Library Assignment: all students must use the FNU Library as a graded activity, cite at least 3 peer review articles about Elasticity of Supply and Demand, and write 2 para
Library Assignment: all students must use the FNU Library as a graded activity, cite at least 3 peer review articles about Elasticity of Supply and Demand, and write 2 paragraphs about what you learned in each article, in total 6paragraphs, using APA format.
McEachern11e_Ch21.pptx
21
Economic Development
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Prepared by: V. Andreea Chiritescu, Eastern Illinois University
Reviewed by: William A. McEachern, University of Connecticut
McEachern, Macroeconomics 11e, Ch. 21
How might programs that send subsidized food and used clothing to poor countries have the unintended consequence of retarding economic development there?
Why are some countries so poor while others are so rich?
What determines the wealth of nations?
Why do families in low-income countries have more children than those in higher-income countries?
Why have abundant natural resources such as oil or diamonds turned out to be a curse for some countries?
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 21
Worlds Apart
Standard of living
Output per capita
Gross national income (GNI)
PPP adjusted
Three major groups
High-income economies
Middle-income economies
Low-income economies
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
Exhibit 1
Share of World Population and World Output From High-, Middle-, and Low-Income Economies as of 2014
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
Developing and Industrial Economies
Developing countries
Low- and middle-income economies
Emerging market economies
Higher illiteracy rate, higher unemployment
Faster population growth
Exports of primary products
Agricultural products
Raw materials
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
Developing and Industrial Economies
Developing countries
Half of the labor force works in agriculture
Farm productivity is low
2014: 82% of the world’s population, produce 48% of the world’s output
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
Developing and Industrial Economies
Industrial market countries
High-income economies
Economically advanced capitalist countries of
Western Europe, North America,
Australia, New Zealand, and Japan
Developed countries
3% of the labor force works in agriculture
2014, 18% of world population, produce 52% of world output
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
Exhibit 2
Per Capita Income for Selected Countries in 2014
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
Health and Nutrition
Developing countries
Poor health
Malnutrition
Disease: epidemics, malaria, HIV/AIDS
Lower life expectancy at birth
Greater child mortality rate
Higher infant mortality
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
Health and Nutrition
Malnutrition
Poorest countries: consume only half the calories of those in high-income countries
The biggest single threat to the world’s public health, World Health Organization
Primary or contributing factor in more than half of the deaths of children under 5
In low-income countries
About a billion people on Earth don’t have enough to eat
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
Health and Nutrition
Malnutrition
Diseases that are well controlled in industrial countries
Malaria, whooping cough, polio, dysentery, typhoid, and cholera
Can become epidemics in poor countries
Infant mortality rates
Much greater in low-income countries than in high-income countries
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
Exhibit 3
Infant Mortality Rates per 1,000 Live Births as of 2014
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
High Birth Rates
High fertility rates in developing countries
Larger families
Source of farm labor
No social security system
Declining standard of living
Population growth rates > growth rate in total production
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
Exhibit 4
Average Number of Births During a Woman’s Lifetime as of 2014
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
Women in Developing Countries
Poverty rate
Higher for women than men, particularly women who head households
Women
Work in home and in labor market
Less educated than men
Fewer employment opportunities
Lower wages than men
Less access to other resources
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
Productivity: Key to Development
Labor productivity
Output per worker
Labor productivity depends on
The quality of labor
The amount of capital, natural resources, and other inputs that combine with labor
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
Productivity: Key to Development
To increase labor productivity
Invest in human and physical capital
Domestic savings
Foreign funds
Poorest countries
Low income per capita
Low investment in human and physical capital
Poorly run businesses
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
Productivity: Key to Development
Technology and education
Better use for available resources
More receptive to new ideas
Inefficient use of labor
Unemployment
Can’t find jobs
Underemployment
Employed in lower-skill jobs
Work part-time
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
Productivity: Key to Development
The cycle of poverty
Low productivity results in low income
Low income can affect worker productivity
Less saving
Less investment in human and physical capital
Poor nutrition and insufficient health care
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
Productivity: Key to Development
Natural resources
Abundant natural resource (oil)
Not enough to create industrial economy
Financial institutions
Low savings
High inflation
Small investment
Fewer credits provided by banks
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
Productivity: Key to Development
Capital infrastructure
Transport
Communication
Sanitation
Electricity
Developing countries
Serious deficiencies in their physical infrastructures
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
Exhibit 5
Mobile Phone Lines per 100 People for 2013
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
Exhibit 6
Internet Users as Percent of Population for 2013
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
Productivity: Key to Development
Entrepreneurship
Entrepreneurs who are able to bring together resources and take the risk of profit or loss
Sources of entrepreneurial experience in developing countries
McDonald’s
Other international franchises
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
Productivity: Key to Development
Rules of the game
Formal and informal institutions
Laws, customs, conventions
Stable political environment
Well-define property rights
Social capital
Shared values and trust
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
Productivity: Key to Development
Rules of the game, capitalism
Private ownership of most resources
Coordination of economic activity
Price signals generated by market forces
What, how, and for whom to produce it
Privatization
The process of turning government enterprises into private enterprises
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
Productivity: Key to Development
Rules of the game, central planning
Government ownership of most resources
Allocation of resources
Central plans
Limited personal freedom
Social capital
The shared values and trust that promote cooperation in the economy
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
Exhibit 7
GDP per Capita for Transitional Economies in 2014
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
The Poorest Billion
The world
One-sixth rich
Two-thirds not rich but improving
One-sixth poor
Most developing economies
A rising standard of living
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
The Poorest Billion
Extremely poor economies, “trapped”
Stagnant or getting worse
1 billion people
45 countries
30 countries in sub-Saharan Africa
Cambodia, Haiti, Laos, Myanmar, North Korea, and Yemen
750 million people – civil war
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
The Poorest Billion
Poverty traps
Civil war
High proportion of young, uneducated men, with few job prospects
Imbalance between ethnic groups
Supply of natural resources: incentive to rebel
Misuse of natural resource wealth
300 million people
Dysfunctional or corrupt government
750 million people
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
Income Distribution Within Countries
Among 12 nations in chapter’s exhibits
Poorest fifth of population received
7.7% of income in high-income countries
5.8% of income in middle-income countries
7.2% of income in low-income countries
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
International Trade and Development
Trade problems for developing countries
Exports: primary products
Face wild price fluctuation
Imports: manufactured goods
Trade deficits
Restrict imports of capital goods
Face trade restrictions
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
International Trade and Development
Migration and the brain drain
Migrants: $440 billion sent home in 2014
Brain drain
Import substitution
Domestic manufacturing of products that were imported
Problems
Erased gains from specialization
Inefficiency, Retaliation
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
International Trade and Development
Export promotion
Produce for the export market
Emphasis on specialization
Efficiency
Less government intervention
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
International Trade and Development
Trade liberalization and special interests
Difficulty pursuing policies conducive to development
Gains from economic development are widespread
Beneficiaries (consumers) do not recognize their potential gains
Losers tend to be concentrated
Producers: fight reforms that might harm their livelihood
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
Foreign Aid and Economic Development
Foreign aid
International transfer made on especially favorable terms
For the purpose of promoting economic development
Grants and loans
Money, capital goods, technical assistance, food
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
Foreign Aid and Economic Development
Bilateral assistance
Country-to-country
Multilateral assistance
World Bank
IMF
United States, last four decades
$400 billion in aid to the developing world
U.S. Agency for International Development (USAID)
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
Foreign Aid and Economic Development
Additional purchasing power
Possibility of increased investment, capital imports, and consumption
Unclear
Supplements domestic savings
Increasing investment
Or substitutes for domestic savings
Increasing consumption
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
Foreign Aid and Economic Development
Source of discretionary funds
That benefit not the poor but their leaders
90% of the funds distributed by USAID
To governments – whose leaders assume responsibility for distributing these funds
Bilateral funding
Tied to purchases of goods and services from the donor nation
Unintended consequences
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
Foreign Aid and Economic Development
1950s, U.S., Food for Peace program
Sell U.S. farm products abroad
Some recipient governments
Sold that food to finance poorly conceived projects
Low-priced food from abroad
Drove down farm prices in the developing countries
Hurting poor farmers there
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
Foreign Aid and Economic Development
Used clothing
Donated to thrift shops and charitable organizations in industrialized countries
Wind up for sale in Africa
Low price discourages local textile production
Foreign aid
Raised the standard of living in some developing countries
But it didn’t increased their ability to become self-supporting at that higher standard of living
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
Foreign Aid and Economic Development
Foreign aid
Insulated government officials
From their own incompetence
From the fundamental troubles of their own economies
Has helped corrupt governments stay in power
More than half of foreign aid now flows through private channels
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
Do Economies Converge?
Convergence theory
Predicts that the standard of living in economies around the world
Will grow more similar over time
With poorer countries eventually catching up with richer ones
Developing countries can grow faster than advanced ones
It is easier to copy existing technology than to develop new ones
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
Do Economies Converge?
Evidence on convergence
Some poor countries have begun to catch up with richer ones
The newly industrialized Asian economies
Hong Kong, Singapore, South Korea, and Taiwan (Asian Tigers)
Adopted the latest technology
Invested in human resources
Closed the gap with the world leaders
Are industrial market economies
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
Do Economies Converge?
Evidence on convergence
Appear to be evidence of convergence in manufacturing productivity
Across a large group of developed and developing countries
1993 – 2012, growth in real GDP
5.4% for developing countries, more than double the average for industrial countries
1990 – 2010, living on less than $1 a day
Dropped from 43% to 21% of population
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
McEachern, Macroeconomics 11e, Ch. 33
Do Economies Converge?
Convergence has not begun for the poorest economies
Birthrates there are double those in richer countries
Poor economies must produce still more just to keep up with a growing population
Lack the human capital needed to identify and absorb new technology
Low education levels and
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