Rich and Poor Countries (1)

Poverty and Growth

Wealth Distribution by Income Level

  • Low Income Countries:

    • Examples: Most Sub-Saharan Africa, India, Pakistan

  • Lower-Middle Income Countries:

    • Examples: China, Caribbean countries

  • Upper-Middle Income Countries:

    • Examples: Brazil, Mexico, Saudi Arabia, Malaysia, South Africa, Czech Republic

  • High Income Countries:

    • Examples: U.S., Singapore, France, Japan, Kuwait

Economic Growth Patterns

  • Some middle- and low-income economies have grown faster than high-income countries, resulting in "catch-up" growth.

  • Income levels between high-income countries and some previously lower-income countries have shown convergence.

  • Conversely, some of the poorest countries continue to exhibit low growth rates.

Output per Capita: Selected Countries (1960-2007)

  • Key statistics on growth rates and income levels in various countries:

    • Argentina: $8,824 (1960) to $15,323 (2007), 1.2% annual growth

    • Brazil: $3,138 to $9,683, 2.4%

    • Chile: $5,729 to $18,375, 2.5%

    • China: $703 to $7,853, 5.3%

  • Significant gains in many Asian countries with remarkable growth in GDP per capita.

Economic Growth and Child Mortality

  • Relationship between child mortality and GDP per capita (2016):

    • Child mortality often decreases with rising GDP, highlighting the impact of economic growth on health outcomes.

  • Indicators:

    • Low-income: GDP per capita $523, life expectancy 60 years

    • High-income: GDP per capita $39,688, life expectancy 83 years.

Characteristics of Poor Countries

Causes of Poverty

  • Competing Theories:

    • Human Capital (Barro-Lee results)

    • Institutions (Acemoglu, Robinson, and Johnson)

Economic Characteristics of Poor Countries

  • Government Control:

    • High levels of government intervention in economy and trade.

    • Restrictions on trade and production lead to inefficiencies.

  • Macroeconomic Instability:

    • Unsustainable fiscal policies can lead to high inflation and instability.

Seigniorage and Inflation

  • Governments may resort to seigniorage (printing money) to finance debts, leading to inflation.

  • High and unstable inflation results in economic costs and uncertainty.

Legal and Financial Framework Issues

  • Poor enforcement of economic laws affects investment willingness:

    • Issues with property rights and regulations hinder financial transactions.

    • High corruption levels contribute to a large underground economy.

The Problem of "Original Sin"

  • Original sin pertains to the inability of developing nations to borrow in their own currencies, leading to increased liabilities.

  • Effects of Currency Depreciation:

    • Depreciation of domestic currencies increases the burden of foreign currency debts, worsening the economic situation.

Geography and Human Capital

Influencing Economic Institutions

  • Economic Implications of Geography:

    • Accessible geography can enhance trade opportunities; landlocked areas often face economic challenges.

  • Historical geographic factors have influenced property rights and investment decisions.

Trade Policy & Economic Strategies

Import-Substituting Industrialization

  • Justified by the infant industry argument, but results showed limited long-term success.

    • Many countries did not achieve sustainable growth despite protective measures.

Trade Liberalization

  • Transitioning from protectionism to trade liberalization has shown positive economic growth in various developing countries.

  • Increased trade volume correlates with economic growth.

High-Performance Asian Economies

  • Countries like Japan and South Korea adopted export-oriented growth policies, leading to significant economic advancement.

  • Not all developing regions achieved similar growth, indicating that other factors influenced success.