The united states is a developed country whereas

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Unformatted text preview: apita; a less-developed country is a country with a relatively low GDP or GNP per capita. The United States is a developed country, whereas Haiti and Ethiopia are less-developed countries. Obstacles to Economic Development Why are some countries poor while others are rich? Here are some factors to consider. 422 Chapter 15 International Trade and Economic Development Rapid Population Growth The population growth rate is typically higher in lessdeveloped countries than in developed countries. The population growth rate in developed countries has been about 0.5 to 1 percent, compared with about 2 to 3 percent for less-developed countries. The population growth rate is equal to the birthrate minus the death rate. Population growth rate Birthrate Death rate If in country X the birthrate is 3 percent in a given year and the death rate is 2 percent, the population growth rate is 1 percent. What caused the relatively high population growth rate in the less-developed countries? First, the birthrate tends to be higher than in developed nations. In countries where financial assistance such as pensions and Social Security do not exist and where the economy revolves around agriculture, children are often seen as essential labor and as security for parents in their old age. In this setting, people tend to have more children. Second, in the past few decades, the death rate has fallen in the less-developed coun- 15 (390-427) EMC Chap 15 11/18/05 5:02 PM Page 423 tries, largely because of medical advances. The combination of higher birthrates and declining death rates explains why the population grows more rapidly in lessdeveloped nations than in developed nations. Is a faster population growth rate always an obstacle to economic development? The fact that many of the countries with the fastest-growing populations are relatively poorer on a per capita basis than those countries with the slowest-growing populations is not proof that rapid population growth causes poverty. Many of the developed countries today witnessed faster population growth rates when they were developing than the less-developed countries do today. Low Savings Rate A farmer with a tractor (which is a capital good) is likely to be more productive than one without a tractor, all other things being equal. Now consider a farmer who cannot afford to buy a tractor. This farmer may decide to borrow the money from a bank. The bank gets the money it lends from the people who have savings accounts at the bank. Savings, then, are important to economic growth and development. If savings rate is low, banks will not have much money to lend, and capital goods such as tractors (which increase productivity) will not be produced and purchased. Some economists argue that the lessdeveloped countries have low savings rates because the people living in them are so poor that they cannot save. In short, they earn only enough income to buy the necessities of life—shelter and food—leaving no “extra income” left over to save. This situation is called the v icious circle of poverty : less-developed countries are poor because they cannot save and buy capital goods, but they cannot save and buy capital goods because they are poor. Other economists argue, though, that being poor is not a barrier to economic development. They say that many nations that are rich today, such as the United States, were poor in the past but still managed to become economically developed. Cultural Differences Some less-developed countries may have cultures that retard economic growth and development. For example, some cultures are reluctant to depart from the status quo (the existing state of affairs). People may think that things should stay the way they always have been; they view change as dangerous and risky. In such countries, it is not uncommon for people’s upward economic and social mobility to depend on who their parents were rather than on who they themselves are or what they do. Also, in some cultures the people are fatalistic by Western standards. They believe that a person’s good or bad fortune in life depends more on fate or the spirits than on how hard the person works, how much he or she learns, or how hard he or she strives to succeed. This family lives in Bangladesh, an overpopulated country in which two-thirds of the people work in agriculture. Political instability and corruption have also hindered economic development. Political Instability and Government Seizure of Private Property Individuals sometimes do not invest in businesses in less-developed countries because they are afraid either that the current government leaders will be thrown out of office or that the government will seize their private property. People are not likely to invest their money in places where the risk of losing it is high. High Tax Rates Some economists argue that high tax rates affect economic development. Economist Alvin Rabushka studied the tax structures of 54 less-developed countries between 1960 and 1982 and categorized each Section 4 Economic Development 423 15 (390-427) EMC Chap...
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This document was uploaded on 01/16/2014.

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