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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
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
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
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
instability and corruption have also
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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