chapter 22 - Developing countries: Growth, Crisis, and...

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Developing countries: Growth, Crisis, and Reform Income, wealth, and Growth in the world economy Poverty basic problem developing countries face, and escaping from poverty is their overriding economic and political challenge. The gap between rich and poor The world's economies can be divided into four main categories according to their annual per- capita income levels: Low-income economies, Lower middle-income economies, Upper middle-income economies, High-income economies Income Group GDP per capita (2008 US $) Life expectancy (years) Low income 523 60 Lower Middle income 2073 70 Upper middle income 7852 75 High income 39688 83 Has the World Income Gap narrowed over time? Industrial countries have shown convergence in their per capita incomes. Developing countries have not shown a uniform tendency of convergence to the income levels of industrial countries. Countries in Africa and Latin America have grown at very low rates. East Asian countries have tended to grow at very high rates. If trade is free, if capital can move to countries offering the highest returns, and if knowledge itself moves across political borders so that countries always have access to cutting-edge production technologies, then there is no reason for international income gaps to persist for long. Some gaps do persist in reality because of policy differences across industrial countries; however, the preceding forces of convergence seem to be strong enough to keep industrial- country incomes roughly in the same ballpark. Remember, too, that differences in output per capita may overstate differences in output per employed worker because most industrial countries have higher unemployment rates and lower labor force participation rates than the US. What explains the sharply divergent long run growth patterns in the table below? Economic and political features of developing countries and the ways these have changed over time in response to both world events and internal pressures. The structural features of developing countries have also helped to determine their success in pursuing key macroeconomic goals other than rapid growth, such as low inflation, low unemployment and financial sector stability.
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Structural features of Developing countries While many developing countries therefore have reformed their economies to come closer to the structures of the successful industrial economies, the process remains incomplete and most developing countries have at least some of the following features: History of extensive direct government control of the economy restrictions on international trade, government ownership or control of large industrial firms, direct government control of internal financial transactions, and a high level of government consumption as a share of GNP. History of high inflation reflecting government attempts to extract
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This note was uploaded on 01/08/2012 for the course ECON 3580 taught by Professor Jb during the Fall '11 term at York University.

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chapter 22 - Developing countries: Growth, Crisis, and...

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