Economics Reflections

Chapter 18: Economic Development and Transition

Levels of Development
Nations are generally categorized into two categories: developed nations and less developed
countries. Development is the process by which a nation improves the political, social, and
economic well-being of its people. Economists measure development using per capita GDP,
levels of energy, the level of labor force, quantity of consumer goods, rate of literacy, life
expectancy, and infant mortality rate. First, per capita gross domestic product, or per capita GDP,
helps economists compare the living standard of a country's citizens as countries may have
similar GDPs, but the population size distributes the GDP differently in each country. In a nation
with a higher population, the people have a smaller share of the GDP. Then, a higher energy
consumption is an indication on the level of industrialization of a nation as more industrialized
nations require more energy and generally have a higher standard of living. More
industrialization also means that more of the labor force is more specialized and do not have to
engage in subsistence agriculture. I think that because specialization of jobs allows people to not
work to raise enough to feed themselves makes a nation more efficient and allows them to make
more goods and services that are available for trade. I also think that higher efficiency due to
specialization allows the country to have a higher literacy rate and the economy can more easily
support the life of an individual therefore increasing life expectancy and decreasing the infant
mortality rate. This specialization also leads to a larger variety of consumer goods and the money
to pay for nonessential items. Developed nations also have more solid infrastructures and more
technology that helps make their economies more productive which less developed countries
may not have. I think that technology plays a major role in the development of a country as it can
make jobs easier and more efficient. Economists will classify nations based on their per capita
gross national income to show which nations are more developed than others.
Issues in Development
Many less developed countries have problems meeting the needs of a growing population.
Less developed countries must also increase their opportunities and resources for citizens as the
population grows which can pose a problem for nations that are already struggling to meet the
needs of the existing population. Additionally, some countries lack more natural resources than
others, however some less developed countries have natural resource, but lack the means to
utilize these natural resources. In these cases, I believe that an increase in technology could help
less developed countries utilize their resources and become more developed. However, this
causes other problems as technology is expensive and many less developed countries may not
have the physical and human capital needed to help develop the nation. I think that human
capital is particularly important as they can help provide education and training to the people.
One factor that limits the growth of development in countries is the that many of the educated
citizens leave the country to live and work in a more developed country because of more
opportunities. This leaves the less developed world with less educated citizens. I have also found
that many cultural aspects can limit access to education. Then, political factors such as
government corruption, political instability, and the transition from colonial dependency to full
independence can slow the growth of development. Many less developed countries also have had
to acquire loans which, for various reasons, they could be u are to pay back leading to national
debt.

Financing Development
Development is costly and many less developed countries turn to developed and wealthier
countries for the financing they need to develop their economies. Less developed countries can
use internal financing or foreign investment to help finance its methods to stimulate economic
development. Internal financing helps the economy when individuals deposit money in banks
which then loan money to firms who create more jobs as they expand which increases the
standard of living. However, people in many less developed countries do not have enough money
to save and those who do tend to invest overseas meaning that little internal financing occurs. I
think that this is why many less developed nations turn to foreign investment to help finance
economic development. This foreign investment can come in the form of a foreign direct
investment or foreign portfolio investment or give, rather than loan, foreign aid. Recently,
Greece has needed foreign assistance to help support its economy as the economy is going into
bankruptcy and may have to drop out of the euro zone. Now there are several international
institutions that help promote economic development. These include the World Bank, United
Nations Development Program, and the International Monetary Fund. However, I think that there
will always be nations that are less developed due to the unequal distribution of resources and the
unequal distribution of wealth.