Economic Development Economic Development and Transitionand Transition

Chapter 18Chapter 18

Levels of DevelopmentLevels of Development

Chapter 18, Section 1Chapter 18, Section 1

Levels of DevelopmentLevels of Development

½ the world lives in poverty½ the world lives in poverty Economic well being is measured in Economic well being is measured in

terms of terms of developmentdevelopment• the process by which a nation improves the process by which a nation improves

economic, political and social well being economic, political and social well being of its peopleof its people

Developed Nations and LDC’sDeveloped Nations and LDC’s

Developed nations are nations with a Developed nations are nations with a higher level of material well beinghigher level of material well being

LDC’s or Less Developed Nations are LDC’s or Less Developed Nations are nations with low economic well beingnations with low economic well being• Mexico, Nepal, Central and Southern Mexico, Nepal, Central and Southern

Africa, Republics of the former Soviet Africa, Republics of the former Soviet UnionUnion

Measuring DevelopmentMeasuring Development

Factors used in measuring developmentFactors used in measuring development• Life expectancyLife expectancy• Infant mortalityInfant mortality• Health careHealth care• LiteracyLiteracy• Labor forceLabor force• Consumer goodsConsumer goods• InfrastructureInfrastructure• Energy consumptionEnergy consumption• Per Capita GDPPer Capita GDP

Issues of DevelopmentIssues of Development

Chapter 18, Section 2Chapter 18, Section 2

Issues of DevelopmentIssues of Development

Population growthPopulation growth• Countries are increasing population without Countries are increasing population without

increasing their economy or developmentincreasing their economy or development Lack Factors of ProductionLack Factors of Production

• Land, Physical Capital, Human CapitalLand, Physical Capital, Human Capital Brain Drain…skilled people moved to more Brain Drain…skilled people moved to more

developed nationsdeveloped nations

Political FactorsPolitical Factors• Corrupt governments, instability, debtCorrupt governments, instability, debt

Financing DevelopmentFinancing Development

Chapter 18, Section 3Chapter 18, Section 3

Developing Countries Need to Developing Countries Need to Raise FinancingRaise Financing

Internal financing…savings and Internal financing…savings and investing from within…investing from within…• LDC’s don’t have a lot of people who LDC’s don’t have a lot of people who

can do this.can do this. Foreign investmentForeign investment

• Foreign direct…building in the nation…Foreign direct…building in the nation…done by MNC’sdone by MNC’s

• Foreign portfolio…investing in stocks Foreign portfolio…investing in stocks and bonds of foreign countriesand bonds of foreign countries

Foreign AidForeign Aid

Some nations give aid (not loans) to LDC’s Some nations give aid (not loans) to LDC’s for varied reasonsfor varied reasons• Political Political • EconomicEconomic• Human compassionHuman compassion

World BankWorld Bank• Institution that raises money to distribute to Institution that raises money to distribute to

nations of neednations of need• Coordinates economic development Coordinates economic development

throughout the worldthroughout the world

International Monetary Fund (IMF)International Monetary Fund (IMF)

Aids desperate countries through Aids desperate countries through debt rescheduling and stabilization debt rescheduling and stabilization programsprograms• Conditions are set by the IMFConditions are set by the IMF

Transitions to Free Transitions to Free EnterpriseEnterprise

Chapter 18, Section 4Chapter 18, Section 4

Moving Towards a Market Moving Towards a Market EconomyEconomy

Privatization…sale and transfer of Privatization…sale and transfer of government owned businesses to government owned businesses to individualsindividuals

Property rights need to be protectedProperty rights need to be protected

Transitions in NationsTransitions in Nations Russia and GlasnostRussia and Glasnost

• Policy of political openness and reform that Policy of political openness and reform that encouraged citizens to say what they wished encouraged citizens to say what they wished without persecutionwithout persecution

• Perestroika…plan for transition from command Perestroika…plan for transition from command to free economyto free economy

China and the Great Leap ForwardChina and the Great Leap Forward• Plan for China to turn into an economic powerPlan for China to turn into an economic power• All land was taken over by the governmentAll land was taken over by the government• Huge disaster as there was no incentiveHuge disaster as there was no incentive

China now blends free markets and command ideals China now blends free markets and command ideals for their economic planfor their economic plan