Definitions and Basics

Third World Economic Development, from the Concise Encyclopedia of Economics

The development experiences of Third World countries since the fifties have been staggeringly diverse—and hence very informative. Forty years ago the developing countries looked a lot more like each other than they do today. Take India and South Korea. By any standards, both countries were extremely poor: India’s income per capita was about $150 (in 1980 dollars) and South Korea’s was about $350. Life expectancy was about forty years and fifty years respectively. In both countries roughly 70 percent of the people worked on the land, and farming accounted for 40 percent of national income. The two countries were so far behind the industrial world that it seemed nearly inconceivable that either could ever attain reasonable standards of living, let alone catch up….

Economic Growth, from the Concise Encyclopedia of Economics

Some ideas from the developed world are rapidly adopted by less developed countries. For example, oral rehydration therapy now saves the lives of hundreds of thousands of children who previously would have died from diarrhea. Yet governments in poor countries continue to impede the flow of many other kinds of ideas, especially those with commercial value. Even automobile producers in North America recognize that they can learn from ideas developed in the rest of the world. But car firms in India operate in a government-created protective time warp. The Hillman and Austin cars produced in England in the fifties continue to roll off production lines in India today. India’s commitment to closing itself off and striving for self-sufficiency has been as strong as Japan’s commitment to acquiring foreign ideas and participating fully in world markets. The outcomes—grinding poverty in India and opulence in Japan—could hardly be more disparate.

For a developing country like India, enormous increases in standards of living could be achieved merely by letting in the ideas held by companies from industrialized nations. But leading countries like the United States and Canada, and new leaders like Japan, cannot stay ahead merely by adopting ideas developed elsewhere. They must also offer incentives for the discovery of new ideas at home, and this is not easy to do. The same characteristic that makes an idea so valuable—everybody can use it at the same time—also means that it is hard to earn an appropriate rate of return on investments in ideas. The many people who benefit from a new idea can too easily free-ride on the efforts of others….

In the News and Examples

Amy Willis, Continuing Education, Morten Jerven on African Economic Growth, and EconTalk podcast Extra, June 2015.

Is it possible that what we though we knew about Africa’s stagnant economy is wrong? Do we need a more stylized economic history? If so, Morten Jerven may be the one to provide it.

William Easterly on Growth, Poverty, and Aid, EconTalk podcast episode, February 2008.

William Easterly of NYU talks about why some nations escape poverty while others do not, why aid almost always fails to create growth, and what can realistically be done to help the poorest people in the world….

Paul Collier on the Bottom Billion, EconTalk podcast episode, January 2008.

Paul Collier of Oxford University talks about the ideas in his recent book, The Bottom Billion, an analysis of why the poorest countries in the world fail to grow. He talks about conflict, natural resources, being landlocked, and bad governance, four factors he identifies as causes of the desperate poverty and stagnation in the countries where 1/6 of the world’s poorest peoples live….

Mike Munger on Fair Trade and Free Trade, EconTalk podcast episode, December 2007.

Mike Munger, frequent guest and longtime Econlib contributor, speaks with EconTalk host Russ Roberts about fair trade coffee and free trade agreements. Does the premium for fair trade coffee end up in the hands of the grower? What economic forces might stop that from happening? They discuss the business strategy of using higher wages as a marketing strategy to attract concerned consumers. They turn to the issue of free trade agreements. If the ideal situation is open borders to foreign products, is it still worthwhile to negotiate bilateral and multilateral agreements that requires delays, exemptions and a bureaucracy to enforce? What is the cost of including environmental and various labor market regulations in these agreements?…

Hanushek on Educational Quality and Economic Growth, EconTalk podcast episode, August 2007.

Hoover Institution Senior Fellow Eric Hanushek talks about his research on the impact of educational quality on economic growth. Past efforts to increase the economic growth rate of poor countries have focused on years of schooling, neglecting the quality and true education that needs to take place. Hanushek presents dramatic findings about the decisive nature of cognitive ability and knowledge in driving economic growth. Join us as Hanushek talks with EconTalk host Russ Roberts about his findings and the implications for public policy around the world and in the United States….

A Little History: Primary Sources and References

Japan and the Myth of MITI, from the Concise Encyclopedia of Economics

At the end of World War II, Japan’s economy was in tatters. Some 40 percent of its capital stock was destroyed during the war, and the Japanese standard of living was at pre-World War I levels. Today Japan has the second-largest economy in the world and its growth is the envy of most of the world. From 1952, when the American occupation ended, until 1991, Japan’s real GNP grew at an average rate of 6.8 percent per year. During the period of greatest growth, from 1952 to 1971, real GNP grew at an average annual rate of 9.6 percent. Because of the miracle of compounding, Japan’s GNP in 1991 was over thirteen times its 1952 level. In the United States from 1952 to 1991, by contrast, real GNP grew at an average rate of 2.9 percent, and only tripled over the whole period….

German Economic Miracle, from the Concise Encyclopedia of Economics

After World War II the German economy lay in shambles. The war, along with Hitler’s scorched-earth policy, had destroyed 20 percent of all housing. Food production per capita in 1947 was only 51 percent of its level in 1938, and the official food ration set by the occupying powers varied between 1,040 and 1,550 calories per day. Industrial output in 1947 was only one-third its 1938 level. Moreover, a large percentage of Germany’s working-age men were dead. At the time, observers thought that Germany would have to be the biggest client of the U.S. welfare state. Yet twenty years later its economy was envied by most of the world. And less than ten years after the war people already were talking about the German economic miracle….

Third World Debt, from the Concise Encyclopedia of Economics

By the end of 1990 the world’s poor and developing countries owed more than $1.3 trillion to industrialized countries. Among the largest problem debtors were Brazil ($116 billion), Mexico ($97 billion), and Argentina ($61 billion). Of the total developing-country debt, roughly half is owed to private creditors, mainly commercial banks.

The rest consists of obligations to international lending organizations such as the International Monetary Fund (IMF) and the World Bank, and to governments and government agencies—export-import banks, for example. Of the private bank debt, the bulk has been incurred by middle-income countries, especially in Latin America. The world’s poorest countries, mostly in Africa and South Asia, were never able to borrow substantial sums from the private sector and most of their debts are to the IMF, World Bank, and other governments….

Advanced Resources

Development and Trade: Empirical Evidence, at Marginal Revolution University

Development Economics, a full course at Marginal Revolution University.

Related Topics

Economic Growth