2.

Diverse Structure and Common

Characteristics of Developing
Nations.
Botin. Landagan
D E F I N I N G T H E D E V E L O P I N G C O U N T RY

World bank Classification U.N. classification system

• Capita Income
In attempting to classify countries, some analysts,
Per capita income is a measure of the amount of money earned
per person in a nation or geographic region. Per capita income is using the U.N. classification system, prefer to
used to determine the average per-person income for an area and distinguish among three major groups within the
to evaluate the standard of living and quality of life of the Third World: the 44 poorest countries designated by
population. the United Nations as "least developed,"1 the 88 non-
World Bank Classifications
oil-exporting "developing nations," 2 and the 13
• Low Income (LIC) $755 or less GNI
petroleum-rich members of the Organization of
• Lower-Middle Income (LMC) $756 or $2995 GNI
Petroleum Exporting Countries (OPEC)
• Upper-Middle Income (UMI) $2996 or $9265 GNI
• High Income (HIC) $9266 or more GNI
THE DEVELOPED AND DEVELOPING WORLD, 2020
THE STRUCTURAL DIVERSITY OF DEVELOPING ECONOMIES
EIGHT CRITICAL COMPONENTS:

• The size of the country (geographic area, population and income)

• It’s historical and colonial background.
• it’s endowment of physical and human resources.
• it’s ethnic and religion composition.
• The relative important of public and private sectors.
• The nature of its industrial structure.
• Its degree of dependence on external economic and political forces.
• The distribution of power and institutional and political structure within
the nation
SIZE AND INCOME LEVEL

The sheer physical size of the country, the size of its population, and its level of
national income per capita are important determinants of its economic potential
and major factors differentiating one developing nations to another.
Large size usually presents advantages of diverse resource endowment, large
potential markets, and a lesser dependence on foreign sources of materials and
products. But it also creates problems of administrative control, national
cohesion, and regional imbalances.
HISTORICAL BACKGROUND
The economic structures of these colonial nations, as well as their
educational and social institutions, have typically been modeled on those of
their former colonial rulers.
Example:
The European colonial powers had a dramatic and long-lasting impact on
the economies and political and institutional structures of their African and
Asian colonies by their introduction of three powerful and tradition-
shattering ideas: private property, personal taxation, and the requirement
that taxes be paid in money rather than in kind.
PHYSICAL AND HUMAN RESOURCES

A country's potential for economic growth is greatly influenced by its

endowments of physical resources (its land, minerals, and other raw materials)
and human resources (both numbers of people and their level of skills). The
extreme case of favorable physical resource endowment is the Persian Gulf oil
states.
In the realm of human resource endowments, not only are sheer numbers of
people and their skill levels important, but so also are their cultural outlooks,
attitudes toward work, and desire for self-improvement.
 ETHNIC AND RELIGIOUS COMPOSITION
Ethnicity and religion often play a major role in the success or failure of
development efforts. Clearly, the greater the ethnic and religious diversity of a
country, the more likely it is that there will be internal strife and political
instability. Today more than 40% of the world’s nations have more than five
significant ethnic populations. In most cases, one or more of these groups face
serious problems of discrimination. If development is about improving human
lives and providing a widening range of choices to all people racial, ethnic,
caste, or religious discrimination can be equally pernicious. Ethnic and religious
need not, however, necessarily lead to inequality and turmoil or instability.
There have been numerous instances of successful economic and social
integration of minority or indigenous ethnic in population in countries as
diverse as Malaysia and Zimbabwe.
RELATIVE IMPORTANCE OF THE PUBLIC AND PRIVATE SECTORS
Most Third World countries have mixed economic systems, featuring both public and
private ownership and use of resources. The division between the two and their relative
importance are mostly a function of historical and political circumstances. A large foreign-
owned private sector usually creates economic and political opportunities as well as
problems not found in countries where foreign investors are less prevalent. Economic
policies, such as those designed to promote more employment, will naturally differ for
countries with large public and sizable private sectors. In economies dominated by the
public sector, direct government investment projects and large rural works programs will
take precedence, whereas in private?oriented economies, special tax allowances designed to
induce private businesses to employ more workers might be more common
INDUSTRIAL STRUCTURE

The vast majority of developing countries are agrarian in economic, social, and
cultural outlooks. Agriculture, both subsistence and commercial, is the
principal economic activity in terms of the occupational distribution of the
labor force, if not in terms of proportionate contributions to the gross national
product. Third World development strategies may vary from one country to the
next, depending on the nature, structure, and degree of interdependence among
its primary, secondary, and tertiary industrial sectors. The primary sector
consists of agriculture, forestry, and fishing; the secondary, mostly of
manufacturing; and the tertiary, of commerce, finance, transport, and services
EXTERNAL DEPENDENCE ECONOMIC, POLITICAL, AND CULTURAL

The degree to which a country is dependent on foreign economic, social, and

political forces is related to its size, resource endowment, and political history.
For most Third World countries, this dependence is substantial. In some cases,
it touches almost every facet of life.
POLITICAL STRUCTURE, POWER AND INTEREST GROUPS

In the final analysis, it is often not the correctness of economic policies alone
that determines the outcome of national approaches to critical development
problems. The political structure and the vested interests and allegiances of
ruling elites (e.g., large landowners, urban industrialists, bankers, foreign
manufacturers, the military, trade unionists) will typically determine what
strategies are possible and where the main roadblocks to effective economic
and social change may lie. The constellation of interests and power among
different segments of the populations of most developing countries is itself the
result of their economic, social, and political histories and is likely to differ
from one country to the next.
COMMON CHARACTERISTICS OF DEVELOPING NATIONS
SIX BROAD CATEGORIES CLASSIFIED:

1. Low levels of living, comprising low incomes, high inequality, poor

health and inadequate education
2. Low levels of productivity
3. High rates of population growth and dependency burdens
4. High and rising levels of unemployment and underemployment
5. Significant dependence on agricultural production and primary product
exports 11
6. Dominance, dependence, and vulnerability in international relations
LOW LEVELS LIVINGS

These low levels of living are manifested quantitatively and qualitatively in the
form of low incomes (poverty), inadequate housing, poor health, limited or no
education, high infant mortality, low life and work expectancy, and in many
cases a general sense of malaise and hopelessness.
PER CAPITA NATIONAL INCOME
The gross national product (GNP) per capita is often used as a summary index of the relative
economic well-being of people in different nations. The GNP itself is the most commonly used
measure of the overall level of economic activity. It is calculated as the total domestic and
foreign value added claimed by a country's residents without making deductions for
depreciation of the domestic capital stock. The gross domestic product (GDP) measures the total
value for the final use of output produced by an economy, by both residents and nonresidents. In
1990, the total national product of all the nations of the world was valued at more than U.S. $20
trillion, of which more than $16.6 trillion originated in the economically developed regions
while less than $3.4 trillion was generated in the less developed nations. When one takes into
account the distribution of the world population, this means that approximately 83% of the
world's total income is produced in the economically developed regions by less than 23% of the
world's people.
RELATIVE GROWTH RATES OF NATIONAL AND PER CAPITA INCOME

These low levels of living are manifested quantitatively and qualitatively in the
form of low incomes (poverty), inadequate housing, poor health, limited or no
education, high infant mortality, low life and work expectancy, and in many
cases a general sense of malaise and hopelessness. During the 1980s and early
1990s, the income gap between rich and poor nations widened at the fastest
pace in more than three decades. The impact of this widening gap is striking. If,
for example, we look at the income levels of the richest 20% of the world's
population in comparison with the poorest 40%, we find that whereas in 1960
the income ratio was 30 to 1, at the end of the 1980s the rich were receiving
almost 60 times the income of the poor
EXTENT OF POVERTY

The magnitude and extent of poverty in any country depend on two factors: (1) the
average level of national income and (2) the degree of inequality in its distribution.
Clearly, for any given level of national per capita income, the more unequal the
distribution, the greater the incidence of poverty. During the 1970s, as interest in
problems of poverty increased, development economists took the first step in
measuring its magnitude within and across countries by attempting to establish a
common poverty line. They went even further and devised the now widely used
concept of absolute poverty. One common methodology has been to establish an
international poverty line at, say, a constant U.S. $370 (based, for example, on the
value of the 1985 dollar) and then attempt to estimate the purchasing power
equivalent of that sum of money in terms of a developing country's own currency.
HEALTH

In addition to struggling with low income, many people in Third World nations
fight a constant battle against malnutrition, disease, and ill health. life
expectancy in 1992 still averaged only 52 years, compared to 61 years among
other Third World countries and 75 years in developed nations. Infant mortality
rates (the number of children who die before their first birthday out of every
1,000 live births) average about 99 in the least developed countries, compared
with approximately 74 in other less developed countries and II in developed
countries. Thus malnutrition and poor health in the developing world are
perhaps even more a matter of poverty than of food production, even though
the two factors are indirectly interrelated.
EDUCATION
The attempt to provide primary school educational opportunities has probably been
the most significant of all LDC development efforts. In most countries, education
takes the largest share of the government budget. Yet in spite of some impressive
quantitative advances in school enrollments, literacy levels remain strikingly low
compared with the developed nations. For example, among the least developed
countries, literacy rates average only 45% of the population. Currently, it is
estimated that more than 300 million children have dropped out of primary and
secondary school, and of the estimated 1 billion illiterate adults, more than 60% are
women. The education of children who do attend school regularly is often ill suited
and irrelevant to the development needs of the nation
HOLISTIC MEASURE OF LIVING LEVELS: THE HUMAN DEVELOPMENT
INDEX
The latest and most ambitious attempt to analyze the comparative status of socio-economic
development such as we have just reviewed in both developing and developed nations systematically
and comprehensively has been undertaken by the United Nations Development Program (UNDP) in
its annual series of Human Development Reports. The centerpiece of these reports, which were
initiated in 1990, is the construction and refinement of the Human Development Index(HDI) The
HDI attempts to rank all countries on a scale of 0 (lowest human development) to 1 (higher human
development) based on three goals or end products of development: LONGEVITY as measured by
life expectancy at birth, KNOWLEDGE as measured by a weighted average of adult literacy (two
thirds) and mean years of schooling (one third) and STANDARD OF LIVING as measure by real
per capita income adjusted for the differing purchasing power parity(PPP) of each country's currency
to reflect cost of living and for the assumption of diminishing marginal utility of income. Using
these three measures of development and applying a formula to data for 175 countries, the HDI
ranks all countries into three groups: low human development (0.0 to 0.499), medium human
development (0.50 to 0.799), and high human development (0.80 to 1.0)
LOW LEVELS OF PRODUCTIVITY
In addition to low levels of living, developing countries are characterized by relatively low
levels of labor productivity. The concept of a production function systematically relating outputs
to different combinations of factor inputs for a given technology is often used to describe the
way in which societies go about providing for 17 their material needs. Throughout the
developing world, levels of labor productivity (output per worker) are extremely low compared
with those in developed countries. This can be explained by a number of basic economic
concepts. For example, the principle of diminishing marginal productivity states that if
increasing amounts of a variable factor (labor) are applied to fixed amounts of other factors
(e.g., capital, land, materials), the extra or marginal product of the variable factor declines
beyond a certain number. Low levels of labor productivity can therefore be explained by the
absence or severe lack of "complementary" factor inputs such as physical capital or experienced
management
HIGH RATES OF POPULATION GROWTH AND DEPENDENCY BURDENS

Approximately 5.5 billion people in 1993, more than three-fourths lived in

Third World countries and less than one-fourth in the more developed nations.
Both birth and death rates are strikingly different between the two groups of
countries. 18 Death rates (the yearly number of deaths per 1,000 population) in
Third World countries are also high relative to the more developed nations, but
because of improved health conditions and the control of major infectious
diseases.
SUBSTANTIAL DEPENDENCE ON AGRICULTURAL PRODUCTION AND
PRIMARY PRODUCT EXPORTS
The vast majority of people in Third World nations live and work in rural areas.
Over 65% are rurally based, compared to less than 27% in economically
developed countries. Similarly, 62% of the labor force is engaged in
agriculture, compared to only 7% in developed nations. Agriculture contributes
about 20% of the GNP of developing nations but only 3% of the GNP of
developed nations
SMALL-SCALE AGRICULTURE

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 income levels, the first priorities of any person are food,
clothing, and shelter. Agricultural productivity is low not only because of the
large numbers of people in relation to available land but also because LDC
agriculture is often characterized by primitive technologies, poor organization,
and limited physical and human capital inputs. Technological backwardness
persists because Third World agriculture is predominantly noncommercial
peasant farming.
DEPENDENCE ON PRIMARY EXPORTS

Most economies of less developed countries are oriented toward the production of
primary products (agriculture, fuel, forestry, and raw materials) as opposed to secondary
(manufacturing) and tertiary (service) activities. These primary commodities form their
main exports to other nations (both developed and less developed). Most poor countries
need to obtain foreign exchange in addition to domestic savings in order to finance
priority development projects. Although private foreign investment and foreign aid are a
significant but rapidly declining source of foreign exchange, exports of primary
products typically account for 60% to 70% of the annual flow of foreign currency into
the developing world. Unfortunately for many debt-ridden LDCs, much of the foreign
exchange earned through exports in the 1980s went to pay the interest on earlier
borrowing.
PREVALENCE OF IMPERFECT MARKETS AND INCOMPLTE INFORMATION

The presumed benefits of market economies and market friendly policies

depend heavily on the existence of institutional, cultural, and legal
prerequisites that most of us in industrial societies take for granted. In many
LCD these legal and institutional foundations are either absent or extremely
weak.
DOMINANCE, DEPENDENCE, AND VULNERABILITY IN INTERNATIONAL
RELATIONS
These low levels of living are manifested quantitatively and qualitatively in the form of
low incomes (poverty), inadequate housing, poor health, limited or no education, high
infant mortality, low life and work expectancy, and in many cases a general sense of
malaise and hopelessness. Third World nations that possess greater assets and relatively
more bargaining power, the phenomenon of dominance becomes manifested more in the
general tendency of the rich to get richer, often at the expense of the poor. But as
mentioned, this is not simply a matter of rich nations growing at a faster pace than poor
nations. It is also a matter of rich and dominating sectors or groups within the LDC
economy (e.g., the modern industrial or agricultural sector; landlords, trade union
leaders, industrialists, politicians, bureaucrats, and civil servants in positions of power)
growing richer, often at the expense of the much larger but politically and economically
less powerful masses of poor people.
CONCLUSION
The phenomenon of underdevelopment must be viewed in both a national and an international context. Problems
of poverty, low productivity, population growth, unemployment, primary product export dependence, and
international vulnerability have both domestic and global origins and potential solutions. Economic and social
forces, both internal and external, are therefore responsible for the poverty, inequality, and low productivity that
characterize most Third World nations. The successful pursuit of economic and social development will require
not only the formulation of appropriate strategies within the Third World but also a modification of the present
international economic order to make it more responsive to the development needs of poor nations. Although the
picture of life in much of the Third World painted throughout our review is rather bleak, it should be remembered
that many countries have succeeded in raising incomes, lowering infant mortality, improving educational access,
and increasing life expectancy. By pursuing appropriate economic and social policies both at home and abroad and
with effective assistance from developed nations, poor countries do indeed have the means to realize their
development aspirations