Name: Revilla, Christian James C.

Section: BSA-2B ACC 214 2:15-4:15 PM

Seatwork #2 – September 01, 2020

True of False

1. True
2. True
3. True
4. False
5. False

Characteristics of the Developing World (Essay)

1. Lower Levels of Living and Productivity

Labor productivity in developing countries is invariably low. It is both a cause and effect of
low levels of living in these countries. Todaro and Smith stated that “low levels of living and low
productivity are self-reinforcing social and economic phenomena in third World countries and as
such are the principal manifestations of and contributors to their underdevelopment”. Labor
productivity depends on a number of factors, particularly the availability of other inputs to be
combined with labor, health and skill of workers, motivation for work and institutional flexibilities.

According to Bloom et al, there are three reasons why developing countries have lower
levels of living and productivity namely, management, delegation and finance. There has long
been a suspicion that poor management practices have held back the productivity of firms in
developing countries. Another striking fact about firms in developing countries is the marked
lack of delegation of decision making from owners to senior managers. The top executive, who
is typically also the owner of the firm, tends to make almost all the major decisions on
investment, employment, procurement and production. In surveys, many firms report access to
finance or the cost of finance as a major obstacle to their growth because of wrong investment
of finance sources.

2. Lower Levels of Human Capital (Health, Education Skills)

Human capital investment is critical to developing countries. According to research,

education spending should focus less on creating more schools, providing up to date schools
through resource investment, vocational or tertiary schools, and instead focus on improving the
quality of schools. School quality (not through resources) could include evaluating and
structuring curriculums that focus on building and solidifying basic skills, utilizing the most
effective tested learning theories and teaching methods, and improving teacher to pupil ratios.
Investments in education take longer to effect economic growth than spending in health. A
healthier population though is more capable of utilizing opportunities in education. Future
studies should investigate what constitutes effective health spending, and how that can set up
developing countries to take advantage of increases in education spending. It is important to
note that a lack of governmental support can impede human capital investment which is a major
issue for many developing countries. Ultimately investment in human capital can become
negated if the government does not support the process.

3. Higher Levels of Inequality and Poverty

In developing countries apart from GNP per capita being considerably lower, income
inequalities are also larger than in developed countries. The comparison of income distribution
in developed and developing countries is generally made of incomes prior to levying of direct
taxes and the free benefits from the government also remain excluded.

Simon Kuznets asserts “since the burden and progressivity of direct taxes are much greater
in developed countries and since it is in the latter that substantial volumes of free economic
assistance are extended to low income groups, a comparison in terms of income net of direct
taxes and excluding government benefits would only accentuate the wider inequality of income
distribution in the underdeveloped countries”. Development economists use the concept of
absolute poverty to represent a specific minimum level of income needed to satisfy the basic
physical needs of food, clothing, and shelter in order to ensure continued survival.

4. Higher Population Growth Rates

Population has been rising in most developing countries at rates varying between 2 and 3.5
percent per annum for the past few decades. This demographic trend is unprecedented in the
history of mankind. Due to increased medical facilities there has been a sudden decline in the
mortality rates in these countries. However, in most developing countries birth rate remain very
high, in the range of 25 to 50 per thousands, while in developed countries, nowhere it exceeds
15 per thousand.

5. Greater Social Fractionalization

Low-income countries often have ethnic, linguistic, and other forms of social divisions,
sometimes known as fractionalization. This is sometimes associated with civil strife and even
violent conflict, which can lead developing societies to divert considerable energies to working
for political accommodations if not national consolidation. It is one of a variety of governance
challenges many developing nations face. The greater the ethnic, linguistic, and religious
diversity of a country, the more likely it is that there will be internal strife and political instability.

6. Larger Rural Populations but Rapid Rural-to-Urban Migration

Although modernizing in many regions, rural areas are poorer and tend to suffer from
missing markets, limited information, and social stratification. A massive population shift is also
under way as hundreds of millions of people are moving from rural to urban areas, fueling rapid
urbanization, with its own attendant problems.

7. Lower Levels of Industrialization and Manufactured Exports

Developing countries have a far higher share of employment in agriculture than developed
countries. Along with lower industrialization, developing nations tended to have a higher
dependence on primary exports. Most developing countries have diversified away from
agricultural and mineral exports to some degree. The middle income countries are rapidly
catching up with the developed world in the share of manufactured goods in their exports, even
if these goods are typically less advanced in their skill and technology content.

8. Adverse Geography

Developing countries are primarily tropical or subtropical, and this has meant that they suffer
more from tropical pests and parasites, endemic diseases such as malaria, water resource
constraints, and extremes of heat. According to Jeremy Williams, one of the most important
factors in development is geography, where the country is in the world, and climate. It’s no
coincidence that the poorest countries are in the tropics, where it is hot, the land is less fertile,
water is more scarce, where diseases flourish.

9. Undeveloped Financial and Other Markets

Some aspects of market underdevelopment are that they often lack

(1) Legal system that enforces contracts and validates property rights;
(2) Stable and trustworthy currency;
(3) Infrastructure of roads and utilities that results in low transport and communication costs so
as to facilitate interregional trade;
(4) A well-developed and efficiently regulated system of banking and insurance, with broad
access and with formal credit markets that select projects and allocate loanable funds on the
basis of relative economic profitability and enforce rules of repayment;
(5) Substantial market information for consumers and producers about prices, quantities, and
qualities of products and resources as well as the creditworthiness of potential borrowers; and
(6) Social norms that facilitate successful long-term business relationships.

10. Colonial Legacy and Foreign Dependence

Though the economies of the colonies remained backward yet they were part of the world
capitalist system. They were in fact made subservient to metropolitan interests and were forced
to specialize in primary producing activities. The pattern and direction of trade in colonial period
was also determined by the basic fact of the integration of colonies with the metropolitan
countries. On the one hand colonies depend on the metropolitan countries for almost all the
capital goods, industrial raw materials and most of the manufactured consumer goods, while on
the other hand their exports constituted of one or two primary products.

Sources:

Todaro, M. (2015). Economic Development

12th edition. New Jersey: Pearson
Education Inc.

Williams, J. (2007). Geographical Factors that Affect Development. Retrieved from

https://earthbound.report/2007/07/01/geographical-factors-that-affect-development/#:~:text=One
%20of%20the%20most%20important,in%20the%20world%2C%20and%20climate.&text=Some
%20countries%20are%20just%20at,part%20in%20access%20to%20markets.

Bloom, N. et al. American Economic Review: Papers & Proceedings 2010, 100:2, 619–623.
Retrieved from http://www.aeaweb.org/articles.php?doi=10.1257/aer.100.2.619

Ritter, B. (2017). Human Capital Development in Developing Countries.

Retrieved from http://www.icglconferences.com/articles/human-capital-development-in-
developing-countries/