Economic growth increases the inflation-adjusted market value of goods and services produced by an economy over time. The GDP (Gross Domestic Product) measures economic activity but doesn’t consider changes in the economy’s structure or function. For example, a country might be experiencing rapid GDP growth because many unskilled workers enter the labor force each year. In contrast, a similar country with a smaller population may have slower GDP growth even though its economy is more productive.
According to Peter DeCaprio, the reality of economic development can be challenging to explain without using mathematical models that describe complex interactions between macro-level systems, such as national economies, and micro-level dynamics, such as social forces and human needs, desires, and behaviors. Economic development is how an economy progresses from underdeveloped to developed.
What is the difference between economic growth and development?
The World Bank defines four distinct phases of economic growth, divided by whether the country has lower-middle-income, upper-middle-income, or high-income economies.
What are some examples of developing countries?
Developing countries have not yet reached a high income level compared with other countries. They have, however, made significant strides in influencing their position on the world stage. The majority of this group is found in Asia and Africa. Latin America also contains many developing countries transitioning from middle- to high-income status (Argentina, Chile, and Mexico). In addition, many African nations, such as Zambia and Burundi, fall into this category.
What are some examples of underdeveloped countries?
An underdeveloped country has seen little progress in economic development and still has a low income level compared to other nations. These countries are characterized by high poverty, unemployment, and malnutrition. Most of the world’s least developed countries (LDCs) are in Africa, except Haiti in Latin America. This group also includes Nepal and Afghanistan.
What impact does being classified as developing have on a country?
Countries are classified according to their level of development based on current income per capita indicators such as GNI per capita (gross national income divided by population). Countries with low-income economies are generally in the group of developing countries, while those with high-income economies are considered developed. Some may debate whether or not certain countries should be included in either category, but the overall classification is usually based on objective measures.
The distinction between these two classifications has direct implications for economic development policies at the international level. For example, governments in less economically developed countries can receive loans from the World Bank’s International Development Association (IDA). These small-interest loans finance projects that help reduce poverty and support greater employment opportunities. In contrast, countries classified as high-income are ineligible to participate in IDA programs because they have access to private financial markets where investment capital can be raised without government intervention. However, some LDCs have benefited by transitioning into upper-middle-income economies and can now stand independently in obtaining funding for development projects.
What are some challenges that developing countries face?
Developing countries have unique challenges that have hindered economic growth. Most do not have the infrastructure needed to support a growing economy, including transportation systems, power grids, financial institutions, or well-developed markets for goods and services. They also lack the human capital to increase productivity through education, training, and health care programs. In addition, most of these nations have high poverty, malnutrition, and disease rates. Economic policies targeting inequality may help these countries by increasing access to resources among all members of society, improving the overall quality of life despite lower income per capita.
Although economic growth does not always lead to positive social change, developing countries must address the needs of their populations to ensure continued support for government initiatives.
What are some challenges that developed countries face?
Developed nations also face unique challenges that can affect economic growth. Aging populations require more spending on pensions and healthcare services when governments may reduce these expenditures to reduce budget deficits. Some countries, such as Japan, have extremely low fertility rates, leading to negative population growth or even extinction without an influx of immigrants. The global financial crisis has also affected developed economies by increasing unemployment rates through the loss of jobs in export-oriented industries and other sources of growth. Lower domestic consumption caused by high household debt or other factors could slow investment activity and threaten future income levels.
Now that you’ve studied the definitions and characteristics of developing and developed countries, do you think it’s essential to classify countries based on their level of development?
Conclusion by Peter DeCaprio:
Developing and developed countries face unique challenges that can affect economic growth. While economic growth does not always lead to positive social change, developing countries must address the needs of their populations and governments to ensure continued support for initiatives. In addition, many developed nations face unique challenges, such as aging populations and increased government budget deficits.