Developing Countries

Do you ever wonder why some countries have less money and people of these countries have to live in poverty whereas some countries have high technology and high welfare levels? Some people have to think about how to earn money to buy food on a daily basis whereas other people can spend their time planning their summer holiday. Why is that so? This significant difference on average is not only between people and families but also between countries. The economic development level is the main reason behind the differences in welfare levels among countries.

This is not only an economic issue, but affects the opportunities that people have in their lives, and is one of the sources of social discontent and political unrest among countries. In this article, we will learn all about developing countries, their characteristics, and economic problems. Ready to learn? Start reading!

Characteristics of Developing Countries

Developing countries have developing economies and low average per capita income. Since their economies are not well developed, they have generally less developed infrastructure, education, and health care systems.

Some economists categorize the developing countries into different stages of economic development and analyze them accordingly. Consequently, the characteristics of developing countries depend on these stages.

Primitive Equilibrium

Primitive Equilibrium is the first stage of economic development. At this stage, the society has no formal economic organization and no formal monetary system. Since there is no change in anything measurable and no capital investment in the economy, the society is in equilibrium and we may not see an economic motivation toward growth. At the primitive equilibrium stage, general culture and tradition affect economic decisions.

Transition

Transition is the second stage of economic development and happens when the economy moves from primitive equilibrium to economic development. The duration of the transition phase may change among countries and the transition does not have to be even within a country. Some parts of the country (usually the capital cities) can develop fast and adopt new technologies compared to other parts that are still based on traditions.

Takeoff

Takeoff is the third stage of economic development and happens when the obstacles of primitive equilibrium have been resolved. At this stage, people look for and adopt new technologies or techniques that outsiders bring to them. They may also have some financial, educational, or military aid for economic growth. Since countries start to invest more at this stage, national income and agricultural productivity may improve and new industries will grow as well.

Semi Development

Semi-development is the fourth stage of economic development and happens when the national income of the country grows faster than its population. Consequently, the country will have a higher per capita income. Furthermore, the country will build the core industries and invest in capital and technology which further improve growth.

High Development

High Development is the fifth and final stage of economic development. At this stage, people’s access to food, shelter, and clothing is no longer an issue and everyone can sustain their basic needs. The economy no longer focuses on industrial production but on service sectors and technological progress and aims to increase the efficiency and availability of public goods.

Developed and Developing Countries

Differentiating the developing and developed countries is not always easy because there is no strict line or measure to use. However, economists use the GDP per capita as the development measure. To be able to compare countries globally they need to use a common unit such as the U.S. Dollar.

Developing countries examples

Typically, we consider a country as developing if its nation has a lower income, underdeveloped industrial structure, and lower level of welfare and technology availability. Consequently, these nations also have fewer jobs or lack education and health services. The countries which are independent and have high income per capita are called Developed Countries.

The map in Figure 1 illustrates the world map and is colored according to the income per capita levels. As we can see from the map, the developed countries are colored purple and include the United States, Australia, Canada, Japan, and West European countries (Germany, France, the UK, etc.).

Figure 1. Development Map - Wikipedia Commons

The map also shows the countries in translation and less and least developed countries. For the developing countries, most Asian countries, Russia, Africa, and South America can be given as examples. Kenya, Zimbabwe, Afghanistan, and the Gambia are further examples of developing countries.

Economic Problems of Developing Countries

There are a lot of economic problems that developing countries face on a daily basis. Why do we care about these challenges? Because understanding these problems is crucial to improving the conditions and developing the economy.

Population Growth

One of the main economic problems that developing countries face is population growth. The population of developing countries generally tends to grow at a faster rate compared to developed countries. "Why is it a bad thing?" you might ask. The higher the number of people living in a country, the higher the demand for products, jobs, and services such as education and health. Since the available income of the developing countries is limited, it is even harder to feed more and provide jobs and services for the increasing population.

High birth rates or increases in life expectancy are possible reasons behind the increasing population. As a result, it becomes hard to increase the income per capita. Some countries develop measures to prevent the increasing birth rate. For instance, China encouraged lower birth rates and limited the number of children each family may have.

Geography and natural resources

The available natural resources are not even across countries and each geography has its own characteristics. Some geographies have limited natural resources, i.e. unproductive land or harsher climates. These conditions might hinder economic growth, especially considering an increasing population. Countries that have limited natural resources might want to focus on international trade as we see in Japan to increase economic growth.

Disease

Another obstacle that hinders economic development and decreases the welfare of the society might be disease. For many developing nations, diseases such as HIV/AIDS or bird flu are major problems. Due to the high infection rates, the primary income providers are often affected which may lead families to poverty.

Other Obstacles

Another challenge that developing countries face is the lack of available education and technology opportunities. However, these opportunities are required to increase the development level of societies and build an industrial and sustainable economy.

A classroom in a non-developed country - Wikipedia Commons

If countries need financial investment for these services and cannot afford it, they often take external debt from other countries to improve the conditions. However, sometimes some nations borrow so much money that they cannot repay the money and have to face higher interest rates. This affects the developing nations even more negatively.

Corruption has a significant negative impact on developing countries since it increases the costs of production and public goods and reduces access to health and education services. It has a severe impact on the justice system which may lead to high crime rates and decreased welfare in society. Terror, war, drug trafficking, and organized crime can be listed as other consequences of corruption.

Trade wars and technology wars are issues that we might see in economies. However, their impact is much worse in developing countries since their economies are not so stable and they endure more economic crises compared to developed economies.

Actual wars are also a big issue for developing countries. Bloody civil wars have devastated many developing countries and thwarted their development efforts. The damage to infrastructure and property, as well as the loss of productive workers and leaders, can hold back a country's development for years, if not decades.

Another problem for developing countries is capital flight, which is the selling of assets and the moving of currency out of the country. This can happen if the economy is doing poorly, if the market is crumbling or if investors simply lose faith in the government's leadership. With all of the problems developing countries face, capital flight happens on a regular basis, and it can wreak havoc on the country's currency and economy.

Importance of Economics in Developing Countries

Economics is the crucial element for a country to be developed. If there is enough funding in a country, the government can use it to improve the infrastructure, increase the quality of public goods, develop the health and education system and create jobs.

There are several ways to provide funding for developing countries.

Savings are one of the main resources to generate funds. In order to generate these internal funds, there should be more production than consumption. Companies would want to borrow money for their projects and banks would earn interest on the money they lend. The interest rate depends on this demand-supply relationship in the market.

Microloans as part of microfinance is another economic way to support developing nations. A microloan is usually a small loan made to women to support their projects and encourage them to start small businesses.

Soma major international agencies such as the International Monetary Fund (IMF) and the World Bank also provide loans and financial services and give advice to developing nations in order to help them develop their economies.