APMacro P5-6: IES Developing Countries Characteristics

The World Bank classifies countries into high-income, medium-income, and low-income countries on the basis of national income per capita.

The high-income nations are known as the industrially advanced countries (IACs). These nations have well developed market economies based on large stocks of capital goods, advanced production technologies, and well educated workers. In 2008 this group of economies had a per capita income of $37,665.

The remaining nations of the world are called developing countries (DVCs). They have wide variations of income per capita and are mainly located in Africa, Asia, and Latin America.

The middle-income nations include such countries as Brazil, Iran, Poland, Russia, South   Africa, and Thailand. Per capita output of these middle-income nations ranged all the way from $925 to $11,906 in 2008 and averaged $3251.

The low-income nations had a per capita income of $925 or less in 2008 and averaged only $523 of income per person. The sub-Saharan nations of Africa dominate this group. Low-income DVCs have relatively low levels of industrialization. In general, literacy rates are low, unemployment is high, population growth is rapid, and exports consist largely of agricultural produce such as cocoa, bananas, sugar, raw cotton and raw materials such as copper, iron ore, natural rubber. Capital equipment is minimal, production technologies are simple, and labor productivity is very low. About 15 percent of the world’s population live in these low-income DVCs, all of which suffer widespread poverty.

Scarcities of natural resources make it more challenging but certainly not impossible for a nation to develop. The large and rapidly growing populations in many DVCs contribute to low per capita incomes. Increases in per capita incomes frequently induce greater population growth, often reducing per capita incomes to near-subsistence levels. The demographic transition view, however, suggests that rising living standards must precede declining birthrates. Most DVCs suffer from unemployment and underemployment. Labor productivity is low because of  insufficient investment in physical and human capital. In many DVCs, formidable obstacles impede both saving and investment. In some of the poorest DVCs, the savings potential is very low, and many savers transfer their funds to the IACs rather than invest them domestically. The lack of a vigorous entrepreneurial class and the weakness of investment incentives also impede capital accumulation. Appropriate social and institutional changes and, in particular the presence of the will to develop, are essential ingredients in economic development.



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