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Analysis on GDP Per Capita of Third World Countries

Uploaded by SamSkillz on Feb 22, 2004

Why are third world countries unable to increase their gross domestic output per capita?

Countries are classified as LDCs if their GDP per capita is less than $700 (they are low income countries). People living in LDCs typically have lower life expectancy, literacy rates, and social conditions. In Africa, for example, one third of its people have inadequate food consumption. Often, only unsafe water is available for drink in LDCs such as Haiti. Such third world countries are also unable to increase their gross domestic output per capita because GDP must increase at a rate faster than population, and with generally faster population growth than more developed countries, this is difficult.

There are many barriers to the growth of an LDC. In countries like China, many laborers are actually doing little or nothing that contributes to total output. This disguised unemployment, along with a steadily increasing population makes economic growth difficult. State enterprises may also contribute to disguised unemployment, which results in no increases in output. In order to gain political support they may hire many more workers than they need, but gain nothing economically. All the things LDCs lack are things that are required for economic growth. Even larger than disguised unemployment, is the lack of human capital development. Human capital refers to the knowledge and skills possessed by the work force. Due to the fact that all available income must be spent on simple subsistence, there are no funds remaining for savings or investment. There is also no money left for furthering education, getting medication, or creating any other human capital development. LDCs simply do not have enough educational tools to advance their people into fields that require more than just manual labor. Even in manual labor, such as agriculture, they can improve through newfound technologies and procedures.

The lack of savings, however, also creates a lack of financing for investments. Even though capital resources such as plants and high tech equipment would further LDCs greatly, they cannot afford them. Capital flight as well removes any money that might be invested later. Those who make money in LDCs often send their money to more developed economies where their money will be safe and/or gain value. All this results in the above problems, a lack of infrastructure, and social unrest.

Developing nations should request (and accept) more foreign aid from other countries. The United States only allocates .15% of its total GDP to...

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Uploaded by:   SamSkillz

Date:   02/22/2004

Category:   Economics

Length:   4 pages (873 words)

Views:   9596

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