Why Do LDCs Face Obstacles to Development?

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Why Do LDCs Face Obstacles to Development?

• Development through self-sufficiency
• Characteristics
• Pace of development modest
• Distribution of development even
• Barriers are established to protect local
  business
• Three most common barriers (1) tariffs, (2)
  quotas, and (3) restricting the number of
  importers
• Two major problems with this approach
• Inefficient businesses are protected
• A large bureaucracy is developed

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• Development through international trade
• Requires the country to identify its unique
  resources, and figure out how to trade it
• Rostows model of development

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Rostow Model

1. Traditional Society Dev. Not yet started. High
   agriculture, lots of devoted to
   nonproductive activities (military and
   religion)
2. Preconditions for takeoff well educated leaders
   invest in technology and infrastructure

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Rostow continued

1. Takeoff rapid growth in select economic sectors
2. Drive to maturity modern technology diffuses to
   other industries
3. Age of mass consumption economy shifts from
   production of heavy industry to consumer goods

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• Development through international trade
• Examples of international trade approach
• The four Asian dragons
• South Korea, Singapore, Taiwan, Hong Kong
• Petroleum-rich Arabian Peninsula states
• Saudi Arabia, Kuwait, Bahrain, UAE
• Three major problems
• Uneven resource distribution
• Increased dependence on MDCs
• Market decline

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Why Do LDCs Face Obstacles to Development?

• International trade approach triumphs
• The path most commonly selected by the end of the
  twentieth century
• Countries convert because evidence indicates that
  international trade is the more effective path
  toward development
• Example India
• World Trade Organization
• Negotiates reductions of trade restrictions
• Is it fair? decisions made behind closed doors

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Triumph of International Trade Approach
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Financing Development - Foreign Direct Investment
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Why Do LDCs Face Obstacles to Development?

• Financing development
• LDCs require money to fund development
• Two sources of funds
• Loans
• The World Bank and the International Monetary
  Fund (IMF)
• Structural adjustment programs
• Foreign direct investment from transnational
  corporations

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Debt as Percent of Income
Many developing countries have accumulated large
debts relative to their GDPs. Much of their
budgets now must be used to finance their debt.
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Structural Adjustment Program

• To apply for debt relief, developing countries
  have to prepare a Policy Framework Paper (PFP),
  which outlines their structural adjustment
  program their economic goals, strategies for
  achieving the objectives, and external financing
  requirements

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Structural Adjustment Programs

• Spend only what you can afford
• Direct benefits towards the poor, not just the
  elite
• Divert money from military to health and
  education
• Invest in scarce resources
• Encourage a more productive private sector
• Reform the government

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Reductions in govt spending leads to

• Cuts in health, education, and social services
• Higher unemployment
• Loss of jobs in state enterprises and civil
  services
• Less support for those most in need (pregnant
  poor, nursing mothers, young and old)

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Financing Challenges in Developed Countries

• Widening inequality
• Richest 1 of Americans hold 20 of the wealth
• 421 billionaires (represents .0001 of the
  population), hold 10 of the wealth

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Why Do LDCs Face Obstacles to Development?

• Fair trade approach
• Products are made and traded in a way that
  protects workers and small businesses in LDCs
• Two sets of standards
• Fair trade producer standards
• Fair trade worker standards
• Producers and workers usually earn more
• Consumers usually pay higher prices

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Three Tier Structure(Wallerstein)
Core Processes that incorporate higher levels of
education, higher salaries, and more technology
Generate more wealth in the world economy
Periphery Processes that incorporate lower
levels of education, lower salaries, and less
technology Generate less wealth in the world
economy
Semi-periphery Places where core and periphery
processes are both occurring. Places that are
exploited by the core but then exploit the
periphery. Serves as a buffer between core and
periphery
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Core and Periphery in World Economy
This north polar projection of the world shows
that most of the MDCs are in a core area north
of 30 N latitude. The LDCs are mostly on the
periphery of this map.
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• Is the idea of economic development inherently
  Western? If the West (North America and Europe)
  were not encouraging the developing world to
  develop, how would people in the regions of the
  developing world think about their own
  economies?

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What does Development Mean?

• Development implies progress
• -Progress in what?
• -Do all cultures view development the same way?
• -Do all cultures value the same kinds of
  development?

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How does Geography affect Development?

• Dependency Theory
• The political and economic relationships between
  countries and regions of the world control and
  limit the economic development possibilities of
  poorer areas.

• -- Economic structures make poorer countries
  dependent on wealthier countries.
• - Little hope for economic prosperity in poorer
  countries.

http//www.cnn.com/video//video/bestoftv/2013/04/
27/exp-gps-0428-witw.cnn
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Dollarization Abandoning the local currency of
a country and adopting the dollar as the local
currency.
El Salvador went through dollarization in 2001
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How Government Policies Affect Development

• Governments
• -get involved in world markets
• -price commodities
• -affect whether core processes produce wealth
• -shape laws to affect production
• -enter international organizations that affect
  trade
• -focus foreign investment in certain places
• -support large-scale projects

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Governments and Corporations can create Islands
of Development
Places within a region or country where foreign
investment, jobs, and infrastructure are
concentrated.
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Government-created Island of Development
Malaysian government built a new, ultramodern
capital at Putrjaya to symbolize the
countrys rapid economic growth.
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Corporate-created Island of Development
The global oil industry has created the entire
city of Port Gentile, Gabon to extract Gabons
oil resources.
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entities that operate independent of state and
local governments, typically, NGOs are non-profit
organizations. Each NGO has its own focus/set of
goals.
Nongovernmental Organizations (NGOs)
Microcredit program loans given to poor
people, particularly women, to encourage
development of small businesses.
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Up Next Industrialization
Read Chapter 11