PROBLEMS OF DEVELOPING COUNTRIES IN THE WORLD ECONOMY
Chapter Review: Key Points
The call for a New International Economic Order (NIEO) is an attempt by LDCs to get a larger share of the world's income and wealth. It reflects the extreme inequality between the rich north and the poor south. Half the world's population had an annual income of scarcely more than £177 per person in 1987.
The south's complaints are that (a) the markets for their primary products are controlled by the north; (b) northern protectionism is hampering their prospects for industrial development; (c) borrowing is too expensive; and [d) simple justice dictates that the north should take practical steps to close the north-south gap.
In the world's poorest countries, population growth is faster than the rate at which supplies of other factors can be increased. Hence labour productivity is low and, after provision for consumption, there are few spare resources to increase human and physical capital. It is hard to break out of this vicious circle.
The downward trend in real prices, price volatility as well as the danger of extreme concentration in a single commodity have made LDCs reluctant to pursue development by exploiting a comparative advantage in primary products. Buffer stocks and cartel supply restrictions have proved difficult to organize, with the conspicuous exception of OPEC.
LDCs are increasing their export of labour-intensive manufactures. In the last decade their growth performance has been better than that of industrial countries. Although the LDCs are beginning from a small base, their market share could quickly become much more significant. The NICs have already made considerable progress along this route to development.
Industrial countries are responding with new moves towards protection from imports of manufactures. Yet they would probably do better by encouraging adjustment towards the industries in which their comparative advantage now lies.
7 LDCs have run large deficits in the last decade, financed chiefly by external borrowing. Larger debts and high interest rates have led to threats of default and an international debt crisis.
8 Trade may help the LDCs more effectively than aid. Migration would help equalize world incomes but there is little prospect of rich countries allowing significant immigration.
New International Economic Order
Less developed countries (LDCs)
International debt crisis
Newly industrializing countries (NICs) MORE TERMS AND USEFUL VOCABULARY CAN BE FOUND IN THE TEXT ABOVE