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Chapter Review Chapter 19: Development and Transition

  1. In less-developed countries, or LDCs, life expectancies are usually shorter, infant mortality is higher, and people are less educated than in developed countries. Also, a larger fraction of the population lives in rural areas, and population growth rates are higher.
  2. In recent years, newly industrialized countries (NICs) such as South Korea, Singapore, Hong Kong, and Taiwan have managed to improve their economic status dramatically. Other LDCs, like India, have expanded food production considerably. But the standard of living in some of the poorest LDCs, such as many African nations, has actually been declining, as population growth has outstripped economic growth.
  3. Among the factors contributing to underdevelopment are lack of physical capital, lack of education, lack of technology, and lack of developed capital markets. The factors interact: low education levels impede the transfer of advanced technology; low incomes make it difficult to invest heavily in education.
  4. The success of the countries of East Asia is based partially on activist government policies. These include helping to develop and use markets rather than re¬ placing them; maintaining macroeconomic stability; promoting high levels of investment (including in public infrastructure) and saving; providing strong support for education, including the education of women; improving capital markets, which facilitate an efficient allocation of scarce capital; promoting exports; foster¬ ing equality; and promoting technology. The policies of these countries helped to create a positive investment climate (including for foreign investors) and to reduce population growth.
  5. Under communism, the state was responsible for all production: central planners decided what to produce, how it was to be produced, and for whom it was to be produced. While there were some successes, especially in the system’s early decades, eventually the lack of incentives, the central planners’ lack of information, and the distortions that were rife in the system took their toll.
  6. The transition to a market economy has not been easy. In most countries, output fell markedly and poverty increased markedly. A few countries fared well.
  7. After more than ten years of transition, it now appears that the countries that rapidly brought inflation down to moderate levels, then took a more gradual approach to broader reforms-with greater emphasis on creating an institutional infrastructure, creating jobs and new enterprises, and creating competition-have done better than those that adopted a more wholesale, shock therapy approach.
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