Economics Principles and Practices © 2012
Section 1: Economic Development
Most of the people in the world today live in developing countries—countries whose average per capita GNP is a fraction of that in more industrialized countries. These problems are similar to the ones that industrialized countries have; the main difference being that their problems are much larger. The stages of economic development are primitive equilibrium, transition, takeoff, and high development. Developing countries face numerous obstacles, including population pressures from high crude birthrates and increasing life expectancies. A shortage of natural resources, diseases, substance abuse, limited education and technology, a heavy burden of external debt, corruption, the aftermath of war, and capital flight add to their problems.
Section 2: Achieving Economic Development
The framework for economic development can come from internal or external sources. Developing countries need savings, an internal source, to provide a domestic source of investment funds. Furthermore, one of the most popular internal sources of income for people to start small businesses is a micro loan. External funds are sometimes available from foreign governments and banks. Other institutions like the International Monetary Fund and the World Bank also provide assistance. Two other forms of assistance are government aid grants and private foreign investments. Some countries have helped themselves through regional cooperation. The European Union is a successful example of a customs union, and ASEAN is currently working to become a free-trade area. The OPEC nations organized a cartel to increase the revenues flowing to their countries. The remarkable success of South Korea—ravaged by war in the early 1950s and one of the poorest nations in Asia—demonstrates that economic development can take place.
Section 3: The Transition to Capitalism
Capitalism is the economic system in which private citizens own and use the factors of production; it is the most powerful way to generate wealth. A key feature of capitalism is the ownership of private property, which occurs through privatization. Throughout history, countries all over the world have worked towards implanting capitalism into their economies. Some have been more successful than others. For example, Japan has been successful for many reasons, one being its dedicated workforce.