ECONOMICS OF DEVELOPMENT

(Group 1)
1.1. View-points of development.
According to the World Bank, almost one-half of the worlds 6.5 billion inhabitants live on the equivalent of less than two dollars a day, and about one-fourth of the world live on the equivalent of less than $1.25 a day (Chen and Ravallion, 2008).Meanwhile, people in the 20-richest countries on average earn 39 times more than people in the poorest 20 (Milanovi, 2007). At the same time, the extent of poverty has declined significantly. For example, the World Bank estimates that from 1981-2005 the percentage of people living on less than $1 per day was halved. The amount decreased from 52 percent to 26 percent in this period (Chen & Ravallion, 2008). These contrasts highlight both the problem and the progress of what is known in the international community as development. Large numbers of the worlds inhabitants are mired in poverty, especially in Africa, while inhabitants of the worlds richest countries live in both relative and absolute luxury. But people in poor countries are getting wealthier over timea process linked to globalization because poorer countries can raise their standards of living by integrating with rich countries. The term development in international parlance therefore encompasses the need and the means by which to provide better lives for people in poor countries. It includes not only economic growth, although that is crucial, but also human developmentproviding for health, nutrition, education, and a clean environment.

Development is a complex issue, with many different and sometimes contentious definitions. A basic perspective equates development with economic growth. The United Nations Development Programme uses a more detailed definition- according to them development is 'to lead long and healthy lives, to be knowledgeable, to have access to the resources needed for a decent standard of living and to be able to participate in the life of the community.'

1.2. Concepts of growth, development, economic growth, economic development, sustainable development.
1.2.1 Growth: a. growth - (biology) the process of an individual organism growing organically; a purely biological unfolding of events involved in an organism changing gradually from a simple to a more complex level; "he proposed an indicator of osseous development in children" b. growth - a progression from simpler to more complex forms Example: the growth of culture c. growth - a process of becoming larger or longer or more numerous or more important Example: the increase in unemployment or the growth of population d. growth - a process of becoming larger or longer or more numerous or more important Example: the increase in unemployment or the growth of population e. growth - vegetation that has grown Example: a growth of trees; the only growth was some salt grass f. growth - (pathology) an abnormal proliferation of tissue (as in a tumor) g. growth - the gradual beginning or coming forth Example: figurines presage the emergence of sculpture in Greece

h. growth - something grown or growing Example: a growth of hair

1.2.2 Development Nowadays we often heart about develop something, such as Software development 1, team development 2, social development 3 , application development 3 , leadership development 4 , person development 5 , cooperate development 6 We come to those concepts to find out what they mean and what development is. i. Software development? Software development (also known

as application development, software design, designing software, software application development, enterprise application development, or platform development) is the development of a software product. The term "software development" may be used to refer to the activity of computer programming, which is the process of writing and maintaining the source, but in a broader sense of the term it includes all that is involved between the conception of the desired software through to the final manifestation of the software, ideally in a planned and structured process. Therefore, software development may include research, new development,

prototyping, modification, reuse, re-engineering, maintenance, or any other activities that result in software products. Software can be developed for a variety of purposes, the three most common being to meet specific needs of a specific client/business (the case with custom software), to meet a perceived need of some set of potential users (the case with commercial and open source software), or for personal use (e.g. a scientist may write software to automate a mundane task).

Software development is a job which make new software or better than before. j. Team development or group development. Forming storming norming performing. They are 4 step of team building by Tukman. You had learned about it, team work together to get a target, work in group help us have more idea, reduce atmosphere of job , many benefit from workgroup and team development or group development also because of improve effectiveness of workgroup, make group better. k. Social development can be summarily described as the process of organizing human energies and activities at higher levels to achieve greater results. Development increases the utilization of human potential. http://www.icpd.org/development_theory/SocialDevTheory.htm Social development be known with HDI human development index. Social development include develop income, education, long life , all of them for the target is better life. l. Leadership development: refers to any activity that enhances the quality of leadership within an individual or organization. These activities have ranged from MBA style programs offered at university business schools to action learning, high-ropes courses and executive retreats. http://en.wikipedia.org/wiki/Leadership_development m. Personal development: some people said that person development is change, what do you think? I think change is true but it not enough, Personal development includes activities that improve awareness and identity, develop talents and potential, build human capital and facilitates employability, enhance quality of life and contribute to the realization of dreams and aspirations. The concept is not limited to self-help but includes formal and informal activities for developing others, in roles such as

teacher, guide, counselor, manager, coach, or mentor. Finally, as personal development takes place in the context of institutions, it refers to the methods, programs, tools, techniques, and assessment systems that support human development at the individual level in organizations. n. Corporate Development refers to the planning and execution of a wide range of strategies to meet specific organizational objectives. The kinds of activities falling under corporate development may include initiatives such as recruitment of a new management team, plans for phasing in or out of certain markets or products, establishing relationships with strategic business partners, identifying and acquiring companies, securing financing, divesting of assets or divisions, increasing intellectual property assets and so on. There is no formula for "corporate development" and the activities encompassed are often the role of the CEO or other executives. However, particularly in larger companies, corporate development is provided as a charter for a particular executive or team. In these cases, the opportunities and initiatives are numerous enough to justify specialists, instead of being delegated to the office of the CEO and line of business executives. Often the corporate development executives come from a legal background, due to the complex contractual issues associated with many transactions. When focused on product or financial issues, corporate development executives often have MBA, CFA or CPA credentials. For example, if a company is looking towards non-organic growth expansion, a corporate development group will evaluate potential target companies. The acquisition of small or private companies by a large corporation is usually not conducted with the assistance of investment bankers, but executed by the corporate development team themselves. Growth VS Development DISTINGUISH GROWTH AND DEVELOPMENT

Growth a process of becoming larger or longer or more numerous or more important mostly a physical change Growth is taken to mean an increase in the size of an object or a living being. Eg: the lump as grown in size

Development a process in which something transform (mostly positive) into a different stage or improvement May be physical, social or psychological. Development is taken to mean an improvement in the level of functioning. Eg: He developed into a nice officer Development may mean a kind of improvement in the condition of health. Eg: He developed a better pulse rate now The term development is used to convey the sense of the act of developing or the process of being

Growth growing.

describes

the

process

of

Eg: there was a rapid growth in the economy of the country It indicates an increase in value.

Eg: There was a growth in the number of hospitals in the city Growth can mean an increase in a crop or yield of some fruit for that matter. Eg: The farmer was amazed with the tremendous growth of grapes. In short, the word growth is a subset of the word development. Eg: The lump developed into a tumor due to an increase in its growth.

developed. In fact it is used to convey the idea of a stage of growth.

The phrase an increase in its growth suggested an increase in the size of the lump.

1.2.3 Economic Growth Concepts: Economic growth is the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs for a given amount of output. In other words, economic growth is an increase in Gross Domestic Products (GDP) or Gross National Products (GNP) or scale national production average per capital (PCI). Economic growth depends on two basic processes: Factor accumulation, defined as increasing the size of the capital stock or labor force (capital accumulation and labor accumulation). In there, capital accumulation depends on saving, which requires individuals to defer current consumption to finance investment to increase future output. Productivity growth, defined as increasing the amount of output produced by each machine or worker. Productivity growth comes either from improving efficiency or acquiring new technology. Source of Growth analysis Robert Solow pioneered early efforts to quantify the contribution of each of the proximate causes of increased output-capital accumulation, labor accumulation, and productivity gains-to economic growth. Solows procedure usually is referred to as growth accounting or source of growth analysis. He starts with standard production function relating the contribution of labor

and capital to aggregate production, then adds a term to capture total factor productivity (TFP). TFP is meant to measure the contribution to production of efficiency, technology, and other influences on productivity. The formation and development of the theory of growth and economic development: Stage 1: Capital accumulation theory The Capital accumulation theory was originated in the Capitalist theory" of A.Smith (1723-1790) and the Harrod-Domar's model was the typical representation. Follow those economists; the capital accumulation is the only factor determining economic growth. Stage 2: Technocratic theory The Technocratic theory of Robert Solows model appeared because of the revolution of modern science and technology began to develop strongly. Solow confirmed technical factors become the determinants of economic growth. Stage 3: Human capital theory Theodore Schultz proposed the theory of "Human Capital" to supplement and develop technocratic theory. He said that through investment will improve the technical quality of laborers Stage 4: New growth theory The new growth theory was proposed by two economists Scost Romo and Rucas. They apply knowledge and human capital factors to model of economic growth. This theory included the following parts: First, enter the knowledge factors and human capital on economic growth pattern to clearly see the role of technical progress and knowledge for the economic growth. Second, claims of professional knowledge and human capital accumulation as income increases.

 Third, emphasizing technical progress is a decisive factor for economic growth, simultaneously analyzing causality relationship of capital investment and technical progress, confirmed the importance of capital accumulation for promoting technical progress and economic growth. Fourth, develop international trade and international currency is the engine of economic growth. Fifth, modern economic growth is mainly due to the promotion of knowledge and human capital. Theories of economic growth The Rostow's Stages of Growth The Harrod-Domar Growth Model The Lewiss Two-Sector Economic Growth Model The Solow Growth Model 1.2.4 Economic Development Developing economy is the most important mission with a country in this period, government do many thing, build a lot of law, all the political for one target that developing country. We can hear about this problem every day but what economic development is, why do we need economic development? Will we do everything to develop country? a. The definition of economic development - A process that leads a country from a state of underdevelopment, characterized by low per capita income and poor quality of life, to one of higher living standards for a large majority of its people. Prof: Robina Bhatti - Global Political Economy of CSUMB Lecture: Economic development - Economic development is the development of economic wealth of countries or regions for the well-being of their inhabitants Source: http://www.economics4development.com/ - Progress in an economy, or the qualitative measure of this. Economic development usually refers to the adoption of new technologies, transition from agriculture-based to industry-based economy, and general improvement in living standards.

http://www.businessdictionary.com - Economic development generally refers to the sustained, concerted actions of policymakers and communities that promote the standard of living and economic health of a specific area. Such actions can involve multiple areas including development of human capital, critical infrastructure, regional competitiveness, environmental sustainability, social inclusion, health, safety, literacy, and other initiatives. Wikipedia - Economic development is process-oriented. That is, it is a process involving the formation of new institutions, the development of alternative industries, the improvement of the capacity of existing employers to produce better, the identification of new markets the transfer knowledge, and the nurturing of new firm and enterprises Plakely 1994, page 50 - Economic development can be explained as a complex process that created from a successful fusion of entrepreneurship, education and skill of the community, driven largely by market forces. A favourable business environment and a supportive regulatory framework are important conditions of economic growth and development. The goal of economic development is to create new job, investment and improve the wealth of individual and the community. By James E.Rowe - Economic development in New Zealand b. Purposes of Economic Development Eradication of global poverty Eradication of inequalities in living standards Reducing global disparities of power and influence c. Actors involved in Economic Development Governments International organization Civil society organizations Banks

1.2.5 Sustainable Development

Every human being wishes that he and the members of his community can live in a good, healthy and happy environment and the quality of life continues to be improved. To obtain this target, humans have striven toward development. There are various ways

of development. A common feature among these is the harmonious consideration of demographic, economic, social, natural resources, and environmental issues. This ensures that development progress in the short term will not compromise long-term development. This is a Sustainable Development. In English, Killing the golden goose is a metaphor for any short-sighted action that may bring an immediate reward, but will prove disastrous in the long term. The expression originates from the fable of the golden goose, ascribed to Aesop who lived around 600 BC:A man and his wife had the good fortune to possess a goose which laid a golden egg every day. Lucky though they were, they soon began to think they were not getting rich fast enough, and, imagining the bird must be made of gold inside, they decided to kill it. Then, they thought, they could obtain the whole store of precious metal at once; however, upon cutting the goose open, they found its innards to be like that of any other goose. This little story captures the essence of sustainable development: the natural resources (the golden goose) mustnt be overexploited, but managed with care and respect to last Exploitation of the earths resources led to economic growth and population growth. The 1950s and 1960s was a time of increasing concern that human activity was having severe and negative impacts on the planet, and that the prevailing patterns of growth and development would be unsustainable if they continued unchecked. There are many definitions of sustainable development, including this landmark one which first appeared in 1987: "Development that meets the needs of the present without compromising the ability of future generations to meet their own needs." from the World Commission on Environment and Developments And in 1992 with definition: In order to have a safer and more prosperous life, current environmental and development issues must be solved in a balanced way".(Preambles of Global Agenda 21-The United Nations Conference on Environment and Development was held in Rio de Janeiro in 1992)

Global implementation of sustainable development: 1972: The United Nations Conference on Human Environment was held in Stockholm, Sweden and attended by representatives from 113 nations. The Conference was the first global meeting on environment. 1983: The United Nations set up the World Commission on Environment and Development (WCED) 1992: United Nations Conference on Environment and Development (UNCED) was held in Rio de Janeiro. 179 government representatives participated and signed the 5 following important documents: 1. The Rio Declaration on Environment and Development with 27 principles. 2. Global Agenda 21 on sustainable development. 3. The Statement of Forest Principles. 4. The United Nations Framework Convention on Climate Change. 5. The United Nations Convention on Biological Diversity. Post Rio: After Rio 1992 Conference, the discussion and action on Agenda 21 continue at global level with a series of summits: social development, the cities, human rights, women, population, climate and global warming and food, etc... 1997: The General Assembly of the UN appraised five years of progress on the implementation of Agenda 21 (Rio +5). The Assembly recognized global progress toward achieving sustainable development. What is Agenda 21? "First and foremost our message is directed towards people, whose well-being is the ultimate goal of all environment and development policies"(Global Agenda 21, 1992) 1. Agenda 21 is a general framework to implement programs to achieve sustainable development in 21stcentury. 2. Agenda 21 was pledged to be implemented by 179 Nations that participated in the United Nation Conference on Environment and Development in 1992.

3. Agenda 21 addresses the development challenges of the 21st century, affirms that human aspirations are to achieve a stage of development that is harmony of economic development, hunger elimination, poverty alleviation, social equity, reasonable resource use, and environmental protection. 4. Agenda 21 calls upon all the nations to formulate their own plan, strategy and basic policies, solutions for achieving sustainable development. 5. Agenda 21 is composed of four main contents: (1) Social and economic aspects of development (poverty, population, health, consumption pattern, settlement); (2) The protection and management of natural resources; (3) Strengthening the role of major groups; (4) Implementation instruments (finance, science and technology, cooperation and information mechanisms). Realizing Sustainable Development in the 21st century "Our greatest challenge in this new century is to catch up with the idea of sustainable development - which seems to be abstract - and to turn it into reality to all the people in the world". The United Nations secretary-general - Kofi Annan Spoke on March, 2001 Year 2002: International Summit Conference on Sustainable Development was held I Johannesburg(South Africa) with the participation of196 countries and many organizations. 6. Johannesburg declaration on Sustainable development and Action Program "Plan on the implementation of Johannesburg declaration". 7. Combining 3 development key points about development: economic growth, poverty reduction and social justice as well as environment resources protection. 8. Reaffirming the worth of Global Agenda 21. 9. Stressing the concern that the implementation of sustainable development is still slow.

 Key tasks to be achieved by 2015 were proposed at the Hinesburg Summit Conference: hunger elimination and poverty reduction; changing the manner of consumption and production; natural resources protection and management; sustainable development in the context of globalization; and the improvement of human health. Up to the end of 2003, there were 70 countries (accounting for 36% of the number of countries in the world) that have structured, approved, and realized a national strategy for sustainable development

Sustainable development ethics: Return with definition of SD: "Development that meets the needs of the present without compromising the ability of future generations to meet their own needs." from the World Commission on Environment and Developments. It contains within it two key concepts:

the concept of 'needs', in particular the essential needs of the world's poor, to which overriding priority should be given; and

The idea of limitations imposed by the state of technology and social organization on the environment's ability to meet present and future needs."

But what does this mean? Sustainable development means that all three major aspects relating to mankind life as economy, society and environment must be harmonized, combined comprehensively and integrated and balanced effectively through policies, mechanism, tools and processes of implementing policies. It means: Balancing the fulfillment of human needs with the protection of the natural environment so that these needs can be met not only in the present, but in the indefinite future. Sustainable development sounds like constructing a socio-economic building on an ecological environment foundation. The building is firm only when its components are closely and harmoniously linked together.

The field of sustainable development can be conceptually broken into three constituent parts: environmental sustainability, economic sustainability and sociopolitical

sustainability. The sustainable development debate is based on the assumption that societies need to manage three types of capital (economic, social, and natural), which may be non-substitutable and whose consumption might be irreversible. Daly (1991), for example, points to the fact that natural capital can not necessarily be substituted by economic capital. While it is possible that we can find ways to replace some natural resources, it is much more unlikely that they will ever be able to replace eco-system services, such as the protection provided by the ozone layer, or the climate stabilizing function of the Amazonian forest. In fact natural capital, social capital and economic capital are often complementarities. A further obstacle to substitutability lies also in the multi-functionality of many natural resources. Forests, for example, not only provide the raw material for paper (which can be substituted quite easily), but they also maintain biodiversity, regulate water flow, and absorb CO2

1.3. Contents of economic development.

Content of economic development include: - The increase of gross domestic product (GDP), gross national product (GNP) and gross national product per capita. - The transformation of economic structure in the direction of progress, reflected in the proportion of the industrial and services sectors in the gross national product increased, while the share of agriculture is increasingly reduced. - Satisfaction of the basic needs of the society represented by the increase in real income, quality of education, health care, ... that every citizen is entitled. Economic development involves specific requirements. Economic growth must be higher than the population growth rate. Economic growth must be based on reasonable economic structure, economic progress in order to ensure sustainability. Economic growth must go hand in hand with social justice. Increasing product quality, in accordance with the changing needs of society, protect the ecological environment.

1.4. Indicators for evaluation of development process for one country

Measuring economic growth At the core of studies of economic growth are changes in national income. Two basic measures of national income are commonly employed: GNP and GDP Gross national product (GNP): the sum of the value of finished goods and services produced by a society during a give year. GNP excludes intermediate goods (goods used up in the production of other goods). GNP counts output produced by citizens of the country, including the value of goods and services produced by citizens who live outside its borders. It is one of the most common terms used in national income accounting. The World Bank and other multilateral institutions often refer to this same concept as Gross National Income (GNI) Gross domestic product (GDP): is similar to GNP, except that it counts all output produced within the borders of a country, including output produced by resident foreigners, but excludes the value of production by citizens living aboard. GNP and GDP divided by total population provides a measure of per capita income. Comparison chart

GDP Stands for: Definition: Gross Domestic Product An estimated value of the total worth of a countrys production and services, on its land, by its nationals and foreigners, calculated over the course on one year for GDP = consumption + investment + (government spending) + (exports imports)

GNP Gross National Product An estimated value of the total worth of production and services, by citizens of a country, on its land or on foreign land, calculated over the course on one year GNP = GDP + NR (Net income inflow from assets abroad or Net Income Receipts) - NP (Net payment outflow to foreign assets)

Formula Calculation:

GDP Uses: Application (Context in which these terms are used): Layman Usage: Business, Economic Forecasting To see the strength of countrys local economy a

GNP Business, Economic Forecasting To see how the nationals of a country are doing economically

Total value of products & Services produced within the territorial boundary of a country

Total value of Goods and Services produced by all nationals of a country (whether within or outside the country) Luxembourg ($45,360)

Country with Highest Per Capita (US$): Country with Lowest Per Capita (US$): Country with Highest (Cumulative):

Luxembourg ($87,400)

Liberia ($16)

Mozambique ($80)

USA ($13.06 Trillion in 2006)

USA (~ $11.5 Trillion in 2005)

GNP is basically the GDP of the country plus income earned from overseas investments by residents, minus income earned within the domestic economy by overseas residents. GNP is focused on who owns the production regardless of where the production takes place. GNP calculates the value of output produced by the people (nationals) of the region. VD about Malaysia and Philippines Unless otherwise indicated, when discussing trends over time, we refer to real GDP and real GDP per capita, that is, per capita gross domestic product adjusted for domestic price inflation. Real GDP is computed by deflating nominal GDP by a price index. The contribution of a sector or component of GDP is measured by the value added by that sector. Value added refers to the incremental gain to the price of a product at a particular stage of production.

Ex: the value added of the cotton textile industry is the value of the textiles when they leave the factory minus the value of raw cotton and other materials used in their production. The value added is equal to the payments made to the factors of production in the textile industry: VA = W + I + depreciation of capital + rent expenses = Total output. GDP is a measure of both total income and total output

Measuring GDP: What is left out? Calculating GDP is to add up the value of all the goods and services produced within a country and then sold on the market. Problem appears on the goods and services sold in the market, since many valuable contributions to society are excluded from gross domestic product. Ex: house work and child care performance are included in GDP since the services are sold in the market. However, when unpaid members of the household perform the same services they do not enter GDP. This problem tends to be larger in low-income countries and is evident in a poor nation when almost the labor force is classified as unpaid family workers, most of whom are engaged on family farm producing food and service for their own consumption. This strict definition of GDP would severely limit the usefulness of comparing countries in which agriculture is the dominant sector, the usual practice is to include estimates of farm output consumed by the producer, valued at the prices of marketed farm produce. The resulting estimates of GDP, therefore, may overestimate the growth in economic activity, since some of what is now captured is merely a transfer of production from within the household to the market. What about accounting for the bads society producers? If a industry pollutes a river or the air, the value of the industry produced is included in GDP but the cost of pollution is not deducted. Net economic welfare (NEW), a national income measure that attempts to deduct the costs of pollution, crime, congestion and other bads, has been proposed by some economists as a better measure of national income but has not been widely adopted.

Exchange-Rate Conversion Problems A second methodological problem arises when attempting to convert the GDP of different countries into a single currency. To compare, one must measure the per capita income figures in a common currency. The shortcut to accomplishing this goal is to use the official exchange rate between U.S. dollars and each national currency.

There is considerable merit to this argument. One problem is that exchange rates, particularly those of developing countries, can be distorted. Trade restrictions, or direct government intervention in setting the exchange rate make it possible for an official exchange rate to be substantially different from a rate determined by a competitive market for foreign exchange. Ex: a basic womans haircut in Mumbai, Indian might cost 180 rupees (US $4 at the official exchange rate) while in Boston, America, it might run US $40. So one can buy more for one dollar in India than one can in the US. But market exchange rates would not eliminate the problem. The difference between national incomes are made up of what are called nontraded goods and services; that is, goods that do not and often cannot enter into international trade. Ex: hair cut, internal transportation, land This is because the markets for nontraded goods are spatially separated and the underlying supply and demand curves can intersect in different places, yielding different prices. Exchange rates are determined largely by the flow of traded goods and international capital flows and generally do not reflect the relative prices of nontraded goods. The way around this problem is to pick a set of prices for all goods and service prevailing in one country and to use that set of prices to value the goods and services of all countries being compared. In effect, one is calculating a purchasing power parity (PPP) exchange rate. One way of comparing the GDP levels of the two economies is to convert them into a single currency, say, the U.S. dollars.

What do we mean by economic development? Economic growth is necessary but not sufficient condition for improving the living standards of large numbers of people in countries with low levels of GDP per capita. It is necessary because, if there is no growth, individuals can become better off only through transfer of income and assets from others. Economic growth, by contrast, enables some or even all people to become much better off without anyone necessary becoming worse off. It however, is not a sufficient condition for improving mass living standards. For at least 3 reasons, it would be wrong to assume that higher per capital GDP necessarily means higher income for all, or even most, families. First, governments promote economic growth not just to improve the welfare of their citizens but also, and sometimes primarily, to augment the power and glory of the state and its rulers. Second, resources may be heavily invested in further growth, with significant consumption gains deferred to a later date. Third, income and consumption may increase, but those who already are relative well-off may get all or most of the benefits.

Definition of economic development must include more than income levels. Amartya Sen, economist, identified 4 factors that condition how well income can converted into the capability to live a minimally acceptable life

+ Personal heterogeneities (ages, proneness to illness, extent of disabilities) + Environmental diversities + Variations in social climate, the impact of crime, civil unrest, violence + Differences in relative deprivation Trends in economic development: Human development Human development is a process of enlarging peoples choices. These choices can be infinite and change over time. The three essential ones are for people to lead a long and healthy life, to acquire knowledge, and to have access to resource needed for a decent standard of living. It is different by many people and country. 2 sides: the formation of human capabilities (improved health, knowledge and skills) and the use people make of their acquired capabilities (for leisure, productive purpose or being active in cultural, social and political affairs)

Measuring Human Development Human development index (HDI) was constructed to quantify the determinants: to live a long and healthy life, acquire knowledge, and have access to resources needed for a decent standard of living.

Factor accumulation, productivity growth, and economic growth A board range of factors could plausibly be important to growth, including the amount and type of investment, education and health care systems, natural resources and geographical endowments, the quality of the government institutions, and the choice of public policy. At the core of most theories of economic growth is a relationship between the basic factors of production capital and labor and total economic production. For simplicity, we focus on capital and labor. Depending on the products being produced, different combinations of these inputs are required. Ex: growing rice requires significant amounts of labor but not much machinery other than a plow.

A countrys total output and thus its total income is determined by how much capital and labor it has available and how productively it uses these assets. In turn, increasing the amount of production that is, economic growth depends on increasing the amount of capital and labor available and increasing the productivity of these assets. In other words, economic growth depends on two basic processes:

+ Factor accumulation, defined as increasing the size of the capital stock or the labor force. Producing more goods and services requires more machines, factories, buildings, roads, pots, electricity generators, computers, and tool along with more and better educated workers to put this capital equipment to work. + Productivity growth, defined as increasing the amount of output produced by each machine or workers. Productivity can be increased in 2 broad ways: # Improving the efficiency with which current factors are being used. Ex: a small furniture maker might initially have each worker make a chair from start to finish. It might increase total production.

1.5. Characteristics of developing countries.

General characteristics of the developing countries are as follows. a. Average income per capita of the population was generally low. b. Education levels low average population. c. Low life expectancy. d. Population growth rate per year is quite high. e. The mortality rate is relatively high population per year. f. Livelihoods of the population is generally patterned agrarian. g. Narrow the field work. h. Commodity exports of raw materials, rather than processed ingredients. i. The majority of the population live in rural areas. j. Low levels of population health. k. High unemployment figures.

l. Technological backwardness. m. Exports of Primary Goods (rice, cotton yarn, fish and garments etc.) After that, we go into the details of the main characteristics. 1. Low life expectancy Life expectancy is the expected (in the statistical sense) number of years of life remaining at a given age.

Sources:

GDP per capita (PPP), (World Bank, 2009) Life expancy (CIA factbook, 2009)

Life expectancy at birth is a frequently utilized and analyzed component of demographic data for the countries of the world. It represents the average life span of a newborn and is an indicator of the overall health of a country.

Life Expectancy at birth (years) over 80 77.5-80 75-77.5 72.5-75 70-72.5 67.5-70 65-67.5

60-65 55-60 50-55 45-50 under 45 not available

Data sources: 1) United Nations World Population Prospects: 2006 revision -Table A.17[1]: Life expectancy at birth (years) 2005-2010. All data from the ranking is included, except for Martinique and Guadeloupe (due to imaging difficulties). 2) CIA - The World Factbook 2008 - Rank Order - Life Expectancy at birth (as updated until 24 January 2008)[2]: Life expectancy at birth (years) 2007 estimates for 29 entities without relevant data in the United Nations World Population Prospects 2006.

Those entities are marked with a black CIA asterisk or a white dot . As you can see from the map, more developed regions of the world generally have higher life expectancies (green) than less developed regions with lower life expectancies (red). The regional variation is quite dramatic. Life expectancy can fall due to problems like famine, war, disease and poor health. Improvements in health and welfare increase life expectancy. The higher the life expectancy, the better shape a country is in. Developed countries allocate a great deal of money to the health services budget, therefore fewer babies die at birth and in early infancy. More people have a longer life expectancy in these countries, because they have access to good preventative medical care. 2. Low standard of education Country Name Angola Cambodia Pakistan Mozambique Jamaica Nigeria Luxembourg Macao SAR, China Venezuela, RB Uzbekistan Namibia Algeria Panama Paraguay Peru Poland Ukraine Mongolia Albania Chile Germany Turkey Mexico Country Code AGO KHM PAK MOZ JAM NGA LUX MAC VEN UZB NAM DZA PAN PRY PER POL UKR MNG ALB CHL DEU TUR MEX 2010-Primary completion rate, total (% of relevant age group) 46.6 87.1 67.1 60.6 73.4 74.4 83.5 97.3 93.8 92.7 81.1 96.0 96.9 90.9 99.6 95.4 97.6 108.6 86.3 98.8 100.6 100.4 105.0 2010-GDP per capita (current US$) 4237.3 795.2
1016.6

393.7 4964.2 1443.2 103574.2 51998.9 13657.7 1377.1 4876 4566.9 7614.0 2840.3 5283.2 12303.2 2974 2249.8 3700.7 12639.5 40163.8 10049.8 9127.5

Spain Uruguay Japan Italy United States

ESP URY JPN ITA USA

103.4 104.4 101.9 103.2 103.6

29956.2 11741.7 43063.1 33786.6 46612 Data sources: Worldbank

As you can see from the above table, the Least Developed Countries (LDCs) are Angola, Cambodia and the developing countries are Nigeria, Mozambique.having low primary completion rate. Education and training determine the standard according to which the population of a country functions and produces goods and services. One must remember that there are approximately 80 million children in the poor South who do not go to school at all, therefore one can understand why poor countries are faced with unemployment. Without the necessary training people cannot be prepared for a vocation. This means that such people have no chance of improving their own conditions When accompanied by other reform, education can be the primary tool for improving students abilities to be productive members of society, which in turn gives individuals the tools they need to lift themselves out of poverty. As many African countries are working to end extreme poverty and have the youngest population structures in the world, these societies, in particular, must deliver quality education for all children for their nations to flourish 3. Poor health care. The percentage of a countrys budget that is allocated to health services largely determines the standard of health care in that country. If we consider the average percentage of 4% in developing countries as opposed to the 96% in developed countries, it is easy to understand why the hospitals in many poor countries are in such a shocking condition. There are simply not enough doctors and facilities for the number of inhabitants of the countries. We have an interesting statistic: Quota of patients per medical doctor Developed European country (N) Developing African country (S) 4. Unemployment Some causes of unemployment in developing counties can be:

1:250 1:20 000

LACK OF CAPITAL: The developing countries are facing the problem of capital shortage. While for the development of any country, there is a need of a huge amount of capital. When new projects, buildings and factories are constructed a large number of people are engaged in these project. OVER POPULATION: In the developing countries the rate of population growth is extremely high while the natural resources are limited and they cannot meet the increasing demand of population. LACK OF SKILL: In the developing countries, majority the people lacks of skill. So they have many difficult to get the job. TRADE CYCLE: Some time due to crises unemployment prevails. Because in the period of depression, prices, profits, production and rate of employment falls.

In where, Over-population and low literacy are some of the main causes of unemployment. Everybody would like to have a job in order to make money to earn a living. People who are unemployed cannot be self-supporting and therefore they are unable to make any contribution to the economy of the country. Because of above causes, the developing countries are in trouble to solve employment problem for people in the working age. Look at the following table, we can see clearly: Country Name Germany Japan Korea, Rep. Mexico Norway Australia Bulgaria Canada Iceland Luxembourg Malta Mauritius Netherlands Spain Sweden Switzerland Slovak Republic Lithuania Chile Croatia Country Code DEU JPN KOR MEX NOR AUS BGR CAN ISL LUX MLT MUS NLD ESP SWE CHE SVK LTU CHL HRV 2010-Unemployment, youth total (% of total labor force ages 15-24) 9.7 9.2 9.8 9.5 9.3 11.5 23.2 14.8 16.2 14.2 13.1 23.4 8.7 41.6 25.2 7.2 33.6 35.1 18.6 31.5

Latvia Macedonia, FYR New Zealand Poland Greece Estonia

LVA MKD NZL POL GRC EST

34.5 30.8 17.1 23.7 32.9 33

5. Poor nutrition and limited access to safe water. Only 43% of the worlds food production comes from countries that accommodate 80% of the global population. This, together with the low life expectancy and inadequate education and training, as well as insufficient industries, provides a recipe for malnutrition (a condition that arises when people do not eat enough nourishing food). Approximately 30% of the children in the poor South do not have enough food to eat every day. In developing countries many people are dependent on a stream or a river for their daily supply of fresh water. The water from these sources is not always safe and clean and if people use the water just as it is, it could lead to outbreaks of diseases such as cholera, which cause many deaths every year. Water facts More than 1 billion people did not have access to safe water in the year 2000.

In Mozambique approximately 16% of the inhabitants of the country have safe, clean drinking water. In South Africa an average of 638 water is used per person per day. Only 2,5% of the total water supply of the world is fresh.

6. Market imperfections and high inflation: The market imperfections are found in developing countries. It is due to imperfection of markets, the productive efficiency in these countries is low and resources are misallocated. High rate of inflation in poor nations causes economic backwardness. Due to high level of price, purchasing power and saving of the consumers tend to decrease. 7. Rapid Population Growth, Circle of poverty. Human population growth rate in percent, with negative zero percentage, including the variables of births, deaths, immigration, and emigration (2008)

See at the map, we can see less developed and developing countries have high population growth rate. Especially in Africa, population growth rate is more than 3 percent. While, in the developed areas, such as America, Japan, Russia, etc population growth rate is very low, even less than zero. A rapidly increasing population growth rate is a one common feature of the developing countries, despite of diversity exist in size, density and age structure. An increasing population growth rate adds to low per capita income and low rate of capital formation and there is no marked improvement in the living standards of masses. The death rate has fallen due to advance in medical sciences but birth rate does not yet show any significant decline. In developing countries the per capita income is very low as compared to the developed countries. So their savings and investments are also low. Due to low savings and investments capital formation rate is also low. It is because of their per capita income is low, low saving and investment, lack of capital, low purchasing power, low productivity thus the vicious circle is completed and a country remain poor because it is poor.