First World Third World

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An introduction to Development economics

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First World Third World:

First World Third W orld

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First word Economies Small group Rich industrialized G7 countries (UK, USA, Canada, France, Italy, Germany, Japan) Western Europe, Australia & New Zealand. Also known as developed countries . Reached advanced stage of economic development. Second world Economies Historical concept. Former communist countries of Eastern Europe and the USSR. Today know as transition economies They are making the transition or change from command to mixed or free market economies. Third world Economies Large group Asia, Africa and L atin America. Lower incomes. Known as developing countries (DCs) or less developed countries (LDCs).

The Third World – further subdivisions:

Fourth world Low income countries. Least developed countries Middle income / emerging economies Richer third world countries. Divided by world bank into lower and upper middle income countries. Mexico, Thailand, Malaysia are sometimes called emerging economies. They are economies emerging to take their place amongst developed economies. Newly industrialized countries South Korea, Singapore, Taiwan Economies have a strong western style base. Known as tiger economies indicating fast economic growth. The Third World – f urther subdivisions

BRICs Brazil Russia India China:

BRICs B razil R ussia I ndia C hina It is forecast that by 2050 they will be the four most dominant economies in the world. Two-fifths of the worlds population.

Problems in the Third world:

Problems in the Third world Per capita income 84 % of the worlds population live in the Third World. Yet in 2006 the total GNP of the Third World is only 22% of the worlds total. The first world has 16% of the world population and 78% of its GNP. Low income third world nations have 37% population and 3% GNP. Beware of figures! The poorer the country the greater the proportion of output which is not traded in the market economy. Much output from third world nations is not included in world GNP figures. Figures are given on $ at current exchange rates. A more realistic way to measure living standards would be to convert GNP to purchasing power parity.

Problems in the Third world:

Problems in the Third world Physical income Third world countries – far less physical capital. Factories, offices, machines, roads, railways, schools, hospitals. Poor communication infrastructure. The more physical capital the greater the productive potential of the economy. If a country is to grow it must increase it stock of physical capital in order to push out its PPF. A country tends to be less developed: The fewer the number of mainline telephones per person. The lower the % of roads that are paved. The fewer the % of the population with access to improved sanitation. Less agricultural land is irrigated. Less ability to generate electricity.

Problems in the Third world:

Problems in the Third world Human capital Low levels of human capital. Several indicators: % enrolment in different stages of education. % of primary school children who finish schooling. Literacy rates Countries which invest today in education show the rates of return for that investment are the highest.

Educating women:

Educating women In developing countries females are less likely to be formally educated than males. However it can be argued that the rate of return for educating females is higher than for men. Women who can read and write are more likely to pass these skills onto their children and grandchildren. This raises education levels outside the school system. Literate women are more likely to take part in family planning, nutrition and health programs. In many developing countries women run businesses from home, studies show that a higher % of money earned by women is spent on nutrition and education of children than men.

Controlling the population:

Controlling the population Third world countries have relatively high population growth. This means that third world countries need to invest large amounts of physical and human capital to create the jobs, goods and services needed for their growing populations. But they must also increase their consumption in order provide a basic standard of living for their current population. Higher investment for tomorrow and can only be achieved by lowering consumption today. Third world countries have avoided this problem by securing large amounts of investment from abroad. High population growth – high dependency rates requiring further investment.

Health and mortality:

Health and mortality People in the third world enjoy poorer health and are likely to die younger. One reason is the standard of nutrition a major cause of poor health and high mortality rates. Poor nutrition affects the physical and mental development of the population. Access to clean water and sanitation is vital. Diseases such as polio or malaria that have been eradicated in the first world are still killers in the third world. The working environment – people are often forced to work in poor or dangerous conditions which can seriously damage their health. Poor health – without basic training of nurses or doctors and basic medicines and health education treatment for sickness is often ineffective and sub standard.

Un & underemployment:

Un & underemployment Third world countries tend to have much higher unemployment rates. Lack of infrastructure and physical capital means that workers are structurally unemployed. Poor government economic policies and protectionism in other countries also play a part. In countries heavily reliant on agriculture unemployment is highly seasonal.

Structure of the economy:

Structure of the economy Developed countries have gradually shifted from primary to secondary and then tertiary sectors of the economy over time. An indicator of the level of development of the economy is therefore the level of dependence upon agricultural output and industrial production.

Institutional structures, governance and corruption:

Institutional structures, governance and corruption Developed Countries C omplex system of governance. W ell developed legal systems which protect private property and trade transactions. Sophisticated financial systems giving citizens the opportunity to save, borrow and transfer money. Levels of corruption in the civil service are low. Developing countries Weak financial systems inaccessible to much of the population. Legal systems are weak. Much of the government is corrupt. Civil servants make up most of their income from bribes. Rent seeking culture – people seeking positions and salaries without producing anything. Instead income is gained through bribes.

War or the breakdown of state:

War or the breakdown of state Some of the poorest countries have suffered from war leading to the breakdown of state. Countries such as Mozambique, Angola, Uganda, Sierra Leone have performed badly due to civil war.

Foreign trade:

Foreign trade Some developing countries rely heavily on the exporting of commodities such as oil or coffee. Sometimes exports are not high enough creating a foreign currency gap. Development has been held back because a country have been unable to import enough to stimulate economic growth. Economies in Asia such as Korea, Taiwan and China have been successful in exporting goods fuelling their economic development.

Capital flows and debt:

Capital flows and debt Some countries such as China have large inflows of financial capital which have been directly invested into industry. Some countries find it difficult to attract any FDI. Some countries have borrowed heavily and been unable to pay the interest and capital. Capital flight – when citizens believe a country will not perform well in the future and so send their money abroad by buying foreign currency and other assets – reduces the financial resources available in a country.

History, religion & ethnicity:

History, religion & ethnicity Some people are argue that third world countries differ because many are former colonies of currently developed economies. Religion can be important to development because of differences in attitudes to work and political freedom. Ethnicity can be defining characteristic in some countries. For examples countries such as Japan or South Korea have a high degree of ethnic homogeneity countries such as South Africa and Brazil are ethnically diverse. In a country like the USE migrants are attracted from all over the world to create a dynamic diverse culture.

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