Page 1
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 19.11
CHAPTER 19
Economic Development
19.1 Developing Economies and Industrial
Market Economies
19.2 Foreign Trade, Foreign Aid, and
Economic Development
19.3 Rules of the Game, Transition
Economies, and Convergence
Page 2
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 19.12
CHAPTER 19
Economic Development
Why are some countries poor while others are rich?
What determines the wealth of nations?
How much does foreign aid help poorer countries?
How does terrorism affect economic development?
What’s the “brain drain,” and how does it affect poorer
countries?
Why are birth rates higher in poorer countries?
Are poorer countries catching up with the rest of the world?
Consider
Page 3
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 19.13
LESSON 19.1
Developing Economies and
Industrial Market Economies
Distinguish between developing
countries and industrial market
countries.
Explain why labor productivity is so low
in developing countries.
Objectives
Page 4
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 19.14
LESSON 19.1
Developing Economies and
Industrial Market Economies
developing countries
industrial market countries
fertility rate
Key Terms
Page 5
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 19.15
Worlds Apart
Developing Countries
Low GDP per capita
High rates of illiteracy
High unemployment
High fertility rates
Industrial Market Countries
High GDP per capita
Low rates of illiteracy
Low unemployment
Low fertility rates
Page 6
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 19.16
GDP Per Capita for
Selected Countries in 2001
Page 7
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 19.17
Life Expectancy
World average is 67 years
Infant mortality
Malnutrition
Diseases
Page 8
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 19.18
High Birth Rates
The fertility rate is the average number
of births during a woman’s lifetime.
Fertility rates are lower in industrial
countries and higher in developing
countries.
Page 9
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 19.19
Fertility Rates for
Selected Countries in 2001
Page 10
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 19.110
Productivity and
Economic Development
Low labor productivity
Less education
Inefficient use of labor
Few entrepreneurs
Reliance on agriculture
Vicious cycle of low income and low
productivity
Page 11
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 19.211
LESSON 19.2
Foreign Trade, Foreign Aid,
and Economic Development
Identify two foreign-trade strategies and
assess their impact on economic
development.
Assess the impact of foreign aid on
economic development.
Objectives
Page 12
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 19.212
LESSON 19.2
Foreign Trade, Foreign Aid,
and Economic Development
import
substitution
export promotion
brain drain
foreign aid
Key Terms
bilateral aid
multilateral aid
U.S. Agency for
International
Development
(USAID)
Page 13
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 19.213
Foreign Trade and Migration
Import substitution
Export promotion
International migration
Page 14
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 19.214
Import Substitution
Import substitution is a development strategy
that emphasizes domestic manufacturing of
products that are currently imported.
Reasons for popularity of import substitution
Demand already existed
Addressed the shortage of foreign exchange
Popular with those who supplied labor, capital, and
other resources
Page 15
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 19.215
Export Promotion
Export promotion is a development
strategy that focuses on producing for the
export market.
Export promotion emphasizes
comparative advantage and trade
expansion.
Page 16
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 19.216
International Migration
Job opportunities
Foreign exchange
Brain drain
Page 17
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 19.217
Foreign Aid
What is foreign aid?
Does foreign aid promote economic
development?
Page 18
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 19.218
What Is Foreign Aid?
Foreign aid is any international transfer
made on especially favorable terms to
promote economic development.
Bilateral aid
Multilateral aid
Page 19
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 19.219
U.S. Agency for International
Development (USAID)
Part of U.S. State Department
Mission
To further American foreign policy interests
in expanding democracy and free markets
To improve living standards in the
developing world
Page 20
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 19.220
Does Foreign Aid Promote
Economic Development?
Purchasing power
Corruption
Privatization
Page 21
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 19.3 21
LESSON 19.3
Rules of the Game, Transition
Economies, and Convergence
Assess the impact of a nation’s physical
infrastructure and rules of the game on its
economic development.
Discuss why many centrally planned economies
are trying, with difficulty, to introduce market
forces.
Explain convergence theory, and discuss why the
reality has not yet matched the theory’s prediction.
Objectives
Page 22
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 19.3 22
LESSON 19.3
Rules of the Game, Transition
Economies, and Convergence
physical infrastructure
soft budget constraint
privatization
convergence theory
Key Terms
Page 23
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 19.3 23
Infrastructure
Physical infrastructure includes
transportation, communication, energy, water,
and sanitation systems provided by or
regulated by government.
Many developing countries have serious
deficiencies in their physical infrastructures.
Without vital infrastructures, efficient
production will not take place.
Page 24
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 19.3 24
Rules of the Game
Formal and informal institutions that promote
production incentives and economic activity.
Formal institutions include a country’s codified
rules and laws, along with the system for
establishing and enforcing them.
Informal institutions include customs and
informal mechanisms that help coordinate
production.
Page 25
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 19.3 25
Fixed and Mobile Telephone Lines Per
1,000 Population by Country in 2001
Page 26
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 19.3 26
Economies in Transition
Prices and profit in centrally planned
economies
Privatization
Page 27
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 19.3 27
Are the World’s
Economies Converging?
Reasons for convergence
Not much convergence
Higher birth rates and less human capital
Reasons for optimism