Sustainable Development Level Three PDF

Sustainable Development Level Three Chapter Two (Part Two) Lecture 3 CHARACTERISTICS OF DEVELOPING COUNTRIES Prepared by: DR. RASHA M. ELAKKAD DR. ASMAA M. HUSSEIN  2.2 Main...

Sustainable Development Level Three Chapter Two (Part Two) Lecture 3 CHARACTERISTICS OF DEVELOPING COUNTRIES Prepared by: DR. RASHA M. ELAKKAD DR. ASMAA M. HUSSEIN  2.2 Main characteristics of developing countries: 9- Technological Backwardness: In developing countries, production techniques are inefficient over a wide range of industrial activity basically due to; ▪ Lack of research and development (R&D), ▪ weak communication system between the research institutes and industries, ▪ abundance of labor and capital scarcity. Under these circumstances, developing countries import technology from developed countries which often fails to adapt to local conditions. Moreover, whatever limited research is undertaken in industrial technology; its results fail to reach producers due to weak communication system. 2  2.2 Main characteristics of developing countries: 10- Dualism: Various types of dualism exist in developing economies. a)“Social Dualism” is the clash between an imported social system (capitalism for example) and an indigenous social system (socialism). This clash however, cannot speed up the process of development. b)“Technological Dualism” means there are two different sectors; the traditional rural sector and the modern sector. The traditional rural sector has variable technical coefficients of production in contrast to modern sector`s fixed technical coefficients of production. The implication of these is that the rapid growth of population results in unemployment of excess supply of labor or it must seek employment in the traditional sector where marginal productivity eventually falls to zero. 3 c) “Economic and Financial Dualism”; the dualism in economic organization and production method between the peasant sector and the mining manufacturing sector is paralleled by the financial dualism. In the colonial period in most underdeveloped countries domestic financial institutions co – existed with modern financial institutions oriented towards export production. After these underdeveloped countries got independence, they developed modern manufacturing industries oriented towards domestic market. This required development of modern financial institutions also giving rise to different kind of financial dualism. 4  2.2 Main characteristics of developing countries: 11- Lower participation in foreign trade: It is commonly believed that developing countries rely excessively on foreign trade, in the sense that their properties of exports and imports to domestic product are much higher than those of the developed countries. This widespread belief is found to be wrong. Simon Kuznets finds that the extent of participation of a country in foreign trade cannot be measured directly because the proportion of foreign trade to total output is affected by the size of a country. He, therefore, suggested that the effects of size should be measured and eliminated first. It was then found that the extent of participation in foreign trade by underdeveloped countries is lower than that of developed countries. 5  2.2 Main characteristics of developing countries: 12- Dependence: * The process of underdevelopment in the Asian, African and Latin American countries had begun with the integration of their economies with those of the West European capitalist economies. * These developing economies became part of the world capitalist system, however they remained backward and were in fact made subservient to metropolitan interests and were forced to specialize in primary producing activities. * The pattern and direction of trade was that; colonies (developing countries) import all the capital goods, industrial raw materials and most of the manufactured consumer goods from the metropolitan countries, while on the other hand they export one or two primary products. 6 2.3 The Three Co-values of Development: * 1. Sustenance: The ability to meet basic needs. These life-sustaining basic human needs include food, health, and protection. When any of these is absent or in critically short supply, a condition of “absolute underdevelopment” exists. * 2. Self-Esteem: A second universal component of the good life is self-esteem- a sense of worth and self- respect, of not being used as a tool by others for their own ends. * 3. Freedom from Servitude (bondage): The concept of human freedom should encompass various component of political freedom including; personal security, the rule of law, freedom of expression, political participation, and equity of opportunities. 7  2.4 Crowding out effect: * When government spending fails to increase overall aggregate demand, this causes an equivalent fall in private sector spending and investment. * This can be explained as follows; Government spending is financed through borrowing (selling government securities) from the private sector (private individuals, pension funds or investment trusts). 8 * Assume that the government is experiencing a budget deficit and decides to borrow through issuing bonds (expansionary fiscal policy). * An increase in government borrowing would lead to an increase in demand for loans (D1) thus leading to an increase in interest rate (i*) thus leading to crowding out. * High interest rates attract foreign capital from foreign investors. Foreign investors purchase domestic bonds, which increases the demand for the domestic currency and leads to its appreciation. * Currency appreciation reduces exports and increases imports which lowers AD. 9 * Expansionary fiscal policy may lead to high inflation due to the financing of a budget deficit through the printing of money. * Other problems associated with expansionary fiscal policy include the time lag between the implementation of fiscal policy and detectable effects in the economy. * That’s why the classical economists argued that fiscal policy is not an effective economic tool. 10 * Thank You 11