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Economic Problems of Third World Countries

Presented to: Miss Asma Kamal Presented by: Afia Ilyas Economic Problems of Third World Countries: 1. Poverty: In most of Africa and large parts of Asia and Latin America, majority of people live in poverty. For them life is a daily struggle for survival. Affluence does exist in these countries, but here it is the fortunate few who can afford good food, good housing and the various luxury items that characterize life in the industrialized world. All the family members of their families work to earn living, in order to fulfill the basic needs for living. 2. Lack of Capital: One of the major economic problems that third world countries face is the shortage of capital, as the per capita income of the residents of such countries is low which results in low level of savings and investments. According to Economics by John Sloman 85 per cent of the worlds population lives in developing countries but earns only 20 per cent of the worlds income and the GNY per head of the 20 poorest countries of the world in 2003 averaged only $220. For the richest 20 it was $29 100. Therefore development programs cannot be executed and require foreign loans and aids in order to get completed. This gives rise to increased debt burden and thus creates another economic issue for the country. 3. Lack of Technology: Third world countries use inappropriate and obsolete technology that becomes an obstacle in the path of economic development. Rate of industrialization is already low in these countries, which is further worsening by the usage obsolete technology. The reason behind is that advanced technology is capital intensive and requires high capital

employment, therefore these countries relies on labor intensive technology that results in low productions and resultantly low revenue and profits. 4. Unemployment: Unemployment is also a major problem of the third world countries. As most of these countries are agrarian countries and their economies rely mainly on agriculture, so due to little industrialization employment rate is very low. Besides this, due to low foreign direct investment and establishment of multinational companies employment opportunities are little, as high investment gives rise to creation of new factories that provides labor and management jobs. Another reason behind unemployment in these countries is high rate of illiteracy.

5. High Inflation: Inflation is a key economic problem in the developing countries. Inflation arises from devaluation of domestic money that gives rise to high prices of goods and services. Due to inflation the goods required to fulfill the basic needs becomes expensive thus leads to high rate of poverty. Besides this high inflation leads to disturbed balance of payment, and therefore the debt burden increases. 6. Underdeveloped Natural and Human Resources: In third world countries natural and human resources are underdeveloped. Forests are considered as a necessary natural resource, but these countries have little area covered with forests. Moreover the human resources are underdeveloped due to high rate of illiteracy and lack of training. Even the farmers in most of the agriculture dependent countries are not well trained, that leads to low agricultural yield. Besides this literacy rate is low and higher education is expensive that leads to less trained staff in organizations. 7. Underutilization of Natural Resources: Natural resources are one of the main assets of a country. Countries rich with these resources can earn high revenues and fulfill domestic needs with these resources and thus can strengthen its economy. Many of the third world countries such as Pakistan are rich in terms of natural resources, but they lack proper utilization of these resources. Natural resources such as coal, oil, mineral and gas are either not properly discovered or are being underutilized due to lack of advanced technology.

8. The neglect of Agriculture: Most of the countries among developing countries are agriculture based, i.e. their economies basically rely on agricultural yield. The drive to industrialize by many developing countries has often been highly damaging to agriculture, especially in the poorest countries such as those of sub-Saharan Africa. With a backward and run-down agricultural sector, with little or no rural infrastructure, many countries today face a food crisis of immense proportions. Agricultural sector is being given little attention due to which obsolete techniques are being used. Farmers are getting little payment for their crops which lead them to abandon agriculture as their source of income. 9. Weak Infrastructure: Third world countries have poor infrastructure, which brings hurdles to economic development. Roads are not properly built, railway system is obsolete, transport and communication system is inefficient. Ports are either small in number or negligible. Proper Infrastructure is considered as a backbone for economic development, as most of the countries activities are dependent on it, therefore weak infrastructure is a major economic problem in the developing countries. 10. Tax Structure: Sound tax structure is vital for the development of a country. With the help of proper tax system, tax is collected from the salaried, industrial and other classes of the country and the tax money is then invested for the development projects in the country. In third world countries improper tax structure is a major problem, as tax is mostly paid only by the salaried class, most of the industrial and business class, avoid tax payment due to which government receives fewer amounts to invest on development projects. 11. Unfavorable international Trade: The international trade done by third world countries is mostly unfavorable for the countrys economic conditions, as these countries export low expenditure share products such as basic raw material for different products, and primary goods, and import high expenditure goods, such as machinery, medicines etc. this gives rise to a disturbed balance of payment and therefore leads to high debt burden. 12. Debt issues: Third world countries are mostly dependent on loans and foreign aids for the fulfillment of its projects, and basic needs. Debt burden is increased by imports of food items, technological products etc. high debt burden causes economic pressure on these countries and make them unable to cover the path of economic development.

13. Energy Crisis: Energy crisis is also one of the major economic problems in most of the third world countries, energy crisis leads to decreased industrialization, as industries are completely dependent on energy utilization. Besides this agricultural farms also require energy to run machines and tube well. Business activities are also energy dependent. So energy crisis ceases all such activities and therefore restricts economic development. 14. Population pressure: In third world countries there is high population pressure. The population growth rate is very high due to which is becomes impossible to fulfill the basic needs of all the people in the country. High population also leads to high rate of illiteracy and unemployment.

15. Illiteracy: Literacy rate in third world countries is very low. Due to high inflation and shortage of capital, education becomes expensive. Besides this in these countries there is a high trend of child labor and all the members of the family work to fulfill the living requirements. Therefore little number of lower class families, send their children to school to get education, which leads to high rate of illiteracy.