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DevelopmentDevelopmentKey Issue #4: “Why do less developed
countries face obstacles to development?”
Improvement in PINGsImprovement in PINGs
To promote development, PINGs seek to improve the indicators…economic, social, and demographic
PINGs are improving, but the gap is growing◦Example: PINGs have improved income by
$4,000, but PEDs have improved by $20,000
Differences in consumptionDifferences in consumption
1/5 of the world’s population living in PEDs consume 5/6 of the world’s goods
14% of the world’s people living in Africa only consume about 1%
Two fundamental obstacles to Two fundamental obstacles to PINGs trying to developPINGs trying to develop
1. Adopting policies that successfully promote development
2. Finding funds to pay for development
Development through self-Development through self-sufficiencysufficiency
For most of the 20th century, self-sufficiency was the more popular of the development alternatives
Key elements:1. Investment is spread across all economic
sectors2. Focus is on promoting wealth across
income levels, not just the rich3. Barriers are set on imports (tariffs, taxes,
quotas, requiring licenses)
Example of Self-Sufficiency: IndiaExample of Self-Sufficiency: India
India made efficient use of barriers to trade
Indian businesses were discouraged from producing goods for export
Businesses produce for IndiaIf private companies were unable to make
a profit by selling only to India, then the government would provide a subsidy
Problems with self-sufficiencyProblems with self-sufficiency
1. Inefficiency: self-sufficiency protects inefficient industries
• Business has little incentive to improve quality, lower production costs, reduce prices, or increase production
2. Large Bureaucracy: self-sufficiency requires large bureaucracy to administer the controls
• A complex administrative system encouraged abuse and corruption
Development through Development through international tradeinternational trade
A country identifies its distinctive/unique assets
What product can the country manufacture and distribute at a higher quality and a lower cost than other countries?
Rostow’s Development ModelRostow’s Development Model
1. The traditional society – a country that has not started development; large amounts of people in agriculture and “nonproductive” activities (religion and military)
2. The preconditions for takeoff – the process of development begins when an elite group begins to invest in technology and infrastructure
Rostow’s Development Model Rostow’s Development Model cont…cont…
3. The takeoff – rapid growth is promoted in a few number of activities (i.e. textiles, food products)
4. The drive to maturity – modern technology diffuses to more industries which experience rapid growth and workers become more skilled
5. The age of mass consumption – the economy shifts from heavy industry to consumer goods
More on Rostow’s ModelMore on Rostow’s Model
Each country is in one of the five stages.
PINGs will achieve development by moving through the stages
Two factors that encouraged Rostow’s optimism:
1. Europe and Anglo-America have achieved stage five and have been joined by Eastern Europe and Japan
2. PINGs have raw materials
Examples of the International Examples of the International Trade ApproachTrade Approach
The Four Asian Dragons: South Korea, Singapore, Taiwan, and Hong Kong◦Influenced by Japan◦Concentrated on clothing
and electronicsPetroleum Rich
Arabian Peninsula States:◦The increase in
petroleum prices in the 1970s greatly enriched these countries
Problems with the International Problems with the International Trade AlternativeTrade Alternative
1. Uneven resource distribution2. Market stagnation3. Increased dependence on PEDs
Recent Triumph of International Recent Triumph of International Trade ApproachTrade Approach
This approach has been adopted by most in recent years
India switched to an international trade approach
India’s GDP grew 7% per year in the 1990s
Manufactured goods accounted for more than 4/5 of exports from PINGs in 2000
World Trade OrganizationWorld Trade Organization
Established in 1995 by countries representing 97% of world trade
Reduces barriers to trade:◦Countries negotiate reduction or elimination of
international trade restrictions◦The WTO enforces agreements
Financing DevelopmentFinancing Development
PINGs lack money!Loans – mainly for infrastructure
◦The World Bank◦International Monetary Fund
Structural Adjustment Programs – in exchange for repaying debt, lending agencies require PINGs to create conditions favorable for international trade
Fair TradeFair Trade
Fair trade – products are made and traded according to standards that protect workers and small businesses in PINGs
Producer StandardsWorker Standards