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Chapter 17Chapter 17Growth and the Less-Growth and the Less-Developed CountriesDeveloped Countries

Microeconomics for TodayMicroeconomics for TodayIrvin B. TuckerIrvin B. Tucker

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What will I learn What will I learn in this chapter?in this chapter?

•How economic growth How economic growth and development affect and development affect the prosperity of nationsthe prosperity of nations

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What is one way to What is one way to compare the well-compare the well-

being of one country being of one country to another?to another?

•GDP per capitaGDP per capita

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What is GDP What is GDP per capita?per capita?

•The value of final goods The value of final goods produced (GDP) divided produced (GDP) divided by the total populationby the total population

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What are industrially What are industrially advanced countries?advanced countries?

•High-income nations that High-income nations that have market economies have market economies with technologically with technologically advanced capital and advanced capital and well-educated laborwell-educated labor

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Who are the IACs?Who are the IACs?•United StatesUnited States•CanadaCanada•AustraliaAustralia•New ZealandNew Zealand•JapanJapan•and most of the countries of and most of the countries of

Western EuropeWestern Europe

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What are less-What are less-developed countries?developed countries?

•Economies based on Economies based on agriculture which are agriculture which are lacking in technology, lacking in technology, advanced capital, and advanced capital, and well-educated laborwell-educated labor

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Who are the LDCs?Who are the LDCs?

•Most countries of Africa, Most countries of Africa, Asia, and Latin AmericaAsia, and Latin America

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Average GDP per Capita for IACs and LDCs by Region, 2007Average GDP per Capita for IACs and LDCs by Region, 2007

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What is a problem?What is a problem?•LDC’s per capita is LDC’s per capita is subject to greater subject to greater measurement errors than measurement errors than for IAC’sfor IAC’s

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What are problems in What are problems in comparing GDPs comparing GDPs

per capita?per capita?•measurement errorsmeasurement errors• income distributionincome distribution• fluctuations in exchange ratesfluctuations in exchange rates•differences in living standardsdifferences in living standards

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Is GDP per capita Is GDP per capita correlated with other correlated with other measures of quality measures of quality

of life?of life?•YesYes

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What are quality What are quality of life indicators?of life indicators?

• life expectancy at birthlife expectancy at birth• infant mortality rateinfant mortality rate• illiteracy rateilliteracy rate•per capita energy per capita energy

consumptionconsumption•economic freedom rankeconomic freedom rank

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Quality-of-Life Indicators for Selected Countries, 2007Quality-of-Life Indicators for Selected Countries, 2007

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What factors come What factors come together to produce a together to produce a

country’s growth?country’s growth?•natural resourcesnatural resources• investment in human investment in human

resourcesresources•accumulation of capitalaccumulation of capital• technological progresstechnological progress•political environmentpolitical environment

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Growth in resources or technological advance

Economic Growth

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40

30

20

10

100 200

50

607080

300 400 500

Economic GrowthQ

Q

Man

ufa

ctu

red

Go

od

s

Agricultural Goods

PPC1

PPC2

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What is a major What is a major problem for LDCs?problem for LDCs?

•They find themselves in They find themselves in a a vicious circle of povertyvicious circle of poverty

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What is the vicious What is the vicious circle of poverty?circle of poverty?

•The trap in which countries The trap in which countries are poor because they are poor because they cannot afford to save and cannot afford to save and invest, but they cannot save invest, but they cannot save and invest because they are and invest because they are poorpoor

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Vicious Circle of PovertyVicious Circle of Poverty

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What is infrastructure?What is infrastructure?•Capital goods usually Capital goods usually provided by the provided by the government, including government, including highways, bridges, highways, bridges, waste and water waste and water systems, and airportssystems, and airports

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What are the political What are the political factors favorable for factors favorable for economic growth?economic growth?•law and orderlaw and order•infrastructureinfrastructure•international tradeinternational trade

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Key Categories that Determine Economic Growth and DevelopmentKey Categories that Determine Economic Growth and Development

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What is foreign What is foreign private investment?private investment?

•Private-sector foreign Private-sector foreign investment from private investment from private investorsinvestors

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What is foreign aid?What is foreign aid?•The transfer of money The transfer of money or resources from one or resources from one government to another government to another for which no repayment for which no repayment is requiredis required

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What is the Agency What is the Agency for International for International

Development (AID)?Development (AID)?•AID is the agency of AID is the agency of the U.S. State the U.S. State Department that is in Department that is in charge of U.S. aid to charge of U.S. aid to foreign countriesforeign countries

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What is the What is the World Bank?World Bank?

•The lending agency that The lending agency that makes long-term low-makes long-term low-interest loans and interest loans and provides technical provides technical assistance to less-assistance to less-developed countriesdeveloped countries

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What is the What is the International Monetary International Monetary

Fund (IMF)?Fund (IMF)?•The lending agency The lending agency that makes short-term that makes short-term conditional low-interest conditional low-interest loans to developing loans to developing countriescountries

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What is a conclusion?What is a conclusion?

•There is no single There is no single strategy for economic strategy for economic growth and developmentgrowth and development

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Who are the Four Who are the Four Tigers of East Asia?Tigers of East Asia?•Hong KongHong Kong•SingaporeSingapore•South KoreaSouth Korea•TaiwanTaiwan

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The Four Tigers of East AsiaThe Four Tigers of East Asia

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