Economic development lecture 6

Economic DevelopmentLECTURE 6: 9 APRIL 2017

Comparative Economic Development

Chapter 2

Common characteristics of developing countries

• These features in common are on average and with great diversity, in comparison with developed countries:

– Lower levels of living and productivity – Lower levels of human capital – Higher levels of inequality and absolute poverty – Higher population growth rates – Greater social fractionalization – Larger rural population - rapid migration to cities – Lower levels of industrialization and manufactured exports – Adverse geography – Underdeveloped financial and other markets – Colonial Legacies - poor institutions etc.

2.4 Characteristics of the Developing World: Diversity within Commonality

10. Colonial Legacy and External Dependence• Most developing countries were once colonies of Europe or

otherwise dominated by European or other foreign powers• Institutions created during the colonial period often had

pernicious effects on development that in many cases have persisted to the present day.

• Both domestically and internationally, developing countries have more often lacked institutions and formal organizations of the type that have benefited the developed world.


10. Colonial Legacy and External Dependence• Colonial history matters not only or even primarily because of

stolen resources but also because the colonial powers determined whether the legal and other institutions in their colonies would encourage investments by (and in) the broad population or would instead facilitate exploitation of human and other resources for the benefit of the colonizing elite and create or reinforce extreme inequality.


10. Colonial Legacy and External Dependence• When settlers came in large numbers to live permanently,

incomes ultimately were relatively high, but the indigenous populations were largely annihilated by disease or conflict, and descendents of those who survived were exploited and blocked from advancement.

• In a related point of great importance, European colonization often created or reinforced differing degrees of inequality, often correlated with ethnicity


10. Colonial Legacy and External Dependence• Postcolonial elites in many developing countries largely took

over the exploitative role formerly played by the colonial powers.

• Where inequality was extreme, the result has been less movement toward democratic institutions, less investment in public goods, and less widespread investment in human capital (education, skills, and health).


10. Colonial Legacy and External Dependence• The worst impact of colonization was probably felt in Africa, especially if

one also considers the earlier slave trade. Whereas in former colonies such as India local people played a role in colonial governance, in Africa most governance was administered by expatriates.

• In Latin America, a longer history of political independence plus a more shared colonial heritage (Spanish and Portuguese) has meant that in spite of geographic and demographic diversity, the countries possess relatively similar economic, social, and cultural institutions and face similar problems.


10. Colonial Legacy and External Dependence• In Asia, different colonial heritages and the diverse cultural traditions of

the people have combined to create different institutional and social patterns in countries such as India (British), the Philippines (Spanish and American), Vietnam (French), Indonesia (Dutch), Korea (Japanese), and China (not formally colonized but dominated by a variety of foreign powers).

• The diversity of colonial experiences is one of the important factors that help explain the wide spectrum of development outcomes in today’s world.


10. External Dependence• Developing countries have also been less well organized and

influential in international relations, with sometimes adverse consequences for development.

• For example, agreements within the World Trade Organization (WTO) and its predecessors concerning matters such as agricultural subsidies in rich countries that harm developingcountry farmers and one-sided regulation of intellectual property rights have often been relatively unfavorable to the developing world


10. External Dependence• Developing nations have weaker bargaining positions than

developed nations in international economic relations.• Developing nations often also voice great concern over various

forms of cultural dependence, from news and entertainment to business practices, lifestyles, and social values.


10. External Dependence• Developing nations are also dependent on the developed world for

environmental preservation, on which hopes for sustainable development depend. Of greatest concern, global warming is projected to harm developing regions more than developed ones; yet both accumulated and current greenhouse gas emissions still originate predominantly in the high-income countries. Thus the developing world endures what may be called environmental dependence, in which it must rely on the developed world to cease aggravating the problem and to develop solutions, including mitigation at home and assistance in developing countries.


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Economic development lecture 6

Economy & Finance