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Developing Countries

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.

Primitive equilibrium is the first stage of economic development where the economy is stagnant and there is no formal monetary system.

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.

There is no strict transition between the stages of development since countries may experience several stages of development at the same time.

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.).

Developing countries, Development map, StudySmarterFigure 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.

Developing countries, A classroom in a non-developed country, StudySmarterA 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.

Developing Countries - Key takeaways

  • 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: Primitive Equilibrium, Transition, Takeoff, Semi Development, and High Development.
  • 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.
  • Differentiating the developing and developed countries is not always easy because there is no strict line or a measure to use. 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.
  • The developed countries include the United States, Australia, Canada, Japan, and West European countries (Germany, France, UK, etc, whereas most Asian countries, Russia, Africa, and South America can be given as examples of the developing countries or regions.

Frequently Asked Questions about 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.


Typically, we consider a country as developing if its nation has a lower income, underdeveloped industrial structure, and lower level of welfare.

Economists use the GDP per capita as the development measure. The countries which are independent and have high income per capita are named developed countries whereas developing countries have a lower income per capita.

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. 


Because typically they even struggle with providing the basic needs for the nation.

Final Developing Countries Quiz

Question

How would you define economic development?

Show answer

Answer

Economic Development focuses on improving the standard of living of the individuals of an economy through the implementation of policies, programs and socioeconomic goals.

Show question

Question

What are the 5 stages of economic development?

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Answer

  1. Traditional Society 
  2. Preconditions to Take-off
  3. Take-off
  4. Drive to Maturity
  5. Age of High Mass consumption

Show question

Question

An economy in the traditional society stage of economic development  will have which of the following characteristic:

Show answer

Answer

the economy is based on agriculture 

Show question

Question

An economy in the preconditions to take-off stage of economic development  will have which of the following characteristic:

Show answer

Answer

the economy develop and use manufacturing for its output

Show question

Question

An economy in the take-off stage of economic development will have which of the following characteristic:

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Answer

the economy has been introduced to industrialization 

Show question

Question

An economy in the preconditions to drive to maturity stage of economic development  will have which of the following characteristic:

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Answer

the economy is transitioning from a few key industries to more integrated and varying industries

Show question

Question

An economy in the age of high mass consumption stage of economic development will have which of the following characteristic:

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Answer

the economy is experiencing an increased amount of consumption 

Show question

Question

Developed countries have a higher GDP per capita as they tend to have a smaller population and a higher real GDP due to greater access to technology and investment. Whereas developing countries have a lower GDP per capita as they have a greater population and lower real GDP due to limited technology and investment available. 

Show answer

Answer

True

Show question

Question

The unemployment rate is an indicator that provides insights regarding the employed individuals in the labor force who are actively looking for employment


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Answer

False

Show question

Question

Higher inflation is indicative of lower purchasing power of the currency, in other words, fewer goods and services can be purchased for the same dollar value.


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Answer

True

Show question

Question

The national debt of a country is an indicator which provides insights into the net accumulation of the ------------------- of the government from domestic and foreign --------------------.


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Answer

borrowing; lenders

Show question

Question

The trade balance of a country is an indicator which provides insights into the -------------------  -------------------- of a country.


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Answer

net exports

Show question

Question

What are the three dimensions that the human development index takes into account?

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Answer

  1. Standard of living - measured by income per capita 
  2. Education - measured through literacy rate
  3. Longevity- measured through average life expectancy and infant mortality 

Show question

Question

What defines a developing country?


Show answer

Answer

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.


Show question

Question

Economic development focuses on the standard of living, it is inclusive of both qualitative and quantitive measures.


Show answer

Answer

True

Show question

Question

What are the 3 characteristics of developing countries?


Show answer

Answer

Typically, we consider a country as developing if its nation has a lower income, underdeveloped industrial structure, and lower level of welfare.

Show question

Question

How would you define economic growth? 

Show answer

Answer

Economic growth focuses on the increase in the output produced by an economy from one period to another.

Show question

Question

What is the difference between developed and developing countries?


Show answer

Answer

Economists use the GDP per capita as the development measure. The countries which are independent and have high income per capita are named developed countries whereas developing countries have a lower income per capita.

Show question

Question

Why economics is important in developing countries?


Show answer

Answer

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. 


Show question

Question

Why do developing countries usually have less variety in their economic activities?

Show answer

Answer

Because typically they even struggle with providing the basic needs for the nation. 

Show question

Question

Which of the following is not a 

developing country?


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Answer

US

Show question

Question

Which of the following are economic problems of developing countries? 


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Answer

High Population Growth


Show question

Question

What is a microloan?

Show answer

Answer

Microloans as part of microfinance is an 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. 


Show question

Question

Savings are one of the main resources to generate funds. In order to generate these internal funds, there should be more production than consumption. 


Show answer

Answer

True

Show question

Question

What is a Primitive Equilibrium?

Show answer

Answer

Primitive equilibrium is the first stage of economic development where the economy is stagnant and there is no formal monetary system. 


Show question

Question

There is no strict transition between the stages of development since countries may experience several stages of development at the same time.


Show answer

Answer

True

Show question

Question

United States, Australia, Canada, Japan, and West European countries are examples of developing countries. 


Show answer

Answer

False

Show question

Question

Why is population growth an economic problem for developing countries?


Show answer

Answer

The higher the number of people living in a country, the higher the demand for products, jobs as well as 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. 


Show question

Question

Why external debt is an issue for developing countries?

Show answer

Answer

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.


Show question

Question

What is the Takeoff stage?

Show answer

Answer

Takeoff is the third stage of economic development and happens when the obstacles of primitive equilibrium have been resolved. At this stage, nations look for and adopt new technologies or techniques that outsiders bring to them. 


Show question

Question

What's regional economic development?

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Answer

When the region's business growth helps the enhancement and development of regional growth.

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Question

Regional economic development may also be viewed as part of a larger endeavor to eliminate regional inequities by helping to develop economic areas and employ their people. 

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Answer

True

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Question

One of the main reasons regional economic development is so important is because it's clear that productive economies across the world are structured regionally.


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Answer

True 

Show question

Question

Why is it seen as a better idea to use regional strategies for economic growth rather than federal?

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Answer

Because regions better recognize their strengths and what is vital to them.

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Question

Underprivileged communities are urged to enhance their financial, social, and environmental well-being through understanding the value of their area's resources and residents. 


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Answer

True

Show question

Question

Wealth generation via economic progress improves living standards and is thus seen as a _________for regional development.


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Answer

requirement

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Question

Mild regional variations can stimulate economic activity and increase efficiency.


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Answer

True

Show question

Question

Name some of the strategies for increasing regional economic development.

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Answer

Educating people, keeping/attracting talent, entrepreneurship, diversity, and industrial development.

Show question

Question

Educating the workforce is one of the least commonly used strategies for economic development


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Answer

False

Show question

Question

What are some of the ways companies can attract/keep talent?

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Answer

By offering flexibility, speeding up the recruitment process so as to secure top candidates, and creating and presenting more advancement opportunities.

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Question

As startups grow and get bigger, plenty of new jobs are created which increases the _______ of the local economy.


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Answer

productivity

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Question

Startups are expensive!

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Answer

False

Show question

Question

Firms that promote diversity have a stronger foundation in the markets than those that don't promote diversity.


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Answer

True

Show question

Question

How can companies appeal to people of different genders, from different backgrounds, etc?

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Answer

By increasing the diversity of their team!

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Question

The United States Regional Economic Development Authority (USREDA) is a recognized leader in the processing of investment-based immigration, providing diverse ______ possibilities.


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Answer

investment

Show question

Question

Explain economic development

Show answer

Answer

Economic development entails programs, policies, and actions that strive to enhance a community's economic well-being and quality of life.

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Question

Explain funding economic development.

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Answer

Funding economic development refers to the numerous programs, typically created and managed by some level of government, intended to boost economic productivity, employment, and quality of living for low-income individuals.

Show question

Question

Is it fiscal policy or monetary policy that funds economic growth?

Show answer

Answer

It is typically accomplished through fiscal policies.

Show question

Question

Define fiscal policy.

Show answer

Answer

Fiscal policy refers to the government's use of its expenditure and taxes to influence economic activity.

Show question

Question

Define monetary policy.

Show answer

Answer

Monetary policy refers to the control by the Federal Reserve of the amount of money circulating in an economy

Show question

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