Development in the LDCs

Introduction

LDCs are desperately attempting to catch up with levels of development (consider Wallerstein's World Systems Theory), but the development gap is widening with MDCs continuing to develop at a faster rate

There is uneven development between and also within countries of the world

Some geographers and economists argue that the world will continue to keep the LDC nations down ( structuralist theories ) because they cannot catch up to the resources or abilities of MDCS

This idea falls in-line with the dependency theory, which suggests that LDCs will remain dependent on foreign investment and economic deals that benefit MDCs
Some geographers argue that this is neo-colonialism, meaning that although the core countries no longer have the periphery countries as official colonies, they still use them in the same ways

Others believe that development is a process open to all nations (liberal development theories) LDCs need to choose a path to success through two main methods - International trade or Self-Sufficiency

Development through Self-Sufficiency (Balanced Growth)

The Self-Sufficiency approach was used by China, India, Eastern European and African Countries
- This model suggests that money should be spent evenly in all sectors so that all people and industries feel valued
  - The growth may not be dramatic, but it will be equitable
- Urban and rural areas will grow at the same speed and poverty will be diminished rather than a small percentage of the population becoming wealthy
- Businesses are kept national or even local to protect them from international competition
- Limits on imports and increased tariffs to stop international trade
  - Quotas on imports
  - Licensing required for import companies
  - High tariffs to make imports more expensive than domestic products

India used self-sufficiency by requiring complicated licensing for imports, limiting exports, increasing tariffs and supporting Indian products made for the Indian people (government incentives for following their guidelines)
Problems with Self-Sufficiency
- Businesses are inefficient on the global scale and have been protected by government policies that will eventually hurt business
- Bureaucracy (government control and "red tape") has to be huge and complex - this can lead to corruption and ineffective rules and regulations

Development through International Trade

In International Trade development countries identify the resource or manufactured program that they have in abundance (or can make in abundance) and which other countries want (supply and demand)

The country should focus all of its financial resources into one area and then when money comes in it can be spread to other areas
This is most successful in a country that has a comparative advantage over others, meaning it has the ability or resources to make goods and provide services at a lower cost or higher rate of efficiency compared to other locations

Rostow's Development Model (Modernization Model)

Rostow's Stages of Development Model - proposed stages of development followed by several emerging countries in the 1960s (Middle East, East Asia & SE Asia)
Stages work in a similar fashion to the DTM (every country is in one of the stages)
MDCs are in Stages 4 or 5 and LDCs in Stages 1 through 3 although all nations have moved through the previous stages in their history

The model was based on the success of previous LDCs in Eastern European and Japan and the LDCs have access to raw materials which gives them the chance to move through Rostow's Model

- Rostow's Stages
- Stage 1 (Traditional Society) is a primary sector economy with low technology and no money spent on the growth of the country
- Stage 2 (Pre-Take Off) occurs when a country is investing in infrastructure and has increasing technological knowledge
- Stage 3 (Take Off) occurs when there is a shift to limited industry and exports of goods and products
- Stage 4 (Drive to Maturity) is a country with high skills and education, where technology has diffused throughout the country and industry produces goods across the economic sectors
- Stage 5 (High Mass Consumption) is the final stage, when a country has high levels of technology and education and creates specialized, consumer goods and products

Stages of economics growth with respect to savings and investment.

Stages of economic growth graph

Stage of Economic Growth with Respect to Savings & Investment description

Rostow's Development Model - Information Booklet

Turn the pages by selecting on the arrows at the bottom of each page. To make the slides full screen, select the double arrows at the bottom right corner of the object.

Map of the Four Asian Tigers (or Four Dragons)

Examples of countries that have followed the International Trade Model (Rostow's Development Model)
- Persian Gulf Countries (SW Asia) have used petroleum resources to advance quickly through the stages (although cultural religious practice do not always match up to other MDCs)
The "Four Asian Tigers" (also known as the "Four Dragons")
South Korea, Singapore, Taiwan and Hong Kong (not British owned)
These nations learned from Japan (Taiwan and South Korea) and Britain (Hong Kong) and used a focus on one area of produced goods (mostly high-tech) that the world needed/wanted
- Entrepots are cities that do not charge tariffs, serve as "warehouses"
- Taiwan, Singapore & Hong Kong export finished goods
These countries, paired with China and Japan, have helped to establish the Pacific Rim economic region as one of the most powerful regions in the world

These newly industrial countries (NIC) establish rapid growth

Problems with International Trade (Rostow's Model)

LDCs might suffer if the resource/good they have loses its value
Markets have to expand to allow LDCs to have areas to sell (if growth isn't enough you have to compete and take markets from other countries)
Funds might not be able to be shared with other areas - instead of equitable distribution money has to be put right back into the production and money will still have to be spent on imports in other areas

The International Trade approach has been the accepted method since the growth of world production increased dramatically in the 1990s (India has changed its industry to focus on international trade)

Financing Development

The World Trade Organization (WTO) was created in 1995 by the vast majority of countries of the world
WTO negotiates reduced tariff and quotas
WTO enforced rules and contracts
Some feel that the WTO is too powerful and secretive
LDCs have to obtain funding before they can grow and improve, by improving infrastructure
Without roads, water, hospitals etc. it is difficult for industry to function or grow
They may get loans from two large world organizations, the World Bank and the International Monetary Fund (loan about $50 billion a year to LDCs)
Loans may also come from commercial banks (close to $3 trillion dollars in loans to LDCs)
- Loans can be effective, but about half of the infrastructure projects either fail or go over budget
Also, most countries can only afford the interest on their loans so they can not receive additional funding
- Some African, SE Asian, Eastern European and Latin American nations have more debt than income
This over lending (both domestically and internationally) contributed to a weakened economy around the world
- Banks were either failing or implementing more regulations for lending money
Some LDCs have been able to receive structural adjustment plans, which change the loan itself as long as the nation follows new conditions (higher taxes, less government spending, controlled inflation, etc)
Countries can also gain money from investment by transnational (multinational) corporations (have headquarters in one nation, but other also other locations around the world)
- These corporations build factories to create parts or find resources in one nation to then be shipped to another
- These corporations may also be a combination of smaller companies (conglomerate corporations)
Can also involve outsourcing which is going outside of your own company (and usually outside your country) to get one part of your business done
- Making parts in Malaysia, sending telecommunications to India, etc.
Investing usually follows the core-periphery model
- Most investments from MDCs (US, Western Europe & Japan) are sent to other MDCs in order to protect the investment

people protesting - Signs Read "Stop the FTA"

MDC/LDC tend to fall into the North-South Gap (the core nations are in the northern hemisphere and the peripheral nations are in the southern hemisphere)
- This leads to the question of fair trade (ensuring workers equality through oversight and rules) or free trade (allow companies to use capitalist policies to make decisions)
These areas will attempt to entice multinational corporations through foreign direct investment and will establish special economic zones (tax breaks, environmental easements, etc.)
There is a push for sustainable development worldwide, which would focus on addressing social and environmental issues, while growing economically

Activity

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IMAGES CREATED BY GAVS (Images are available in the Public Domain via Wikimedia Commons)