MAHARASHTRA NATIONAL LAW UNIVERSITY

MUMBAI

ECONOMICS II

ENCOUNTERING DEVELOPMENT

SUBMITTED BY
Tathagat Bharti
2015 021

UNDER THE GUIDANCE & SUPERVISION OF

PROFESSORS OF Economics I
Introduction

Over 6 billion people are alive today, but the wealthy parts of the world contain no more than 20
percent of the world’s population. Many of the rest struggle for subsistence. Many exist on a
level at or below that endured by peasants in ancient Egypt or Babylon. The richest countries
with the highest per capita incomes are referred to by the United Nations as developed countries.
These include the United States, Canada, most of the countries of Western Europe, South Africa,
Australia, New Zealand, Japan, and a few others. The poorer states are referred to by the UN as
the developing countries and include a diverse set of nations. Some, such as Vietnam, Argentina,
and China, are growing very rapidly, while others, such as Haiti, Rwanda, and Sierra Leone are
actually experiencing negative growth rates of real per capita income. Between these two is
another group of nations, called the newly industrialized countries (NICs). They include South
Korea, Singapore, Taiwan, and Hong Kong. These countries grew rapidly in the four decades
after 1960 and typically have per capita incomes close to 50 percent of those found in the
developed nations. Several other countries in Southeast Asia are close behind the NICs. These
include Indonesia, Malaysia, and Thailand. Viewing the problem of raising per capita income in
a poorer country as one of economic development recognizes that the whole structure of its
economy often needs to be altered to create economic growth. This is a complex task; many
countries remain undeveloped today despite decades of effort by their governments (often
assisted with aid from developed countries) to get them on a path of sustained growth.

Data on per capita incomes throughout the world cannot be accurate down to the last $100
because there are many problems in comparing national incomes across countries. For example,
homegrown food is vitally important to living standards in developing countries, but it is
excluded from or at best imperfectly included in the national income statistics of most countries.
Nevertheless, the data reflect enormous real differences in living standards that no statistical
inaccuracies can hide. The development gap—the discrepancy between the standards of living in
countries at either end of the distribution—is real and large

The consequences of low income levels can be severe. In rich countries like Canada and the
United States, variations in rainfall are reflected in farm output and farm income. In poor
countries, variations in rainfall are often reflected in the death rate. In these countries, many
people live so close to a subsistence level that slight fluctuations in the food supply bring death
by starvation to large numbers. Other, less dramatic characteristics of poverty include inadequate
diet, poor health, short life expectancy, and illiteracy.

For these reasons, reformers in developing countries feel a sense of urgency not felt by their
counterparts in rich countries. Yet, some of the poorest countries in the world are among those
with very low or negative growth rates of per capita GDP.

There are many hindrances to development for a third world country but the researcher in this
project would like to specifically focus on 8 Factors which are namely:

(i) Resources: A country’s supply of natural resources is important. A country with

infertile land and inadequate supplies of natural resources will find income growth
more difficult to achieve than one that is richly endowed with such resources.
(ii) Inefficiency: When we discuss inefficiency in resource use, it helps to distinguish
between two kinds of economic inefficiency, which are studied in microeconomics.
(iii) Human Capital: Numbers of people matter, and so does their training and experience.
A well-developed entrepreneurial class, motivated and trained to organize resources
for efficient production.
(iv) Agriculture: A developing country whose labour force is mainly devoted to
agriculture has little choice but to accept this basic allocation of resources.
(v) Population: Growth Population growth is one of the central problems of economic
development. Some developing countries have population growth rates in excess of
their GDP growth rates and therefore have negative growth rates of per capita GDP.
(vi) Domestic Saving: Although modern development strategies call in many instances for
a large infusion of imported foreign capital, the rise of domestically owned firms,
which will reap some of the externalities created by foreign technology, is one key to
sustained development. This requires a supply of domestic saving to finance their
growth.
(vii) Infrastructure: Key services, called infrastructure, such as transportation and a
communications network, are necessary for efficient commerce. Roads, bridges,
railways, and harbours are needed to transport people, materials, and finished goods.
Phone and postal services, water supply, and sanitation are essential to economic
development.
 (viii) Foreign Debt: The 1970s and early 1980s witnessed explosive growth in the external
debt of many developing nations. Since the mid-1980s, most of these countries have
experienced difficulties in making the payments required to service their debt. “Debt
rescheduling”— putting off until the future payments that cannot be made today—has
been common, and many observers feel that major defaults are inevitable unless ways
of forgiving the debt can be found.

Research Question:

(i) Does Promoting Labour mean promoting economic growth which will further help
develop a country?
(ii) Is poverty the core Hurdle for development or can a rich country be under developed?
Name

Enrollment No

My contribution to this article will be regarding the aspect of resource management. Among the
many frustrations in development, perhaps none looms larger than the "resource curse."
Perversely, the worst development outcomes--measured in poverty, inequality, and deprivation--
are often found in those countries with the greatest natural resource endowments. Rather than
contributing to freedom, broadly shared growth, and social peace, rich deposits of oil and
minerals have often brought tyranny, misery, and insecurity to these nations. Given this sorry
picture, can anything be done? In fact, the past decade has seen a raft of international initiatives
designed to combat corruption and improve governance in resource-rich nations. The Extractive
Industries Transparency Initiative works to improve revenue management in some thirty
resource-rich countries. The Open Government Partnership co-chaired by the United States and
Brazil, aims to fight corruption by securing concrete national action plans to fight corruption
from governments. The Publish What You Pay and Publish What You Lend campaigns call on
transnational corporations and banks to publicize their payments and loans to local authorities.
The Equator Principles seek to ensure that private bank investments do not exacerbate
environmental and social risks. The World Bank-sponsored Stolen Assets Recovery (StAR)
Initiative assists successor governments in tracking down the wealth looted by deposed autocrats.
Finally, the Dodd-Frank Act of 2011 mandates annual reports by U.S. extractive industry
companies to the SEC disclosing payments to host governments.

While each of these steps is worthwhile, such a piecemeal, fragmented approach suffers from
inherent limitations. These initiatives are largely voluntary, and thus unenforceable. They are not
universal (and in many cases lack participation from critical emerging economies). And they are
riddled with loopholes, which will be further discussed by me in the project.

The problem of human capital is another area that will be dealt by me and this is one of the major
problem that has to be discussed because The focus on human capital as a driver of economic
growth for developing countries has led to undue attention on school attainment. Developing
countries have made considerable progress in closing the gap with developed countries in terms
of school attainment, but recent research has underscored the importance of cognitive skills for
economic growth. This result shifts attention to issues of school quality, and there developing
countries have been much less successful in closing the gaps with developed countries. Without
improving school quality, developing countries will find it difficult to improve their long run
economic performance and also the problem of inefficiency as a hindrance to development for
third world countries will be discussed by me.
Name

Enrollment No.

The majority of my research will be based on the dependence of these third world countries on
agriculture and how the sluggish demand for primary agricultural commodities and the recurring
conditions of boom and slump in their exports have created problems for commodity-dependent
economies. Unstable commodity prices and export earnings are well known to make
development planning more difficult and to generate adverse short-term effects on income,
investment and employment. In addition, with slow demand conditions, countries specializing in
production of primary commodities can be expected to have a declining share in world trade
unless they have a major cost or quality advantage over competitors. Also a developing country
whose labour force is mainly devoted to agriculture has little choice but to accept this basic
allocation of resources.

Another aspect which compliments agricultural and agricultural dependence is population which
will form a minor aspect of my project, since numerous variables influence this growth rate, a
holistic approach to the problem is mandatory. Fertility rates in developing countries remain
high, not as a result of irrational behavior on the part of the people living in these countries, but
as a result of their rational response to high infant mortality rates. Fertility rates will remain high
unless the educational, health, and social environment in which these families live is improved.
Economic development and population growth are intimately related. Development reduces the
death rate resulting in increased population growth, which in turn reduces per capita income.

Domestic savings is also an aspect that has to be taken into account when considering a third
world countries economy
Name:

Enrollment No:

Infrastructure is one of the major obstacles for growth for a developed country, infrastructure
matters to growth is now relatively well recognized and widely understood among practioners
and policy makers. There is, indeed, a plethora of anecdotal and more technical evidence that
better quantity and quality of infrastructure can directly raise the productivity of human and
physical capital and hence growth (e.g. by providing access, roads can: (i) improve education
and markets for farmers’ outputs and others by cutting costs, (ii) facilitate private investment,
(iii) improve jobs and income levels for many). How much, specifically, and which infrastructure
matters when to output levels and their growth in developing and transition economies is not as
clearly settled. The research available on these questions is the main focus of this paper.

Borrowing from abroad can make sound economic sense. For instance, much of the development
of railway networks of the USA, Argentina and various developing countries in the 19th century
were financed by bonds issued in Europe.

Over the past two decades, many firms and governments of developing countries borrowed
billions of dollars from banks in the developed countries. But while the 19th century railway
companies were able to repay their debts, it become apparent in the 1980s that some of the
countries that had borrowed heavily—particularly Brazil, Argentina and Mexico, could not repay
what they owed.

The resulting crisis threatened the economic prospects of the developing countries and the
financial viability of many banks in the rich countries. The 1970s saw large-scale external
borrowing by developing countries from international banks. By 1982, the accumulated debt of
developing countries totalled $600 billion. Increase in US interest rates from 1979 and the
appreciation of the dollar put pressure on the ability of the developing countries to service their
debts, and that is why I feel foreign debt should be also studied in respect to this topic.