Chapter20 - ignores the degree of income distribution(3...

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Growth and the Less-Developed Countries CHAPTER SUMMARY Economic growth and economic development are related, but somewhat different, concepts. Growth is measured quantitatively by GDP per capita. Development includes GDP per capita but also incorporates quality-of-life measures such as life expectancy, literacy rates, and per capita energy consumption. Growth and development are a result of a complex process that is determined by five major factors: (1) natural resources, (2) human resources, (3) capital, (4) technological progress, and (5) the political environment. Although there is no single correct strategy for economic growth and development, and a lack of strength in one or more of the five areas does not prevent growth and development, the experience of the “Four Tigers of the Pacific Rim” (sometimes called the “Asian Tigers”) might suggest what might be necessary. GDP per capita provides a general index of a country’s standard of living. GDP per capita comparisons are subject to four problems: (1) The accuracy of LDC data is questionable, (2) GDP
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Unformatted text preview: ignores the degree of income distribution, (3) Changes in exchange rates affect gaps between countries, and (4) there is no adjustment for the differences in cost of living between countries. Unlike industrially advanced nations (IACs), less-developed countries (LDCs) have a low GDP per capita and output is produced without large amounts of technologically advanced capital and well-educated labor. The LDCs account for three-fourths of the world’s population. The “vicious cycle of poverty” is a trap in which the LDC is too poor to save money and therefore it cannot invest enough to significantly increase its production possibilities. As a result the LDC remains poor. Consequently, many LDCs are looking for external sources of funds in the form of foreign private investment, foreign aid, and foreign loans. Many LDCs want greater control over the policies of international financial institutions such as the World Bank and the International Monetary Fund (IMF)....
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