Developing Nations

Text 1

READING

DISCOVERING CONNECTIONS

GLOBAL MARKET AND DEVELOPING NATIONS

GLOSSARY

· Visible exports and visible imports – trade in goods such as food, raw materials, and manufactured goods.

· Invisible exports or invisible imports – trade in services such as banking, insurance and tourism.

· Absolute advantage is the ability of a country to produce a good using fewer resources than another country.

· Comparative advantage is the ability of a country to produce a good at a lower opportunity cost than another country.

· Protectionism is the government’s use of embargoes, tariffs, quotas, and other restrictions to protect domestic producers from foreign competition.

· Free trade is a system which allows certain countries to buy and sell goods from each other without any financial restrictions.

· Embargo is a law that bars trade with another country.

· Tariff is a tax on an import.

· Quota is a limit on the quantity of a good that may be imported in a given time period.

· WTO – World Trade Organization.

1. How would you define global economy, global market?

2. Do you agree that countries should be divided into industrialized and developing? Give your reasons.

3. What international economic organizations do you know? What are their functions?

4. What is globalization? What do you think about it?

The author organizes the following reading by considering industrialized nations, newly industrialized nations, developing nations and less developed nations. While reading pay attention to the problems facing different types of countries.

The World’s Economies

Economists classify the world’s economies as: industrial or developed nations (IN); newly industrialized nations (NIC); developing nations or less developed nations (LDC). Each of these types of countries has fairly specific characteristics, and economic issues.

Industrialized nations: Growing and Growing Old

An industrialized economy has a large base of productive capital, sophisticated banking systems and financial markets, a variety of industries producing a broad range of products, and vigorous and varied international trade. Industrialized nations also have well-established systems of government and law, and provide educational opportunities for their people.

Less than 20% of the world’s population live in industrial nations, and they account for about 70% of world output. The countries in the Group of Seven (G-7) have the most industrialized economies. The G-7 are the United States, Canada, Japan, Germany, France, the United Kingdom, and Italy (with Germany, France, the United Kingdom, and Italy comprising Europe’s so-called Big Four). The G-8 includes G-7 plus Russia, which may best be described as an economy in transition.

The entire EU – which also includes Austria, Belgium, Finland, Greece, Ireland, Luxembourg, the Netherlands, Portugal, and Spain – and some European nations outside the EU, such as Switzerland, Sweden, and Denmark, are also industrialized. So are Australia, New Zealand, and Taiwan.

But there is an income inequality, which creates some of the questions these countries face. The term sustainable growth refers to economic growth based on renewable resources and minimal environmental degradation.

However, the threat of terrorism, mainly from Islamic extremists from less developed counties, may well represent the most difficult and dangerous problem for industrialized nations, particularly the United States.

Newly Industrialized Nations: Getting Going

Newly industrialized nations (NICs) have a rapidly growing base of productive capital and rising incomes. Most of these nations have sound governments and banking and financial systems, although they may occasionally be subject to financial or political dislocation. For instance, Brazil is weighed down with international debt and must work hard to control inflation. Pakistan may face political instability and a shaky relationship with neighbouring India.

Newly industrialized nations include Hong Kong, Singapore, Taiwan, and South Korea (which are known as Asia’s “Four Tigers”), Pakistan, Malaysia, Indonesia, Thailand, Mexico, Brazil, Chile, Venezuela, Israel, South Africa, and Hungary.

Less than 5 percent of the world’s population lives in NICs, and they earn less than 5 percent of the world’s income.

The Four Tigers followed a strategy of export-oriented industrialization in which they moved from the status of developing country to that of NIC in the 1970s and 1980s. These nations ambitiously took Japan as a role model, but concentrated on light manufacturing. The World Bank and the International Monetary Fund have held up the Tigers as models for other developing and underdeveloped nations. However, export-oriented growth isn’t possible for every nation, especially when other nations, including China and some industrialized nations, still engage in protectionism.

NICs face a variety of problems, depending on their specific situations. One common issue is financing growth. A number of newly industrialized countries need more sophisticated banking and financial systems, and more stable governments.

Developing nations range from the poorest in the world to those that have begun to build an industrial base, but have yet to achieve stable growth in production and income. These economies are also called underdeveloped, undeveloped, and, most commonly, less developed countries (LDCs). A number of these nations have large, growing urban populations and serious difficulties with unemployment, crime, and poverty in the cities.

The Organization for Economic Cooperation and Development, which I’ll discuss later in this chapter, includes the following nations in its official list of less developed countries: all countries of Africa except the Republic of South Africa; all countries of Asia except Cambodia, China, Japan, Laos, North Korea, and Vietnam; all countries in Latin America, except Cuba; all countries in the Middle East and Malta, Portugal, Spain, Greece, and Turkey.

The People’s Republic of China could be considered an LDC. However, most economists view the PRC as a special case because it is beginning to industrialize but still relies heavily on small farms.

Vocabulary Focus

Ex. 1. Various expressions are used to indicate categories of countries according to wealth of development.

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