian countries, the non-oil-
exporting (and even some oil-exporting)
6. The Growth Stimulus of International developing countries faced formidable
Trade difficulties in trying to generate rapid
International free trade has been called the economic growth on the basis of world trade.
“engine of growth” that propelled the For much of the past century, many
development of today’s economically developing countries experienced a
advanced nations during the nineteenth and deteriorating trade position. Their exports
early twentieth centuries. Rapidly expanding expanded, but usually not as fast as the
export markets provided an additional exports of developed nations. Their terms of
stimulus to growing local demands that led to trade (the price they receive for their exports
the establishment of large-scale relative to the price they have to pay for
manufacturing industries. Together with a imports) declined over several decades.
relatively stable political structure and Export volume therefore had to grow faster
flexible social institutions, these increased just to earn the same amount of foreign
export earnings enabled the developing currency as in previous years. Moreover, it is
countries of the nineteenth century to borrow unclear whether the commodity price boom
funds in the international capital market at of the early twenty-first century, which
very low interest rates. This capital reversed only a portion of the long-term price
accumulation in turn stimulated further declines, and fueled by the spectacular
production, made increased imports growth in China, can be maintained.
possible, and led to a more diversified Commodity prices are also subject to large,
industrial structure. In the nineteenth potentially destabilizing price Fluctuations.
century, European and North American
countries were able to participate in this Where developing countries are successful
dynamic growth of international exchange at becoming lower-cost producers of
largely on the basis of relatively free trade, competitive products with the developed

10
Ma. Eliza Grace B. Buaron, CTT
countries (e.g., textiles, clothing, shoes, corporations. Moreover, research funds are
some light manufactures), the latter have spent on solving the economic and
often resorted to various forms of tariff and technological problems of concern to rich
nontariff barriers to trade, including countries in accordance with their own
“voluntary” import quotas, excessive sanitary economic priorities and resource
requirements, intellectual property claims, endowments.
antidumping “investigations,” and special
licensing arrangements. But in recent years, In the important area of scientific and
an increasing number of developing technological research, low-income
countries, particularly China and others in developing nations are in an extremely
East and Southeast Asia, have benefited disadvantageous position vis-à-vis the
from expanded manufactures exports to developed nations. In contrast, when the
developed countries. latter countries were embarking on their early
growth process, they were scientifically and
7. Basic Scientific and Technological technologically greatly in advance of the rest
Research and Development Capabilities of the world. They could consequently focus
Basic scientific research and technological on staying ahead by designing and
development have played a crucial role in the developing new technology at a pace
modern economic growth experience of dictated by their long-term economic growth
contemporary developed countries. Their requirements.
high rates of growth have been sustained by
the interplay between mass applications of 8. Efficacy of Domestic Institutions
many new technological innovations based Another difference between most developing
on a rapid advancement in the stock of countries and most developed countries at
scientific knowledge and further additions to the time of their early stages of economic
that stock of knowledge made possible by development lies in the efficacy of domestic
growing surplus wealth. And even today, the economic, political, and social institutions. By
process of scientific and technological the time of their early industrialization, many
advance in all its stages, from basic research developed countries, notably the United
to product development, is heavily Kingdom, the United States, and Canada,
concentrated in the rich nations, despite the had economic rules in place that provided
emergence of China and India as relatively broad access to opportunity for
destinations for research and development individuals with entrepreneurial drive. Earlier
(R&D) activities of multinational in the discussion, we noted that high

11
Ma. Eliza Grace B. Buaron, CTT
inequality and poor institutions facilitating
extraction rather than providing incentives for
productivity were often established by
colonial powers. Today such extraction may
be carried out by powerful local interests as
well as foreign ones. But it is very difficult to
change institutions rapidly. As Douglass
North stresses, even if the formal rules “may
be changed overnight, the informal rules
usually change only ever so gradually.”
The developed countries also typically
enjoyed relatively stronger political stability
and more flexible social institutions with
broader access to mobility. States typically
emerged more organically over a longer
period of time in the developed regions, and
consolidation as nation-states generally
occurred before the industrial era. In
contrast, particularly in Africa, national
boundaries were more arbitrarily dictated by
colonial powers. The “failed state,” and
states in danger of becoming so, is a
phenomenon of the postcolonial period, with
roots in imperial and colonial practices.
Although many developing nations have
roots in ancient civilizations, a long hiatus
often existed between autonomous regimes.
Are Living Standards of Developing and
Developed Nations Converging?
At the dawn of the industrial era, average real
living standards in the richest countries were
12
Ma. Eliza Grace B. Buaron, CTT
no more than three times as great as those
of the poorest. Today, the ratio approaches
100 to 1. So as noted by Lant Pritchett, there
is no doubt that today’s developed countries
have enjoyed far higher rates of economic
growth averaged over two centuries than
today’s developing countries, a process
known as divergence. But in comparing
development performance among
developing nations and between developed
and developing countries, it is appropriate to
consider whether, with strenuous economic
development efforts being made throughout
the developing world, living standards of
developing and developed nations are
exhibiting convergence.
Today’s developing countries do not have to
“reinvent the wheel”; for example, they do not
have to use vacuum tubes before they can
use semiconductors. Even if royalties must
be paid, it is cheaper to replicate technology
than to undertake original R&D, partly
because one does not have to pay for
mistakes and dead ends along the way. This
should enable developing countries to
“leapfrog” over some of the earlier stages of
technological development, moving
immediately to high-productivity techniques
of production. As a result, they should be
able to grow much faster than today’s
developed countries are growing now or
were able to grow in the past, when they had
to invent the technology as they went along
and proceed step by step through the investment rates in developing countries,
historical stages of innovation. (This is either through domestic sources or through
known as an “advantage of backwardness,” attracting foreign investment. With higher
a term coined by economic historian investment rates, capital would grow more
Alexander Gerschenkron.) In fact, if we quickly in developing countries until
confine our attention to cases of successful approximately equal levels of capital and
development, the later a country begins its (other things being equal) output per worker
modern economic growth, the shorter the were achieved.
time needed to double output per worker. For
example, Britain doubled its output per Given one or both conditions, technology
person in the first 60 years of its industrial transfer and more rapid capital
development, and the United States did so in accumulation, incomes would tend toward
45 years. South Korea once doubled per convergence in the long run as the faster-
capita output in less than 12 years, and growing developing countries would be
China has done so in less than 9 years. catching up with the slower-growing
developed countries. Even if incomes did not
The second reason to expect convergence if eventually turn out to be identical, they would
conditions are similar is based on factor at least tend to converge conditional on (i.e.,
accumulation. Today’s developed countries after also taking account of any systematic
have high levels of physical and human differences in) key variables such as
capital; in a production function analysis, this population growth rates and savings rates.
would explain their high levels of output per Given the huge differences in capital and
person. But in traditional neoclassical technology across countries, if growth
analysis, the marginal product of capital and conditions were similar, we should see
the profitability of investments would be tendencies for convergence in the data.
lower in developed countries where capital
intensity is higher, provided that the law of
diminishing returns applied. That is, the Concepts (Additional) for Review:
impact of additional capital on output would Absolute poverty
be expected to be smaller in a developed Brain drain
country that already had a lot of capital in Capital stock
relation to the size of its workforce than in a Convergence
developing country where capital was Crude birth rate
scarce. As a result, we would expect higher Dependency burden

13
Ma. Eliza Grace B. Buaron, CTT
Depreciation (of the capital stock)
Diminishing Marginal Utility
Divergence
Economic Institutions
Fractionalization
Free trade
Gross domestic product (GDP)
Gross national income (GNI)
Human capital
Human Development Index (HDI)
Imperfect market
Incomplete information
Infrastructure
Least developed countries
Low-income countries (LICs)
Middle-income countries
Newly industrializing countries (NICs)
Purchasing power parity (PPP)
Research and development (R&D)
Resource endowment
Terms of trade
Value added
World Bank
Seatwork (Week 2)
Instructions:
1. File type: Word or PDF
2. Just provide your answers, no need to
copy the questions.
3. File name: (Last name_Seatwork2)
4. Indicate your sources using the APA
format.
14
Ma. Eliza Grace B. Buaron, CTT
True or False:
______1. Less developed countries are
characterized by little industry and
sometimes a comparatively high
dependence on foreign aid.
______2. Sometimes a special distinction is
made among middle-income or newly high-
income economies, designating some that
have achieved relatively advanced
manufacturing sectors as newly
industrializing countries (NICs).
______3. Gross national income (GNI) is
calculated as the total domestic and foreign
value added claimed by a country’s residents
without making deductions for depreciation
(or wearing out) of the domestic capital stock.
______4. Gross national product (GNP)
measures the total value for final use of
output produced by an economy’s country, by
both residents and nonresidents.
______5. Per capita GNI comparisons
between developed and less developed
countries are exaggerated by the use of
purchasing power parity to measure the
number of units of a foreign country’s
currency required to purchase the identical
quantity of goods and services in the local
developing country market as $1 would buy
in the United States. This conversion does
not measure the relative domestic
purchasing power of different currencies.
Essay:
1. Describe the 10 characteristics of the
developing world and explain each.

Reference:
Todaro, M. (2015). Economic Development
12th edition. New Jersey: Pearson
Education Inc.

15
Ma. Eliza Grace B. Buaron, CTT