IB Economics - Characteristics of Economically Less Developed Countries

This study note for IB economics covers Characteristics of Economically Less Developed Countries

Economically less developed countries (ELDCs) share a variety of common characteristics that hinder their economic progress. However, it is important to note that while there are commonalities, generalizing can be misleading due to the diversity and exceptions found within these countries.

1. Low Levels of GDP per Capita

• Definition: GDP per capita is the total economic output of a country divided by its population. It is often used as an indicator of the standard of living.
• Characteristics:
  • ELDCs typically have low GDP per capita, indicating lower average income levels compared to developed nations.
  • Example: According to the World Bank, countries like Burundi and Malawi had GDP per capita of around $300 in 2022, significantly lower than developed countries like the United States with over $70,000.
  • Implication: Low GDP per capita is associated with poor living conditions, limited access to essential services, and reduced quality of life.

2. High Levels of Poverty

• Definition: Poverty refers to the state where individuals lack financial resources to meet basic needs such as food, shelter, and healthcare.
• Characteristics:
  • A significant proportion of the population in ELDCs lives below the international poverty line, defined by the World Bank as living on less than $2.15 per day (2022).
  • Example: In Nigeria, approximately 40% of the population lives below the poverty line.
  • Implication: High poverty rates lead to issues like malnutrition, poor health, and limited educational opportunities.

3. Relatively Large Agricultural Sectors

• Definition: A large portion of the economy and employment is based on agriculture rather than industry or services.
• Characteristics:
  • Many ELDCs rely heavily on agriculture, which often uses traditional, low-productivity methods.
  • Example: In Ethiopia, agriculture contributes over 30% of GDP and employs about 70% of the workforce.
  • Implication: This reliance on agriculture makes these economies vulnerable to external shocks such as climate change, price fluctuations, and natural disasters.

4. Large Urban Informal Sectors

• Definition: The informal sector includes economic activities that are not regulated by the government, such as street vending and unregistered small businesses.
• Characteristics:
  • ELDCs often have a significant portion of the labor force working in informal sectors due to a lack of formal job opportunities.
  • Example: In India, the informal sector accounts for approximately 80% of total employment.
  • Implication: Informal sectors often provide low wages, lack job security, and do not contribute to tax revenues, limiting government capacity to invest in development.

5. High Birth Rates

• Definition: High birth rates refer to the average number of births per woman in a country.
• Characteristics:
  • ELDCs often have high birth rates, contributing to rapid population growth and increased dependency ratios.
  • Example: In Niger, the birth rate is around 6.9 births per woman, one of the highest in the world.
  • Implication: High birth rates can strain resources, reduce per capita availability of services, and perpetuate poverty.

Poverty Trap (Poverty Cycle)

• Definition: A poverty trap occurs when low-income communities cannot escape poverty due to the inability to save and invest in human, physical, or natural capital.
• Characteristics:
  • Lack of savings prevents investment in education, healthcare, or business ventures, perpetuating the cycle of poverty.
  • Example: In rural areas of Sub-Saharan Africa, families often cannot afford to send children to school, leading to low educational attainment and limited job prospects, reinforcing poverty across generations.
  • Intervention Needed: External interventions, such as foreign aid, microfinance, or government programs, are essential to break the cycle by providing the necessary resources to invest in capital.

Diversity Among Economically Less Developed Countries

ELDCs are diverse, and differences among them can be significant. Understanding these differences is crucial for designing appropriate development policies.

1. Resource Endowments

• Definition: The natural resources available to a country, such as minerals, oil, or fertile land.
• Examples:
  • Botswana is rich in diamonds, which has helped it achieve higher economic growth compared to resource-poor countries like Chad.
  • Implication: Resource-rich countries can leverage their natural resources for economic development, though this often depends on governance and management of these resources.

2. Climate

• Definition: The prevailing weather conditions in a country, including temperature, rainfall, and natural disasters.
• Examples:
  • Bangladesh frequently suffers from flooding, which disrupts agriculture and displaces communities.
  • Implication: Adverse climates can limit agricultural productivity, increase vulnerability to natural disasters, and strain resources.

3. Historical Context (Colonial or Otherwise)

• Definition: The historical background of a country, including colonization, independence, and past conflicts.
• Examples:
  • Countries like India and Ghana have different post-colonial development paths compared to non-colonized countries like Thailand.
  • Implication: Historical contexts influence governance, economic structures, and development trajectories.

4. Political Systems and Stability

• Definition: The type of governance and the degree of political stability in a country.
• Examples:
  • Rwanda has experienced significant economic growth under a relatively stable government, whereas countries like South Sudan have struggled with ongoing conflict and instability.
  • Implication: Political instability can deter investment, disrupt economic activity, and impede development efforts.

Glossary of Key Terms

• Agricultural Sector: The part of the economy that deals with farming, livestock, and other agricultural activities.
• Dependency Ratio: The ratio of dependents (people younger than 15 or older than 64) to the working-age population.
• GDP per Capita: The total economic output of a country divided by its population, a measure of average income.
• Informal Sector: Economic activities that are not regulated by the government, often untaxed and unmonitored.
• Poverty Trap: A self-perpetuating condition where poor individuals or communities are unable to escape poverty due to lack of resources.
• Urbanization: The increase in the proportion of people living in urban areas compared to rural areas.

Possible IB Economics Essay-Style Questions

1. Discuss the common characteristics of economically less developed countries and analyze the extent to which these characteristics hinder economic development.
2. Evaluate the role of poverty traps in perpetuating poverty in economically less developed countries, and discuss possible strategies to break these cycles.
3. To what extent does the diversity among economically less developed countries affect their economic growth prospects? Use examples to support your answer.
4. Examine the impact of high birth rates on the economic development of less developed countries.

Retrieval Questions for A-Level Students

1. What is GDP per capita and why is it often low in economically less developed countries?
2. Explain how high levels of poverty can affect human capital development in less developed countries.
3. What role does the informal sector play in the economies of less developed countries?
4. Why is it important not to generalize when discussing the characteristics of economically less developed countries?
5. What are some examples of poverty traps, and how do they affect future generations in less developed countries?

This study note provides a comprehensive overview of the characteristics and diversity among economically less developed countries, aiding in a deeper understanding of their economic challenges and differences.