Characteristics of

LDCs

Dr. Mohanasundari T
Economics, HSS
IIT Indore, M.P.
Meaning
• An undeveloped country - no prospects of development. The Antarctic, the
Arctic and parts of the Sahara

• An underdeveloped country, is one which has no potentialities of development.,

India, Pakistan, Uganda, Columbia, Panama, etc., “Poor” and “backward” are also
used as synonyms for “underdeveloped”.

• Underdevelopment can be defined in many ways: by the incidence of poverty,

ignorance, or disease; by maldistribution of the national income; by administrative
incompetence, by social disorganization
 LDCs
• Since 1968 the world's poorest countries have been classed as least developed countries.
• UN calls them 'the poorest and most economically week of the developing countries with
formidable economic, institutional and human resource problems, which are often compounded
by geographical handicaps and natural and man-made disasters’.
• This list contains 49 countries:
• 33 in Africa (all sub-saharan)
• Others in southeast Asia and a number of small island states in the Pacific.
Features of LDCs:
• Low incomes, measured as less than $800 GDP per capita per year averaged over a 3- year
period.
• Human resource weaknesses: based upon indicators of nutrition, health, education levels and
literacy.
• Economic vulnerability: share of manufacturing in the GDP, per capita energy consumption,
and population displaced by natural disasters.
 Low levels of gross national product (GNP) or gross national income (GNI)
per capita
Common Larger income inequalities

Widespread poverty
Characteristics
Low levels of productivity
of
Great dependence on agriculture with a backward industrial structure
LDCs High proportion of consumption expenditure and low savings rate

High rates of population growth and dependency burdens

High levels of unemployment and underemployment

Technological backwardness

Dualism

Lower participation in foreign trade Dependence

 1. Low levels of GNI per capita
➢ low level of national income in most
LDCs, or a high level of population, or
both.
➢ World Bank, in 2013 there were 31 low-
income economies where the GNI per
capita at current prices was $ 1,035 or
less.
➢ In 2013, the average GNI per capita of
the high income economies was
estimated at $ 39,312 while it was only
$664 in low income developing
economies.
➢ Low per capita real income is a reflection
of low productivity, low saving and
investment and backward technology and
resources.
• average Indian earned 1.5 per cent <
income of an average American in 1991.
• The economic distance between the two
groups of countries increases with every
year that passes.

GNI Per capita & Income Thresholds
As of 1 July 2019, low-income economies
are defined as those with a GNI per capita,
calculated using the World Bank Atlas
method, of $1,025 or less in 2018; lower
middle-income economies are those with a
GNI per capita between $1,026 and $3,995;
upper middle-income economies are those
between $3,996 and $12,375; high-income
economies are those with a GNI per capita of
$12,376 or more.
The chart shows how the thresholds, and
various countries' economies have evolved
over time.
Chart shows, many countries' incomes have
transcended the income group thresholds over
time. Because most parts of the world have
experienced considerable economic growth in
recent decades, and the classification
thresholds are held stable in real terms, there
are now fewer low-income countries and
more countries have gained middle or high-
income status.
 Number of countries by income group, 1993-2019
Since 2003, the number of low-income countries has nearly halved, declining from 66 to 31 in 2019. The
number of high-income countries is currently 80, up from less than 50 in the 1990s. The number of middle-
income countries is 107 (60 UMICs and 47 LMICs) and has not changed much as countries have transitioned
both in and out of this group. The chart below summarizes the number of countries in each group over time.
2. Larger income inequalities
• The pattern of income distribution within the LDCs shows considerable variation.
• high rates of growth of income in the LDCs will always have an adverse effect on
relative equality.

• evidence from forty-four LDCs suggest that, on average, only about 6 per cent of
national income accrues to the poorest 20 per cent of the population, whereas 30–
56 per cent of national income is obtained by the highest-paid 5–20 per cent of the
population

• However, some of the LDCs like Taiwan (1964), South Korea (1970) and Sri
Lanka (1969–70) show low inequality as measured by the Gini coefficients which
stood at 0.32, 0.36 and 0.37 respectively for these countries some is obtained by
the highest-paid 5–20 per cent of the population.
2. Larger income inequalities-
The ‘Second-Generation’ problem

• Green Revolution’ →rise in farm income and profits among rich peasants - access
to the crucial inputs like fertilizers, irrigation facilities, better seeds, credit and
marketing facilities.

• This has simply heightened the problem of distribution of such gains more equally,
particularly among the poorer section of the rural population who depend mainly
on agriculture for their livelihood.

• It has sometimes been regarded as the ‘second-generation’ problem of the green

revolution which requires urgent attention in the LDCs for maintenance of both
economic and socio-political stability
Source: https://wid.world/country/india/
https://wid.world/world/#shweal_p9
0p100_z/US;FR;DE;CN;ZA;GB;WO;IN/
last/eu/k/p/yearly/s/false/38.199000
000000005/100/curve/false/country
Inequality comparision
 • Significant proportion of their populations earn a level of
3. Widespread poverty. income which varies between $50 and $75 per annum in
1990 prices. This income is regarded as the minimum level
for bare survival in the LDCs.
• About 1.4 billion people, which accounts for about 35 per
cent of the world’s population, lived at ‘subsistence level’ at
the end of 1990.
3. Widespread poverty.
• COVID-19 is pushing 71 -100
million into extreme poverty based
on the latest Global Economic
Prospects (GEP).
• The global poverty rate was
projected to go down to 8.2
percent in 2019, but due to
COVID19, is now projected to
increase to 8.8 percent (baseline)
and 9.2 percent (downside) in
2020 Mahler et al. (2020).
• Suppose a country’s poverty
projections for 2019 and 2020
prior to the COVID-19 outbreak
were 19 and 17 percent,
respectively, while a country’s
projections for 2019 and 2020 by
GEP June 2020 are 19 and 22
percent, respectively.
3. Widespread poverty.

• People who live on the poverty line in the LDCs usually reside in the rural areas.
This raises the problem of income distribution not only among the rich and the
poor but also among urban and rural.
• The poverty problem could perhaps be overcome in these countries with a more
equitable income distribution.
• If developing countries wish to wipe out poverty they have no choice except to
improve the income distribution so as to ensure a minimum standard of living in
terms of calorie intake and nutrition levels, clothing, sanitation, health, education
and so on.
• Eg:China
 4. Low levels of productivity.
• The supply of labour > demand → unemployment—open, disguised or under-employment.
• Labour productivity is low. It is both a cause and effect of low levels of living in these countries.

• Todaro and Smith assert that “low levels of living and low productivity are self-reinforcing
social and economic phenomena in Third World countries, and as such, are the principal
manifestations of and contributors to their underdevelopment.”
• Reasons for Low productivity: the availability of other inputs to be combined with labour —
health and skill of workers, motivation for work and institutional flexibilities.
• Labour Problems: Lack of skilled labour, primarily engaged in agriculture, mobility is less,
Wages are less and vary between urban industry to rural agricultural wages. Workers lack
motivation to raise their productivity in exploitative less developed capitalist economies
• Lack of proper educational facilities, poor health and standard of nutrition, and paucity of both
physical and social capital could account for the low productivity
4. Low levels of productivity.
• Mydral - theory of “circular and cumulative causation” in terms of these interactions
between low levels of living and low productivity of labour.
• At low levels of productivity the shareable cake will also be small and people cannot hope
for an overall prosperity in the country.
• Some groups constituting a microscopic minority can succeed in achieving a good living
standard, but this they can manage only by sacrificing the interests of the vast mass of the
population.
• Increase in labour productivity is the only way of raising the living standards of the mass of
people in the developing countries.
• Institutional changes are also necessary to build up the stock of human capital.
• Apart from creating a network of educational and training facilities, the State should
eliminate oppressive land tenure system, improve tax, credit and banking structures and
restructure administrative system with a complete break from its colonial past.
5. Predominance of agriculture in the national economy
• Harvey Leibenstein - developing economies are basically agrarian.
• Agriculture 45–90% of the total output and about 60–95% (30 to 70%) of total employment.
• Economic growth and development will be closely tied to the development of agriculture.
• Many LDCs neglected agriculture and decided to promote industrialization as quickly as
possible.
• URBAN BIAS: Imbalanced growth between agriculture and industry because planners and
policymakers concentrate only on Urban-Industries towards which resources are redirected.
But most poor are in Rural-Agricultural sector.
• Agriculture in many LDCs is characterized by high pressure on land, use of very backward
technology, Low literacy, low saving and investment and hence poor productivity. A large
majority of the peasants live in abject-poverty.
• The land is scattered and fragmented and the distribution of land ownership is haphazard in
most cases.
• Lack of adequate water supply prohibits the use of modern technology like better seeds and
chemical fertilizers and modern irrigation, fertigation methods.
• large employment and a considerably large portion of the national income also originates in
this sector
• Simon Kuznets remarks, “One major implication of the relatively low per worker production in
agriculture in the underdeveloped countries is that a large proportion of the population is
attached to a sector with low productivity operating under conditions of rural life and isolation
that cannot easily be penetrated by modern economic methods.

6. High
proportion of
SAVING
consumption
• If the income level is low, the
expenditure propensity to consume will be
and low saving high, and as a consequence
capital formation will be low.
rate. • Ragnar Nurkse: Underdeveloped
countries are caught in a vicious
circle of poverty and they do not
have much capacity to save.
• Demand for loanable funds is not
enough to induce them to save
which indulge in wasteful
consumption.
CONSUMPTION
• large share for private
consumption (73 to 75 per cent
compared with 64 to 66 per cent for
developed countries);
• a slightly lower share for
government consumption (11 to 12
per cent compared with 12 to 14 per
cent);
• a distinctly lower share for gross
domestic capital formation (15 to 16
per cent, compared with 22 to 23
per cent); and
• an even lower share of gross
national capital formation (14 to 15
per cent, compared with 22 per
cent)
• Kuznets
 7. High rates of population growth and dependency
burdens.
• Population rising at rates between 2 and 3.5 per cent per annum for the past few decades.
• Increase in birthrate and Decrease in Death rate due to increased medical facilities or both.
• However, in most developing countries birth rate remains very high, in the range of 25 to
50 per thousand, while in developed countries, nowhere it exceeds 15 per thousand
• A major implication of high birth rates in the developing countries is that it results in a greater
dependency burden than that in the developed countries.
• Proportion of children below 15 years is 39% in LDCs as against only 17% in DCs.
• On account of greater longevity of life in the DCs, dependency burden of older people is
much greater in DCs.
• Children are considered as asset in LDCs but Liability in DCs.
• The overall dependency burden (i.e., both young and old) in the LDCs 1/2 of the population
as against about 1/3 of the population in the DCs. Proportion of productive population is
much lower in the LDCs.
8. High levels of unemployment and underemployment.

• Unemployment in both rural and urban areas is widespread in LDCs.

• The traditional agriculture with out modeled techniques of production and low level of
productivity lacks labour absorption capacity.
• Thus, with rapidly growing population in these countries, pressure of population on
agricultural land has been increasing and with it the problem of disguised unemployment is
becoming increasingly serious.
• Rural people migrate to cities in search of jobs where not many employment opportunities
exist for them. This part of urban unemployment in the developing countries is a spillover of
unemployment.
• Another reason for unemployment in cities is inadequate growth of industries. In LDCs
markets for manufactures are quite small due to widespread poverty. Faced with the problems
of lack of adequate demand, industries grow at a snail’s pace and fail to provide jobs in
sufficient number to absorb the growing population.
 8. High levels of unemployment and
underemployment.
• Current rates of open unemployment in urban areas in most developing countries average from
10 to 15% of the urban labour force. Unemployment among educated people aged 15 to 24 years
is also considerable in the urban areas.
• Not an indicator of over-investment in education. Because it is caused by market imperfections.
• An active ‘manpower policy’ designed to improve the functioning of labour markets.
• The overall unemployment position in the developing countries is quite grave.
• According to Michael P. Todaro, “When the underemployed are added to the openly
unemployed and when “discouraged workers” — those who have given up looking for a job
— are added in, almost 35 per cent of the combined urban and rural labour forces in Third
World nations is unutilised.”
 9. Technological backwardness.
• Production techniques are inefficient (whole of agriculture, small-scale units and handicrafts).
• Factors: Lack of research and development (R&D), weak communication system between the
research institutes and industries, abundance of labour and capital scarcity.
• Developing countries generally do not have large effective institutions working for discovering
appropriate technology. Import technology from developed countries which often fails to adapt to
local conditions.
• Moreover, whatever limited research is undertaken in industrial technology, its results fail to
reach producers due to weak communication system.
• Technological choice of producers is dictated by their poverty. Farmers are well aware of the
merits of new farm techniques/Mechanization requiring, but still many of them still persist with
traditional farming due to their inability to raise resources required by the new technology,
Fragmented land nature.
• In the industrial sector, workers’ unions often oppose introduction of labour displacing
technology.
 10. Dualism.
• Social dualism’ was quite popular with the Western economists
• J.K. Boeke (study of the Indonesian economy) - social dualism arises in a backward economy with
the import of an alien progressive system. In Indonesia, it had emerged with the import of
capitalism, in that country under the Dutch rule.
• The imported system, according to the exponents of social dualism, comes in conflict with the
indigenous system of another style. It, however, cannot speed up the process of development.
Boeke asserts that industrial or agricultural development in these countries has to be a ‘slow
process’, small scale and adapted to a dualistic system.
• Benjamin Higgins contends that “dualism is more readily explained in economic and
technological terms.” He uses the concept of Technological dualism to explain the labour
employment problems.
• In his model of an underdeveloped economy there are two compartmentalised sectors, viz., the
traditional rural sector and the modern sector. The traditional rural sector has variable technical
coefficients of production in contrast to modern sector’s fixed technical coefficients of production.
• The implication of these is that the rapid growth of population (if not accompanied by a sufficient
accumulation of capital) results in unemployment of excess supply of labour or it must seek
employment in the traditional sector where marginal productivity eventually falls to zero.
11. Lower participation in foreign trade.
• Simon Kuznets finds that the extent of participation of a country in foreign trade cannot
be measured directly because the proportion of foreign trade to total output is affected by
the size of a country. Effects of size should be measured and eliminated first.
• Participation in foreign trade by underdeveloped countries is distinctly lower than that of
developed countries.
• Thus, if the average foreign trade proportions expected on the basis of size were the same
for the two groups of countries, viz., developed and developing, the average actual trade
proportion for developing countries would be considerably lower than that for the
developed countries.
• Underdevelopment of a country cannot, in itself, induce large foreign trade.
• The inadequate development of transportation system and trade organization and
backwardness of production technology are some such factors that would make large
exports and imports impossible.
12. Dependence.
• The process of underdevelopment in the Asian, African and Latin American countries had
begun with the integration of their economies with those of the West European capitalist
economies.
• This relationship between the colonies and the metropolitan countries gave rise to an
international division of labour which allowed industrial development to take place only in the
latter. Though the economies of the colonies remained backward yet they were part of the
world capitalist system.
• LDCs made subservient to metropolitan interests and were forced to specialise in primary
producing activities. The pattern and direction of trade in the colonial period was also
determined by the basic fact of the integration of colonies with the metropolitan countries.
• Colonies depended on the metropolitan countries for almost all the capital goods, industrial
raw materials and most of the manufactured consumer goods-their exports constituted of one
or two primary products. India, for example, depended on exports of tea and jute for most of
the colonial period. Similarly, Malaysia’s exports of rubber, Brazil’s exports of coffee, Sri
Lanka’s exports of tea and Cuba’s exports of sugar reflected their great dependence on the
markets they got for these primary products in the metropolitan countries.
 Most Factors are dependent & Vicious
High Population
Developing nations share a set of
common and well-defined goals
Inequality & Poverty Agri
reduction of poverty, inequality and Predominance
unemployment

provision of minimum levels of

education, health, housing and food to
every citizen; Less Unemployment
participation in & Low
Trade Productivity
the broadening of economic and social
opportunities;

and the forging of a cohesive nation-

Low savings and Backward
state. Investment Technologies
Thank You

Q&A