CHAPTER 19
ECONOMIC DEVELOPMENT
In this chapter, you will find:
Learning Outcomes
Chapter Outline with PowerPoint Script
Chapter Summary
Teaching Points (as on Prep Card)
Solutions to Problems Appendix
Experiential Assignment
INTRODUCTION
This chapter examines differences between developing and industrial economies. After comparing
LEARNING OUTCOMES
21-1 Besides income, identify ways that low-income economies differ from high-income economies.
The most common measure of comparison of standards of living between different countries is output
21-2 Describe the factors that make workers in high-income economies more productive than workers
in other economies.
Labor productivity, measured in terms of output per worker, is by definition low in low-income coun-
21-3 Explain how trade restrictions can slow economic development in poorer countries.
Developing countries need to trade with developed countries to acquire the capital and technology
21-4 Outline some unintended consequences of foreign aid on economic development.
Foreign aid has been a mixed blessing for most developing countries. In some cases, that aid has
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CHAPTER OUTLINE WITH POWERPOINT SCRIPT
USE POWERPOINT SLIDES 2-3 FOR THE FOLLOWING SECTION
Worlds Apart
• Output per capita, or the amount an economy produces per capita, compares living standards across
nations.
USE POWERPOINT SLIDES 4-12 FOR THE FOLLOWING SECTION
Developing and Industrial Economies
• Developing Countries: Low– and middle-income economies
• Industrial Market Countries: High-income economies
Health and Nutrition: Differences in stages of development among countries are reflected in a number of
ways besides per capita income.
USE POWERPOINT SLIDES 13-26 FOR THE FOLLOWING SECTION
Productivity: Key to Development
Low Labor Productivity: Labor productivity, measured in terms of output per worker, is by definition
Inefficient Use of Labor: Unemployment and underemployment reflect inefficient uses of labor.
• Underemployment: Occurs when skilled workers are employed in low-skill jobs or when people are
working less than they would like.
Natural Resources: An abundant supply of a natural resource is not in itself enough to create a modern
industrial economy.
Financial Institutions: Some developing countries’ central banks finance public outlays by printing
Chapter 21 Economic Development 283
USE POWERPOINT SLIDE 27 FOR THE FOLLOWING SECTION
Income Distribution Within Countries: The share of national income going to the poorest fifth of the
population was less evenly distributed in low- and middle-income countries than in high-income countries.
USE POWERPOINT SLIDES 28-31 FOR THE FOLLOWING SECTION
International Trade and Development
Trade Problems for Developing Countries: About half of merchandise exports from low-income
countries consist of raw materials whose prices fluctuate more widely than the prices of finished goods.
USE POWERPOINT SLIDES 32-38 FOR THE FOLLOWING SECTION
Foreign Aid and Economic Development
• Foreign Aid: Any international transfer made on concessional (i.e., especially favorable) terms for the
CHAPTER SUMMARY
Developing countries are distinguished by low output per capita, poor health and nutrition, high fertility
rates, poor education, and saving rates that are usually too low to finance sufficient investment in human
and physical capital.
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Import substitution is a development strategy that emphasizes domestic production of goods that are
currently imported. Export promotion concentrates on producing for the export market. Over the years,
export promotion has been more successful than import substitution because it relies on specialization and
comparative advantage.
TEACHING POINTS
1. Students can usually relate to the material presented in this chapter because many of the events in
question have occurred within their learning spans. It is helpful to encourage student participation in
2. Students generally find that trade problems for developing nations are intuitive and easy-to–
understand, and students are often able to give personal examples of brain drain. Lively class discus-
SOLUTIONS TO PROBLEMS APPENDIX
1. (Worlds Apart) Per capita income most recently was about 160 times greater in the United
States than in the Democratic Republic of the Congo. Suppose per capita grows an average of 3
percent per year in the richest country and 6 percent per year in the poorer country. Assuming
such growth rates continue indefinitely into the future, how many years would it take before per
capita in the Congo exceeds that of the United States? (To simplify the math, suppose at the
outset per capita income is $160,000 in the richer country and $1,000 in the poorer country.)
To solve this problem, you must be able to use the compound growth function on a personal
2. (Why Incomes Differ) What factors help workers in high-income economies become more
productive than those in other economies?
Labor productivity, measured in terms of output per worker, is by definition low in low-
income countries, as it depends on the quality of the labor and other inputs that combine with
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3. (Import Substitution Versus Export Promotion) Explain why domestic producers who supply a
good that competes with imports would prefer an import-substitution approach to trade policy
rather than an export-promotion approach. Which policy would domestic consumers prefer and
why?
Domestic producers would rather not face competition from imports, so they would prefer a
Imported goods often drive down the price and improve the quality of goods in the market.
4. (International Trade and Development) From the perspective of citizens in a developing
country, what are some of the benefits and drawbacks of international trade?
International trade means that people in developing countries have access to products that
5. (Foreign Aid and Economic Development) Foreign aid, if it is to be successful in enhancing
economic development, must lead to a more productive economy. Describe some of the
problems in achieving such an objective through foreign aid.
Foreign aid does not always translate into the human and physical capital developing countries
6. (In-Kind Aid) What has been an unintended consequences of richer countries giving food and
clothing to poorer countries?
Foreign aid has been a mixed blessing for most developing countries. In some cases, that aid
Experiential Assignment
Chapter 21 Economic Development 286
1. Many developing countries seem more concerned about global warming issues and the potential
effects on economies than do developed countries. Students might visit sites such as