COMMON CHARACTERISTICS OF DEVELOPING NATIONS

Measuring Development for Quantitative Comparison Across Countries

Two approaches for summarizing development levels across countries:

a) Real per capita income adjusted for purchasing power
b) Human Development Index – a measure that equally weights average income, health and educational
attainments
Gross National Income (GNI) per capita:
 is the most common measure of the overall level of economic activity
 used as a summary index of the relative economic well-being of the people in different nations
 calculated as the total domestic and foreign value added claimed by a country’s residents without
making deductions for depreciation of domestic capital stock.

Gross Domestic Product (GDP) – measures the total value for final use of output produced by an economy,
by both residents and non-residents.

Common Characteristics

The ten important features that developing countries tend to have in common with each other are classified
into the following:

1. Low levels of living and productivity

2. Low levels of human capital
3. Higher levels of inequality and absolute poverty
4. High population growth rates
5. Greater social fractionalism
6. Larger rural population but rapid rural-to-urban migration
7. Lower levels of industrialization and manufactured exports
8. Adverse geography
9. Underdeveloped financial and other markets
10. Lingering colonial impacts such as poor institutions and varying degrees of external dependence

1. Low Levels of Living and Productivity

 Levels of living - the extent to which a person, family or group of people can satisfy their material and
spiritual wants. If they able to afford only a minimum quantity of food, shelter and clothing, their levels
of living are said to be low. If they enjoy a great variety of food, shelter and clothing, and other things,
they are enjoying relatively high levels of living. In developing nations, general levels of living tend to
be very low for the vast majority of people; either in relation to other countries or within their own
society.
 At very low income levels, a vicious cycle may set in, whereby low income leads to low investment in
education and health as well as plant and equipment and infrastructure, which in turn leads to
productivity and economic stagnation. This is known as the poverty trap or by Nobel laureate Gunnar
Myrdal as “circular and cumulative causation”.
 Low levels of living are manifested quantitatively and qualitatively in the form of low incomes
(poverty), inequality, inadequate housing, and poor health, limited or no education, high infant mortality,
low life and work expectancy.

Per capita national income.

 Gross national product (GNP) per capita and gross domestic product (GDP) are the two most
commonly used index of the relative economic well-being of people in different nations. GNP is the
total domestic and foreign output claimed by residents of a country. It comprises gross domestic
1
 product plus factor incomes accruing to residents from abroad less the income earned in the domestic
economy accruing to persons abroad. Gross domestic product is the total final output of goods and
services produced by the country’s economy, within the country’s territory by residents and non-
residents, regardless of its allocation between domestic and foreign claims.
 More than three-fourths of the population is producing only 17% of total world income. The
collective per capita incomes of the underdeveloped countries average less than twentieth the per
capita incomes in rich nations.
 Third world countries have experienced slower GNP growth than the developed nations. The income
gap between rich and poor nations widened

Extent of poverty
 The international poverty line attempt to estimate the purchasing power equivalent of that sum of
money in terms of a developing country’s own currency. International poverty line is an arbitrary
international income measure, usually express in dollars used as basis for estimating the proportion
of the world’s population that exists at the bare levels of subsistence

Low levels of productivity

 The production function is often used to describe the way in which societies go about in providing
their material needs. Levels of productivity in developing world are extremely low compared to
developed countries. Low levels of labour productivity can be explained by the absence or severe
lack of complementary factor inputs such as physical capital and experienced management.
 To raise productivity: (a) domestic savings and foreign finance must be mobilized to generate new
investment in physical capital goods and build up the stock of human capital through investment in
education and training. (b) Institutional changes are necessary to maximize the potential of this new
physical and human investment such as land reform, credit, bank structures, honest and efficient
administrative service, restructuring of educational program, etc.
 Other factors that have to be taken into account is the impact of worker and management attitudes
toward self-improvement, peoples degree of alertness, adaptability, ambition and general willingness
to innovate and experiment and discipline.
 The physical health reveals a close linkage that exists between low levels of productivity and low
levels of income in developing countries.
 Thus, low levels of living and low productivity are self-reinforcing social and economic phenomena
in third world countries

Definition and Explanation:

 According to Prof. Nurkse:
 
"It is the vicious circle of poverty (VCP) which is responsible for backwardness of UDCs".
 
Vicious circle of poverty:
 
 "Implies a circular constellation of forces tending to act and react in such a way as to keep a country in
the state of poverty".

 In such state of affairs the process of capital formation remains obstructed and restricted. This VCP is
presented as:

We start with low real income which results in a meager savings which in turn will check investment. Low
level of investment would create deficiency of capital which in second round leads to low productivity. This
again results in low income. Here, the circle perpetuates the low level of development.
 

2
From the supply side, there is low income, low savings, low investment, capital deficiency and low
productivity.
 
On the demand side, low income, low demand for goods, limited home market and low investment.
 
Diagram/Figure:
 

 
According to Nurkse, a break through on demand side can be brought about by dashing initiatives on the
part of entrepreneurs. On the supply side the disguised unemployment ranging between 20% to 30% of total
agri. labor force can be mobilized for financing capital formation. And the parents of such disguised
unemployed will go on feeding them. It means that in Nurkse's model the hidden food surplus will finance
the process of economic growth.

2. Lower Levels of Human Capital

 Education. Literacy rate remain low is less developed countries than developed countries. Many
children had dropped out from primary and secondary school, and inadequate and often irrelevant
educational curricula and facilities
 Human capital – health, education and skills – is vital to economic growth and human development.
 Much of the developing world has lagged in its average in its nutrition, health (as measured by life
expectancy) and education (measured by literacy).
 Student attendance and completion along with attainment of basic skills such as functional literacy,
remain problems
 There are strong synergies between progress in health and educations
 South Asia continues to have high levels of illiteracy, low schooling attainment and
undernourishment although primary school completion, LIC are also making great progress.
 Some Economists contend that a country’s level and distribution of education is the most
fundamental determinant of future development prospects.

Health
 Large segments of population suffering from ill health, malnutrition and debilitating diseases
 Infant mortality rate – the number of children who die before their first birthday out of every 1000
live births is higher in less developed countries than in developed countries – around 10 times than
those in developed nations. The more likely explanation can be found in the enormous imbalance in
world income distribution. Malnutrition and poor health in the developing world are perhaps even
more a matter of poverty than food production.

3
  Water borne diseases such as cholera, typhoid fever and other are more responsible for the death of
young children. Most of these diseases and resulting deaths would be quickly eliminated with safe
water supplies.
 Medical care is extremely scarce service in many parts of the developing world.
Can you tell the levels of human capital for the Philippines?

3. Higher levels of inequality and absolute poverty

 All nations show some degree of income inequality – large disparities between rich and poor in both
developed and underdeveloped countries. Nevertheless, the gap between rich and poor is generally
greater in less developed nations than in developed nations. This phenomenon underlines the
important point that economic development cannot be measured solely in terms of the level and
growth of overall income or per capita income; one must also look at how that income is distributed
among the population.
 Globally, the poorest 20% of people receive 1.5% of world income, living in extreme poverty in less
than $1 per day at PPP and those who are just above this line.
 Bringing the income of those who live on less than $1/day up this minimal poverty line would
require less than 2% of the incomes of the world’s wealthiest 10%.
 The enourmous gap between the rich and the poor is not only among countries but also within the
LDCs.
 Very high levels of inequality – extremes in the relative incomes of higher and lower income citizens
are found in middle income countries.
 The varying but rising levels of inequality underlines that we cannot confine our attention to
averages; we must look within nations at how income is distributed and ask who benefits from
economic development and why.
 Extreme poverty is due in part to human capital but also to social and political exclusion and other
deprivations.
 The magnitude and extent of poverty in any country depend on two factors: (a) the average level of
national income and (b) the degree of inequality in its distribution. For any given level of national
per capita income, the more unequal the distribution, the greater the incidence of poverty. For any
given distribution, the lower the average income level, the greater the incidence of poverty.
 The widely used concept is the 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 – but this vary from one country to country reflecting different physiological, social and
economic requirements.

4. High rates of population growth and dependency burdens

 Rapid population growth rate began in Europe and other now developed countries, but in recent
decades most population growth rates has been centered in the developing world. More than five-
sixths of all the people in the world now live in the developing world.
 From 1990 to 2005, population in the LIC grew at 2% per year, 1.1% in the MIC and 0.7% in the
HIC.
 Both birth rate and death rate are high in less developed countries. Birth rate is the yearly number of
live births per 1,000 population and death rates is the yearly number of deaths per 1,000 populations.
 The high birth rates imply that children under age 15 (makes up 40% of population in less developed
countries); the active labor force has to support proportionally almost twice as many children. Older
people (over 65 years old) as well as children are often referred to as dependency burden – in the
sense that they are non-productive members of society and therefore must be supported by the
country’s labor force.

5. Greater Social Fractionalization

 Low income countries more often have ethnic, linguistic and other forms of social divisions
sometimes known as fractionalization. This is sometimes associated with civil strife and event

4
 violent conflict, which can lead developing societies to divert considerable energies to working for
political accommodations. It is one of a variety of governance challenge many developing nations
face.
 The factors associated with poor economic growth such as low schooling, political instability,
underdeveloped financial systems, insufficient infrastructure can be explained by the high ethnic
fragmentation according William Easterly and Rose Lavine
 Today, more than 40% of the world’s nations have more than five significant ethnic population

6. High and rising levels of unemployment and underemployment

 There is relatively inadequate and inefficient utilization of labor in less developed countries
compared to developed countries. Underutilization of labor is manifested in two forms: (a)
underemployment – people who are working less than they could. It also includes those who are
normally working full time but whose productivity is so low that a reduction in hours would have a
negligible impact on total output. (b) Open unemployment – people who are able and often eager to
work but for whom no suitable jobs are available.

7. Significant dependence on agricultural production and primary product exports

 The basic reason for the concentration of people and production in agricultural and other primary
production activities in developing countries is the simple fact that at low levels, the first priorities of
any person are food, clothing and shelter
 Low level of agricultural productivity is due to primitive technologies, poor organization and limited
physical and human capital input.
 Most economies of less developed countries are oriented toward the production of primary products
(agriculture, fuel, forestry and raw materials)
 Most poor countries need to obtain foreign exchange in addition to domestic savings in order to
finance priority development projects. Much of the foreign exchange earned through export by LDC
went to pay the interest on earlier borrowing.

8. Dominance, dependence, and vulnerability in international relations

 The significant factor contributing to the persistence of low levels of living, rising unemployment
and growing income inequality is the dominant power of rich nations to control the pattern of
international trade, their ability to dictate technology, foreign aid and private capital that are
transferred to LDC.
 The transfer of developed countries’ values, attitudes, institutions and standards of behaviour could
serve to inhibit the development of poor nations. The penetration of rich-country attitudes, values
and standards also contributes to the problem of brain drain – the migration of professional and
skilled personnel

In conclusion, the underdevelopment must be viewed in both a national and an international context. The
successful pursuit of economic and social development will require not only the formulation of appropriate
strategies within the LDC but also a modification of the present international economic order to make it
more responsive to the development needs of poor nations.