Chapter 2 (ABOUT ECONOMICS OF DEVELOPMENT)

1- Underdevelopment country ‫الدول النامية‬

• is a country characterized by widespread chronic ‫مزمن‬

poverty and less economic development than other
nations.

• The United Nations lists 46 nations as least-developed

(underdeveloped/developing) in 2021 Countries

• Underdeveloped countries are called

▪low-income countries ‫االقل دخال‬

▪emerging markets

▪newly industrialized countries

▪members of the "Global South" .

2- Main characteristics of developing countries

1- Low level of GNI per capita:

The Gross National Product (GNP) per capita or Gross
National Income (GNI) per capita is a good index to
judge developing nations.

• Income inequalities between the developed and

developing countries worldwide are quite large.

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• For example; in 2007 according to the World Bank, the
average GNI per capita of the high income economies was
$37,566 while it was only $578 in low income developing
economies.

2-Larger income inequalities

The comparison of income distribution in developed and

under developing countries is generally made of incomes
net of direct taxes and excluding government benefits
which reflects the wider inequality of income distribution
in the underdeveloped countries.

3- Widespread Poverty: ‫انتشار الفقر‬

Both the relatively lower levels of GNP per capita and large
income inequalities in the developing countries of Asia,
Africa and Latin America, have resulted in widespread
poverty.

• the World Bank used a poverty line of $1 a day in 1993

PPP (Purchasing Power Parity) terms.
• This has been revised to $1.25 a day in 2005 PPP
terms.
• This poverty lines is found in the poorest 15 countries.
• In 2023, Extreme Poverty Line is 2.15$/day and
Poverty Line is 3.65$/day.

4- Low levels of Productivity: ‫مستوي قليل من االنتاجية‬

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 • Low levels of living and low productivity are self-
reinforcing social and economic phenomena in third
World countries.

• Labor productivity also depends on a number of

factors which developing countries lack ;

- health and skill of workers.

- motivation for work.
- institutional flexibilities.
- capital and managerial skill.

5- Great dependence on agriculture with a backward

industrial structure: ‫عل الزراعة‬
‫اهمال الصناعه واالعتماد ي‬

• In most of the Asian and African countries; agriculture

and allied activities account for 30% to 80% (20% in
Latin America) of the labor force.

• Labor productivity in the agricultural sector is lower in

the developing countries than in the developed
countries which means 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 be penetrated by modern
economic methods.

• The industrial sector in the developing countries is

both small and backward.

6- High Proportion of consumption and expenditure and

low risk saving rate: ‫عال‬
‫استهالك ي‬
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 • The underdeveloped countries differ from developed
countries in several respects:

• a large share for private consumption (73% – 75 %

compared with 64%-66% for developed countries);

• a slightly lower share for government consumption (11

to 12 %compared with 12 to 14 %);

• a distinctly lower share for gross domestic capital

formation (15 to 16 %, compared with 22 to 23 %);

• and an even lower share of gross national capital

formation (14 to 15 %, compared with 22 %).

• This can be explained knowing that in developing

countries; the income level is low, therefore the
propensity to consume is high, and as a consequence
capital formation will be low.

7- High rate of population growth and dependency

burdens: ‫زيادة السكان واالعباء‬

• Due to Population has been rising in most developing

countries at rates varying between 2 and 3.5 % per
annum for the past few decades. This high rate of
population growth in the third world countries is both
a cause and effect of their underdevelopment and is
due to:

• Decline in the mortality rates due to increased

medical facilities. ‫عدد وفيات قليل‬

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 • Very high birth rates in developing countries in the
range of 25 to 50 per thousand, while in developed
countries, it is 15 per thousand. ‫زيادة المواليد‬

• A major implication of high birth rates in the

developing countries is that it results in a greater
dependency burden than that in developed countries.

8- High levels of unemployment and underemployment:

• The traditional agriculture sector is characterized by

old techniques of production and low level of
productivity which doesn't absorb the labor force.
Thus, with rapidly growing population in developing
countries, pressure on agricultural land has been
increasing and with it the problem of disguised
unemployment is becoming increasingly serious.

9- Technological Backwardness:

• In developing countries, production techniques are

inefficient over a wide range of industrial activity
basically due to;

• Lack of research and development (R&D),

• weak communication system between the research

institutes and industries,

• abundance of labor and capital scarcity.

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 10- Dualism: ‫الثنائية‬

Various types of dualism exist in developing economies.

a)“Social Dualism” is the clash between an imported social

system (capitalism for example) and an indigenous social
‫السكان االصليي‬system (socialism). This clash however, cannot
speed up the process of development.

b)“Technological Dualism” means there are two different

sectors; the traditional rural sector ‫ ريف‬and the modern
sector. ‫مدن حديثة‬
•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 results in
unemployment of excess supply of labor or it must seek
employment in the traditional sector where marginal
productivity eventually falls to zero.

c)“Economic and Financial Dualism”; the dualism in

economic organization and production method between the
peasant sector and the mining manufacturing sector is
paralleled by the financial dualism. ‫الزراعة والتعدين‬

•In the colonial period in most underdeveloped countries

domestic financial institutions co – existed with modern
financial institutions oriented towards export production.
After these underdeveloped countries got independence,
they developed modern manufacturing industries oriented
towards domestic market. This required development of
modern financial institutions also giving rise to different
kind of financial dualism. ‫عرص االستعمار‬
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 11- Lower participation in foreign trade:

• It is commonly believed that developing countries rely

excessively on foreign trade, in the sense that their
properties of exports and imports to domestic product
are much higher than those of the developed
countries. This widespread belief is found to be
wrong.

• 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. He,
therefore, suggested that the effects of size should be
measured and eliminated first.

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.

• These developing economies became part of the world

capitalist system, however they remained backward
and were in fact made subservient to metropolitan
interests and were forced to specialize in primary
producing activities.

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 • The pattern and direction of trade was that; colonies
(developing countries) import all the capital goods,
industrial raw materials and most of the manufactured
consumer goods from the metropolitan countries,
while on the other hand they export one or two
primary products.

3 The Three Co-values of Development:

1. Sustenance: ‫القوت والمعيشة‬

The ability to meet basic needs. These life-

sustaining basic human needs include food, health,
and protection. When any of these is absent or in
critically short supply, a condition of “absolute
underdevelopment” exists.

2. Self-Esteem: ‫احترام الذات‬

A second universal component of the good life is

self-esteem- a sense of worth and self-respect, of
not being used as a tool by others for their own
ends.

3. Freedom from Servitude (bondage): ‫الحرية من‬

‫العبودية‬

The concept of human freedom should encompass

various component of political freedom including;
personal security, the rule of law, freedom of

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 expression, political participation, and equity of
opportunities.

4- Crowding out effect:

• When government spending fails to increase overall

aggregate demand, this causes an equivalent fall in
private sector spending and investment.

• This can be explained as follows;

Government spending is financed through borrowing
(selling government securities) from the private sector
(private individuals, pension funds or investment
trusts).

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 • Expansionary fiscal policy may lead to high inflation due to
the financing of a budget deficit through the printing of
money.
• Other problems associated with expansionary fiscal policy
include the time lag between the implementation of fiscal
policy and detectable effects in the economy.
• That’s why the classical economists argued that fiscal policy is
not an effective economic tool.

5 Economic Characteristics of Poverty Groups:

1- Rural Poverty:‫الفقر في الريف‬

• Most of the poor are located in rural areas whereas most LDC
government expenditures have been directed towards the
urban areas.

• In Africa and Asia, about 80% of all target poverty groups are
located in the rural areas, as are about 50% in Latin America.

2- Women and Poverty:

• Women make up a substantial majority of the world’s poor

however, they are less likely to receive medical services,
clean water, sanitation and other benefits. They also have less
access to education, formal sector employment, and social
security and government employment programs.

3- Ethnic Minorities and Poverty: ‫االقليات‬

• In recent years, domestic conflicts and even civil wars

have arisen out due to limited resources and job
opportunities.

• The poverty problem is more serious for indigenous

peoples, whose numbers exceed 300 million in over
5,000 different groups in more than 70 countries.
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