Underdeveloped Economies: A Theory Of The Low-Level Equilibrium Trap

Chapter one “Population” explains how population changed through the years and what caused the population explosion. One of the reasons was a reduction of death rate after World War II due to being able to stop some diseases. Also, people in less developed countries believe in having more children, often due to religion or tradition. More children provide more wealth. The chapter is explaining how population growth affects development. When the growth is to rapid it causes that most of the population in a country is nonproductive, therefore more resources are needed to maintain a country. On the other hand, if the growth is too low, also more funds are needed to support older part of population. There is no good answer to how fast population

A further limiting factor on economic development in developing countries is the savings gap. This factor can be explained by the Harrod-Domar model which illustrates the problem of how countries with a low GDP per head will experience low savings ratios (savings as a proportion of GDP). This is because their marginal propensity to consume (the proportion of any increase in income which is spent) will be high. Low savings means that it will be difficult to finance investment and, with low levels of investment, capital accumulation will be limited. This will then translate into low output and GDP.

19. After reading this chapter, what do you believe are the two greatest obstacles preventing poor countries from becoming rich?

The lifeblood of these regimes is the dissatisfied citizens, the unimpressed masses who desire revolution and freedom from poverty, which is propogated to have risen out of Capitalist involvement in the Americas. Capitalist economies, on the other hand, believe that it has nothing to do with their involvement and instead sees these stages of development as natural, something that every economy will go through, if they have not already. Despite the appeal, it is untrue to say that every developed nation has gone through stages of development that todays underdeveloped nations are going through. As Andre Gunder Frank puts it “the now developed countries were never underdeveloped, though they may have been undeveloped” (104). This goes to show that the playing field was not even for all, and that today's developing nations had a headstart in developing.

Some demographers believe that the demographic transition will happen to countries everywhere. With urbanization and modernization, they claim rates of natural increase will naturally fall. This is needed most, of course, in much of Asia, Africa, and Latin America where there is great poverty and rapid population growth. Most of the developed world has gone through the transition, and population in the wealthier countries is nearly stable. Detractors of this argument point out that those poorer countries today are very different from the wealthy ones during their early stages of economic growth. They also say the political and economic environment today also work to the disadvantage of the poor

10. It is difficult to find the relationship between population growth and economic development, but some econismost believe that population growth stimulations economic development and technological innovation. Others think that rapidly expanding populations hamper down on developmental efforts. A slower, more stabilized population growth would help other issues in the world (poverty, hunger, underdevoplement, etc.), and in turn, will promote economic development.

Economic growth, put simply, is “an increase in the amount of goods and services produced per head of the population over a period of time”; development is inextricably linked with this economic growth. By utilising theories of economic growth and development we can see how the Chinese and Sub-Saharan African economies have emerged, but, more notably, we can use these to look at patterns from past and present to show their experience and the implications of this growth for the future.

Economic development can be defined generally as involving an improvement in economic welfare, measured using a variety of indices, such as the Human Development Index (HDI). A developing country is described as a nation with a lower standard of living, underdeveloped industrial base, and a low HDI relative to other countries. There are several factors which may have the effect of limiting economic development in such countries. Factors such as these include: primary product dependency, the savings gap and political instability.

The “iron law of wages,” a theory of Malthus, implies that developing technology does not make people rich, because the extra income increases the population; the population grows faster from the positive shock in the income than the technology can develop. Since the land is a marginal return to labor, it decreases as the population increases. The Malthusian trap can be avoided via more sustainable

So we see that on the other hard there are some situations where population growth can hamper economic development. This seems to focus more on the poorer countries of the world, which is probably due to more of a lack of resources. Also noted by Cincotta & Robert (1997), results of an elaborate study found that the correlation between stagnant economic growth and economic strength is the most prevalent among developing nations of the world. In other words, stagnate economic growth can be attributed to population growth as well, which as previously noted is an antithesis to this paper, but to point out, this heavily relates countries with a below average gross domestic

The Solow Model is designed to show how the growth in the labour force, capital stock and advances in technology interact and how they affect a nations total output. The model is important for the analysis of economic growth in developing countries as it demonstrates the nature of an economy to be a key determinant of steady-state capital stock within a country. If the savings rate is high, the economy will have a large capital stock and thus high level of output and vice versa. Correspondingly changes in capital stock can lead to economic growth.

The concept of ‘sustainable development’ is one that has faced heated debates for decades now. A seemingly harmless concept, it raises a lot of questions as to what it really entails and how exactly it can be achieved. But with more than 1.3 billion people living in abject poverty (less than $1.25 a day), and with a reported 22,000 children dying every day as a result of poverty (UNICEF), the debate for Sustainable Development becomes interesting as it questions the extremity of economic growth policies, in the war against poverty. Many note economic growth and development as the only tool for poverty alleviation. Roemer and Gugerty, for example, report that GDP growth of 10% per year is associated with income growth of 10% for the poorest 40% of the population. However, others question the extent to which economic growth should be put above other socio-economic factors. Lele points out that the focus on economic growth has led to important ecological and social sustainability, taking the backseat. He argues that due to strong emphasis on economic growth, not enough attention is paid to social equity, and economic stability within the development discourse.

Amartya Sen defines economic development in terms of personal freedom, freedom to choose from a range of options. While economic growth may lead to an increase in the purchasing power of people, if the country has a repressed economy, there is lack of choice and hence personal freedom in restricted. Hence once again growth has taken place without any development. While economic growth may result in an improvement in the standard of living of a relatively small proportion of the population whilst the majority of the population remains poor. It is how the economic growth is distributed amongst the population that determines the level of development.

The economy reaches a steady state at k*. Any other level of capital per effective worker will result in disequilibrium and the economy will converge back to k* . For e.g., if k is below k*, the amount of k is greater than break even investment which will increase k till it reaches k*. Likewise, if k is greater than k*, then k will be lower than break even investment which will reduce k till k equals k*. Thus we can see that the steady state k* will determine the steady state level of Y and hence we derive the fact that if a country has a higher rate of investment, it will have a higher steady state level of output showing our model can explain

He pointed out that different economic levels have their own requirements and they may not follow the same process of industrialization. Moreover, he raised the most influential theory related to late industrialization that the economically backward states may have rapider growth rate as they are late comers, and the national development process relied on the degree of economic backwardness. That is to say the more backward a country, the faster it will advance (ibid).