Chapter 1

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Transcript Chapter 1

H3/15/12

Obstacles for Less Developed Countries

(Ch. 9.4 – pp. 294-305) © 2011 Pearson Education, Inc.

Human Development Index

Figure 9-1 © 2011 Pearson Education, Inc.

Progress Toward Development

Figure 9-26 © 2011 Pearson Education, Inc.

Intro

• Two (2) major approaches to development: – 1. self-sufficiency • self-sufficiency most common model in 20th C.

• China, India, Africa & Eastern Europe in immediate post-WWII era • not as common today – 2. international trade • more common recently (beginning in 1990s) • often based on a natural resource or one industry bringing in more capital for development © 2011 Pearson Education, Inc.

I. Development through Self-Sufficiency

• A. Elements of Self-Sufficiency Approach • • modest pace of development even distribution of development – goal is to spread development equally over all sectors – shared economic benefits; urban & rural advance equally – Barriers are established to protect local business • Three most common barriers – (1) tariffs – (2) quotas – (3) restricting the number of importers • Two major problems with this approach: – Inefficient businesses are protected – A large bureaucracy is developed © 2011 Pearson Education, Inc.

II. Development through International Trade A. Rostow’s model of development – 5 major stages • 1. traditional society – focus on agric.; little capital generated • 2. preconditions for takeoff – Elite group introduces innovations – New technologies & infrastructure – Some investments in transportation & water supply • 3. takeoff – Rapid growth in limited economic areas – Often in textiles or food – Little spread to other areas of economy © 2011 Pearson Education, Inc.

II. Development through International Trade A. Rostow’s model of development (cont.) • 4. drive to maturity – Modern technology diffuses to many industries – Rapid growth similar to early takeoff industries – More skilled workers developed • 5. mass consumption – Economy shifts from production of heavy industry to consumer goods – Most MDCs are in stages 4 or 5 – Most LDCs are in one of lower stages (1-3) – Countries often succeed on Rostow’s model through finding foreign markets © 2011 Pearson Education, Inc.

II. Development through International Trade – Two major factors: • 1. Southern & Eastern Europe along w/ Japan served as models for Rostow’s example – other countries thought they could also follow • 2. many raw materials in LDCs – Could sell raw materials to MDCs and generate capital – Critics of Rostow • Not all countries follow model • Often skip stages; not necessary to follow each stage • development often uneven © 2011 Pearson Education, Inc.

II. Development through International Trade • B. Examples of international trade approach – The “four Asian dragons” • South Korea, Taiwan, Singapore, Hong Kong – Few natural resources – Focused on manufacturing – clothing, electronics – Low labor costs – Petroleum-rich Arabian Peninsula states • Saudi Arabia, Kuwait, Bahrain, Oman, U.A.E.

– Oil was main focus – Use oil profits to pay for large scale projects – Three major problems: • Uneven resource distribution • Increased dependence on MDCs • Market decline © 2011 Pearson Education, Inc.

III. International Trade Approach Triumphs

A. Overview – The path most commonly selected by the end of the twentieth century • Countries convert because evidence indicates that international trade is the more effective path toward development – 4% vs. 1% growth • Many saw self-sufficiency as inefficient • India switched and saw tremendous growth © 2011 Pearson Education, Inc.

III. International Trade Approach Triumphs

B. World Trade Organization (WTO) • Established in 1995 • Goal is to reduce international trade restrictions • Increase int’l banking opportunities • Has some enforcement powers, esp. w/ trade • Critics on left (liberal) and right (conservative) © 2011 Pearson Education, Inc.

III. International Trade Approach Triumphs

C. Foreign Direct Investment (FDI) • promotes trade & investment by companies in other countries • Transnational, or multinational, companies (TNC or MNC) important • grew rapidly in 1990s • briefly hurt by tech bubble & recession of 2000, but returned to previous high • Uneven flow of investments – still weighted toward MDC © 2011 Pearson Education, Inc.

Triumph of International Trade Approach

Figure 9-27 © 2011 Pearson Education, Inc.

Figure 9-28

Foreign Direct Investment

Figure 9-30 © 2011 Pearson Education, Inc.

IV. Financing Development

– LDCs require money to fund development – Two sources of funds: loans & SAP’s • A. Loans – World Bank – generally given for

development

on investment & projects w/ a focus » IBRD (Int’l Bank for Reconstruction & Development) » IDA (Int’l Development Ass’n) – International Monetary Fund (IMF) – often given to

stabilize

economy & helps w/ national financial troubles – Began as part of

Bretton Woods Agreement

(end of WWII) – Want to avoid int’l problems of Great Depression & WWII © 2011 Pearson Education, Inc.

IV. Financing Development

– B. Structural Adjustment Programs (SAP) • to continue foreign direct investment from transnational corporations & countries, LDCs must explain their SAP • SAP must include economic goals, strategies & financing • many believe poverty increases during development – esp. through cuts in health, education & social services • others argue poverty can only end through development • debate continues today © 2011 Pearson Education, Inc.

Debt as a Percentage of Income

Figure 9-31 © 2011 Pearson Education, Inc.

V. Fair Trade Approach

– Products are made and traded in a way that protects workers and small businesses in LDCs – Two sets of standards • 1. Fair trade producer standards – often cooperatives – locals learn leadership & organizational skills – greater profits for co-ops & workers b/c no middleman • 2. Fair trade worker standards – paid fair local wage – can form union – safety standards – Producers and

workers

usually

earn more

Consumers

usually pay

higher prices

© 2011 Pearson Education, Inc.

Core and Periphery Model

Figure 9-32 © 2011 Pearson Education, Inc.

The End.

Up next: Agriculture © 2011 Pearson Education, Inc.