Low Developed Countries

Factors of an LDC

  • Large primary sector / Agriculture
  • High unemployment
  • Low level of human capital
  • Lack of experts
  • Low standard of living
  • High level of Poverty
  • Poor healthcare
  • Poor education
  • Poor infrastructure
  • Weak institutions

How can LDCs develop?

Supply side policies

Supply side policies will increase growth and development.

However, they are very expensive and take a long time, so this may not be viable for LDC.

Join a trading bloc

Joining a trading bloc could reduce costs of production and increase exports.

However, if a country is very small, infant industries may suffer. Furthermore, an LDC may have to bend to the will of a larger nation.

Reduce IR

  • Increases spending / AD
  • Lower ER -> exports more competitive

Borrow from the I.M.F

The LDC could borrow from the International Monetary Fund.

However, this means they will have to pay back a large amount of interest, and there are normally additional conditions which are not beneficial to the LDC.

F.D.I (Foreign Direct Investment)

The LDC could get investment from another country.

However this is normally expected to be back in some way, e.g political favours. It can result in exploitation and kill off infant industries (the investing country will want their large firms to be able to move into the country).

O.D.A (Overseas development assistance / Foreign Aid)

Foreign Aid is intended to help stimulate growth and development in the LDC. It is intended to kick start the "take-off" stage.

It can be argued that developed nations will receive a benefit from the LDC developing, as they will gain a trading partner.

There are also humanitarian reasons for foreign aid. This can include helping to alleviate poverty and address income inequality. It can help solve market failure such as lack of healthcare or education within the LDC.

O.D.A Was designed to help countries achieve development goals.

Alternative reasons behind O.D.A

Polictical motivation. For example the USA donates foreign aid to Pakistan. In exchange, they are able to use military facilities in Pakistan.

It can also encourage trade between countries. The UK gave foreign aid to India, partly due to understanding the importance of India as a trade partner now and in future.

Reasons why countries don't benefit from O.D.A

Some countries are at such a low stage of development (not close to take off), that they are unable to benefit from foreign aid. They don't have the resources and the institutions in place to use it effectively.

Bad governance in some countries, such as corruption means the % of aid reaching its intended purpose is minimal.

Barriers to development

The following things prevent a country from developing from these measures.

  • Corruption
  • Clauses, e.g Russia forced Cuba to buy its imports after it gave O.D.A
  • Specific projects are poorly chosen
  • Lack of human capital
  • Poor infrastructure
  • Weak institutions - Lack of sound legal system.

Countries who went from LDC -> HDC quickly

  • South Korea - Good policies
  • U.A.E - Oil
  • Qatar - Oil
  • Saudi Arabia - Oil