. 26
( 33)


Andorra Ukraine
Luxembourg Tajikistan
Spain Dem. Rep.
Italy Austria Afghanistan
Former Romania Korea, Rep.
San Marino Yugoslav
Gibraltar (UK) Mongolia
Pakistan Nepal
Armenia Bhutan Vietnam
Hong Kong
Laos Macao
Lebanon Bangladesh
Malta Iraq Iran,
Kuwait Islamic
Tunisia Egypt, Saudi
Nigeria Libya Arab Israel Arabia Republic Thailand
Burkina Faso
Cape Verde Rep Qatar Sri Lanka
Mali Maldives
Jordan United Philippines
Mauritania Arab
The Gambia Senegal
Guinea Sudan Yemen Rep. Oman Singapore
Sierra Leone
Cameroon Ethiopia Guam (US)
Liberia Fed. Sts. of
Cote d™Ivoire Chad Somalia Djibouti Marshall Islands
˜ ´
Sao Tome and Niger
Rwanda American Samoa (US)
Principe Mozambique Comoros
Togo Indonesia
Burundi Mayotte Kiribati
Benin Solomon
Central Papua
Congo Seychelles Islands
African New Guinea
Uganda French Polynesia
Republic Swaziland Mauritius Vanuatu
Equatorial Guinea Namibia Fiji Tonga
Botswana Madagascar
Angola New
South Africa Lesotho
Caledonia (Fr)
Reunion (Fr) Australia
New Zealand

Reading Maps If every nation™s land area were proportional to its Gross National Product, the world
Reading Maps If every nation™s land area was
would look like the map in this figure. When GNP is computed on a per capita basis, we get another
would look like the map in this figure. When GNP is computed on a per capita basis, we get another
view of a nation™s productivity. Which nations have a per capita GNP larger than that of the
Which nations have a per capita GNP larger than that of
United States?
United States?

countries grow at a rate much faster than the pop-
ulations of industrialized countries. One reason for
this growth is the high crude birthrate”the num- Agricultural Development
ber of live births per 1,000 people. Genetically modified cotton crops may be the
People in many developing countries are also means by which countries of Africa south of the
experiencing an increasing life expectancy”the Sahara become more competitive with the
average remaining lifetime in years for persons who developed world. Some economists fear, how-
reach a certain age. Longer life expectancies, cou- ever, that as more countries plant the geneti-
pled with a high crude birthrate, make it difficult to cally modified crops, the market for cotton will
increase per capita GNP. become saturated. Prices will drop, leaving
Some countries, like China, have encouraged farmers poorer than ever.
lower birth rates and smaller families. Some people
even feel that societies should work for zero
population growth (ZPG)”the condition in which
the average number of births and deaths balance.
Others feel efforts to disrupt population growth are Religious beliefs may also stand in the way of
wrong from both moral and religious perspectives. economic development. While almost everyone
realizes that capital investment and new technolo-
gies can help economic growth, some people may
Natural Resources and Geography not be interested for religious reasons. In the
United States, for example, many Mennonites have
Another obstacle to economic growth is limited
long rejected these advances on religious grounds.
natural resources, which includes unproductive
In Asia, most Hindus and Buddhists believe that
land and harsh climates. A shortage of natural and
life is governed by a fate called karma; they believe
energy sources needed for industry also hinder
that people are caught up in an eternal cycle of life,
death, and rebirth. The Hindus believe that the
In some cases, countries with limited natural
eternal cycle can be broken, in part, by purifying
resources can make up for the deficiency by engag-
the mind and body through living a simple and
ing in international trade, as Japan has done.
austere lifestyle. The Buddhists believe that the way
However, if a country is landlocked, trade is much
to break the cycle is to extinguish desire and reject
more difficult. It is no accident that all of the major
the temptations of the material world. Conse-
economic powers today have long had coastal
quently, many Hindus and Buddhists”representing
cities with access to major trade routes.
approximately 20 percent of the world™s popula-
tion”have little motivation to improve their mate-
rial well-being.
Education and Technology The teachings of Catholicism, Protestantism,
and Judaism are much more compatible with the
Still another obstacle to economic development
concept of economic growth and material
is a lack of appropriate education and technology.
improvement, while the Islamic world is in
Many developing countries do not have a highly
between the Christians and the Hindus. We must
literate population nor do they have the high level
realize, however, that some cultures may not be as
of technical skills needed to build an industrial
interested in the Western concept of economic
society. In addition, most do not have money to
growth and development as we imagine.
train engineers and scientists.
Many developing countries cannot afford to pro-
vide free public education for school-age children.
External Debt
In those that can, not everyone is able to take
advantage of it because children must work to help Another major problem facing the developing
feed their families. nations today is the size of their external

debt”money borrowed from foreign banks and majority of Filipinos still lived in poverty. Officials
governments. Some nations have borrowed so later charged that Marcos had stolen at least $500
much they may never be able to repay loans. million from the nation and deposited the money
Today a number of developing countries” in personal Swiss bank accounts.
Bulgaria, Cameroon, the Ivory Coast, Ethiopia, When the Soviet Union began to collapse in
Honduras, Jordan, Madagascar, Syria, and Tanzania” the late 1980s and early 1990s, the Communist
all have external debts larger than their GNP. Sudan party took billions of dollars out of its own
and Zambia have external debts more than twice accounts, government-owned enterprises, and
their GDP, and Angola™s external debt is three times even its own central bank and deposited the
larger than its GDP. money in various Swiss, European, and American
When debts get this large, countries have trouble banks. At the time, the Soviet secret police used a
even paying interest on the loans. As a result, some sophisticated network of trade delegations, central
developing nations have teetered on the brink of bank offices, and even Soviet embassies to move
default, or not repaying borrowed money. Even this the money abroad”money that could have been
strategy is dangerous, however, because a country used to modernize the Russian economy after the
that defaults on its loans may not be able to borrow fall of communism.
War and Its Aftermath
Capital Flight Unfortunately, many of the developing nations
of the world”Angola, Afghanistan, Egypt, Ethiopia,
Another problem for developing nations is
Cambodia, Somalia, and Vietnam to name just a
capital flight”the legal or illegal export of a
few”were the scenes of bloody civil wars in the late
nation™s currency and foreign exchange. Capital
1900s. The immediate impact of war is the devas-
flight occurs because people lose faith in their
tating loss of lives and property, not to mention the
government or in the future of their economy.
damage to the country™s infrastructure.
When capital flight occurs, businesses and even
the government often face a cash shortage. At a
minimum, capital flight limits the funds available
for domestic capital investment.
Even private citizens can contribute to capital
flight. Suppose that someone in Moscow wants to
turn rubles into dollars. First, the person would go
to several banks and purchase traveler™s checks.
Next, the individual would destroy the checks and
then fly to New York. Third, the checks would be
declared as being lost or stolen so that they can be
redeemed in the U.S. for dollars.

Corruption at any level of government is an
obstacle to economic development. Sometimes cor-
ruption takes the form of minor officials requiring
Developing Nations Although enrollment in
modest bribes to get even the smallest things done.
schools, and the literacy rate, are improving in
At other times, corruption occurs on a massive scale.
developing nations, many lack basic educational
When Ferdinand Marcos was president of the
tools. What is the status of free public educa-
Philippines, foreign investors poured billions into tion in developing countries?
the country™s economy. Years later, however, the

The aftermath of war can linger for decades. developing nations with loans so that the countries
Poland lost virtually all of its intelligentsia”its scien- can compete in an open market and attract foreign
tists, engineers, and even most of its merchant investors.
class”to the gas chambers and concentration Another important international lending and
camps in World War II. The loss of this talent con- development agency is the World Bank Group,
tributed to the slow recovery of the Polish econ- more commonly known as the World Bank. The
omy after the war, and even hindered its economic World Bank is an international corporation that
development after the fall of communism. makes loans and provides financial assistance and
The widespread use of chemical weapons and advice to developing countries. The World Bank is
land mines make simple activities like farming owned by IMF member nations, but it operates as
extremely difficult in many areas. Moreover, many a separate organization.
of the people injured by these weapons, such as Recently, the World Bank has undertaken proj-
children playing in fields, were not participants in ects to control the desert locust in East Africa. It
the war in the first place. The weapons of war”as also has funded projects to develop inland water
discussed in the cover story”often impede eco- transportation in Bangladesh, rural transportation
nomic development long after the war is over. systems in Vietnam, and even tax modernization in

International Agencies
The problems of the developing countries
have not gone unnoticed by the more suc-
cessful countries of the world. Two agencies, in par-
ticular, work directly with developing nations to
Student Web Activity Visit the Economics: Principles
solve their problems. and Practices Web site at epp.glencoe.com and click
The International Monetary Fund (IMF) offers on Chapter 19”Student Web Activities for an activ-
advice to all nations on monetary and fiscal poli- ity on the International Monetary Fund.
cies. It also helps support the currency of some

Checking for Understanding Applying Economic Concepts
1. Main Idea Describe what a developing coun- 6. Life Expectancy Explain why an official of a
try is and some of the economic problems it developing nation would have both positive
may experience. and negative views of increasing life
2. Key Terms Define developing country, crude
birthrate, life expectancy, zero population
growth, external debt, default, capital flight,
International Monetary Fund, World Bank.
7. Identifying Alternatives Suppose you are
3. List three reasons why there is concern for an official in charge of economic develop-
the plight of developing countries.
ment in a developing country. Choose the
4. List eight factors that may be obstacles to first two obstacles to economic develop-
economic development. ment that you would address. Then tell
why you would tackle them first.
5. Compare the per capita GNP of Algeria with
that of Argentina. Practice and assess key social studies skills with
the Glencoe Skillbuilder Interactive Workbook,
Level 2.

Opening Doors:
W. Arthur Lewis

Economist Sir W. Arthur Lewis
achieved many firsts. After attend-
ing school in his native St. Lucia,
he earned a scholarship to attend
the London School of Economics
(LSE) where, in 1937, he graduated
first in his class. Soon after, while that an increase in demand will
working on a Ph.D. in economics, leave wages unchanged. His theory
he became the first black to receive been recommended, generalized
explains why countries such as Sri
an assistant lectureship at the LSE. discourtesy, and the rest of it. All
Lanka are still underdeveloped,
In 1979 he became the first black the same, some doors that were
although they have been develop-
to win the Nobel Prize in econom- supposed to be closed opened as I
ing for nearly 100 years.
ics (jointly with Theodore Schultz). approached them. I have got used
Lewis did not claim to have
Lewis™s prize-winning work focused to being the first black to do this or
solved the problems of the develop-
on the economic problems of that, which gets to be more difficult
ing countries. His contributions,
developing nations. as the transition opens up new
however, have made existing eco-
opportunities. Having to be a role
nomic models and theory more
model is a bit of a strain, but I try
INSIGHT INTO DEVELOPING applicable to realistic conditions.
to remember that others are coming
after me, and that whether the door
In particular, Lewis challenged
will be shut in their faces as they
the prevailing view that the supply Lewis explained how he felt
approach will depend to some small
of labor in developing nations is about his illustrious career:
extent on how I conduct myself.”
upward sloping, so that an increase “I had never meant to be an
in the demand for labor results in an economist. . . . What was this eco-
increase in wages. Real wages, noted nomics? I had never heard of it
Lewis, tend to stay at low levels in before, and nobody in St. Lucia
Examining the Profile
many developing nations regardless knew what it was . . . ,” he recalled.
of the increases in demand for labor. “Looking backward . . . I have lived 1. Demonstrating Reasoned
The only solution, he reasoned, is through a period of transition. . . . Judgment Why might an increase in
demand for labor not increase the
that the supply curve for labor has I have been subject to all the usual
wage rate in developing countries?
to be perfectly elastic”or horizon- disabilities”refusal of accommoda-
tal rather than upward sloping”so tions, denial of jobs for which I had 2. Drawing Conclusions What does
Lewis mean by “the usual disabilities”
he faced?

A Framework for Development
Main Idea Key Terms
Economists suggest that developing nations have sev- primitive equilibrium, takeoff
eral ways of achieving their economic growth.
Reading Strategy After studying this section, you will be able to:
1. Explain the stages of economic development.
Graphic Organizer As you read the section, complete
2. Describe the steps industrialized countries can take
a graphic organizer similar to the one below by list-
ing the stages of economic development. Then to help developing countries.
3. Describe the steps developing countries can follow
describe what occurs during each of the stages.
to help themselves.
Economically Applying Economic Concepts
Primitive Equilibrium Have you ever had a day during
which nothing much was attempted and nothing
much got done? Read to find out why this type of
equilibrium is a stage that developing economies
sometimes go through.

Cover Stor y
ecause the problems of the developing
nations are so great, economic development
Easing the Debt Burden is a formidable task. Many approaches have
Leaders from the Group been tried, and others, such as the one described in
COLOGNE, Germany” t the
ns agreed Friday to cu the cover story, have much promise.
of Seven industrial natio
debt burden of the
world™s poorest coun-
Stages of Economic Development
tries in what they
described as a deci-
Some economists have suggested that
sive push to alleviate
developing countries normally pass
President Jacques through several stages on their way to economic
Chirac of France development. Others argue that the process is not
the uniform for all countries. Even so, it is helpful to
mainly for African Market in Burundi think of economic development as occurring in
countries, could total ount could approach stages, even if the boundaries between these
5 billion . . . [but] the am
about $6 itors joined the stages are not always clear-cut.
llion if other cr ed
$90 bi
initiative. worth”would be
loans”about $15 billion
Some Primitive Equilibrium
s would be put in
outright, and mechanism
canceled r other forms of debt
evaluate the countries fo The first stage toward economic development
place to
economic reforms. is primitive equilibrium. It is “primitive” in the
relief, based on future
sense that the society has no formal economic
June 19, 1999
”The New York Times,
organization. An example would be the Inuit of

The fourth stage is semidevelopment. In it, the
Over the next 30 years,
Population Explosion makeup of the country™s economy changes.
almost 98 percent of population growth is projected National income grows faster than population,
to take place in developing countries.
which leads to higher per capita income. At the
same time, the core of the country™s industry is
built. The nation spends heavily on capital invest-
ment, and technological advances are made.
the past century, who shared the spoils of the hunt
with other families in the village.
High Development
A people”or country”in primitive equilibrium
often have no monetary system and may not be The final stage of development is high develop-
economically motivated. No capital investment ment. In this stage, efforts to obtain food, shelter,
takes place, and the society is in equilibrium and clothing are more than successful. Most people
because nothing changes. Rules are handed down have their basic needs and wants met. They turn
from one generation to the next, and culture and their attention to services and consumer goods
tradition direct economic decision making. such as washing machines, refrigerators, and video
The nation no longer emphasizes industrial
production. Instead, it increases services and
provides more public goods. Mature service and
The second stage of economic development is
one of transition. It consists of a break with primi-
tive equilibrium and a move toward economic and
cultural changes. The break may be brief and sud-
den, or it may take years. A country does not grow
economically in this transition stage, but old cus- Peace Corps Volunteer
toms begin to crumble. People begin to question
their traditions, and they try new patterns of living. Are you willing to work for mini-
mal pay in unfamiliar surround-
ings? Are you a dedicated
individual who can work effec-
Takeoff tively with people?
The third stage of development”takeoff”is not
The Work
reached until the barriers of primitive equilibrium
are overcome. A country in the takeoff stage begins Peace Corps volunteers take on
to grow more rapidly than before. One reason is two-year assignments overseas.
They receive eight to 14 weeks of
that customs have been put aside, and people have
training in the history, culture, and
begun to seek new and better ways of doing things.
language of the country in which
Another reason is that the people have begun to
they will serve. Duties include
imitate the new or different techniques that out-
working with the people of the
siders have brought into the country. Still another
host country to improve food production, health care, and
reason is that an industrial nation may be provid-
other basic needs. Salary is an allowance for living costs.
ing financial, educational, or military aid.
Housing, medical care, and transportation are provided.
During the takeoff stage, a country starts to save
and invest more of its national income. New indus- Qualifications
tries grow rapidly, and profits are reinvested in College training is not required, but assignments may be
them. Industry uses new production techniques, made on the basis of the volunteer™s experience and skills.
and agricultural productivity greatly improves. Volunteers must be U.S. citizens and at least 18 years old.

What better way to gain experience than by help-
ing a developing nation get its corporate feet on
“I™m definitely joining to improve my skills
On March 1, 1961, President Kennedy signed an for a better job,” said Beth Atkinson, 22, who
executive order establishing the Peace Corps. recently received a bachelor™s degree in business
Since then, tens of thousands of volunteers have administration from Indiana Wesleyan University.
served in the villages, towns, and cities of more Next month, she heads for Mali in West Africa to
than 130 countries. help craftsmen and entrepreneurs form businesses.
“You hear a lot of talk about global business, and I
In the past, it was easy to spot Peace Corps vol-
thought there™s no better way to go than this,” she
unteers. They wore Birkenstocks and loose-fitting,
gauzy garb. They often had wide-eyed notions of
”The New York Times, July 18, 1999
saving the world. To many of them, “capitalism”
was a four-letter word.
No more. Today™s Peace Corps volunteers”80
Critical Thinking
percent of whom are in their 20s”still want to help
the world, but they also want to help themselves. 1. Analyzing Information According to the
Many volunteers have business degrees and view article, in what way is the Peace Corps
the Peace Corps as a two-year internship, culminat- changing?
ing with a return home to a job with a top company.
2. Understanding Cause and Effect For what
reasons are young people joining the Peace

manufacturing sectors are signs of a highly devel- their increased international trade often includes,
oped economy. and benefits, the developing economies.
Third, the industrialized nations need to provide
more external financing to the developing coun-
Priorities for Industrialized Nations tries. This financing could be direct aid, or it could
be indirect aid to international agencies.
The World Bank has become a powerful force Fourth, the industrial economies need to sup-
in economic development because it often port the economic development of developing
requires that countries actually make market reforms countries. Traditionally, the majority of United
as a condition for obtaining a loan. Because of its States foreign aid has been granted to achieve polit-
considerable experience with developing nations, ical aims. Between one-half and two-thirds of all
the World Bank has a list of recommendations for U.S. foreign aid has been used for military supplies
both developing and industrialized countries. and training, either directly or indirectly.
First, trade barriers, especially nontariff barriers,
need to be reduced or eliminated. The World Bank
has estimated that eliminating trade barriers would
Priorities for the
generate as much as $50 billion annually in export
earnings for the developing countries.
Developing Countries
Second, industrialized countries need to imple-
As mentioned earlier, the World Bank also
ment macroeconomic policies that reduce budget
has a list of recommendations for the devel-
deficits, lower interest rates, and stabilize inflation
oping countries. The developing countries face the
and foreign currency fluctuations. This would help
responsibility for directing their own economic
the economic development of all types of
development and future.
economies. When industrialized economies grow,

First, governments in developing
Investment in People
countries need to invest more in peo-
ple”education, family planning, nutri-
tion, and health care. The wealth of
any nation, as Adam Smith wrote,
resides in the strength and vitality of
its people.
Second, improve the climate of free
enterprise. Many price controls, subsi-
dies, and other regulations that restrict
the free development of markets should
be removed. The World Bank suggests
that competitive markets”not politi-
cians”make the WHAT, HOW, and
FOR WHOM allocation decisions.
Third, open economies to free trade.
Many developing economies have quo-
tas, tariffs, and other barriers that are
used to protect domestic jobs and infant
industries. At the same time, however,
Priorities Investment in basic health care is an important
the trade barriers protect inefficient priority for developing nations. What is the reasoning for
industries and depress a country™s stan- investing in people?
dard of living. Countries that open their
markets to the world will benefit from
inflation, reduce borrowing, and decrease deficits.
comparative advantage and will ultimately develop
Their policies also must allow market incentives
competitive specialties of their own.
such as profits, so that the economies can begin to
Fourth, developing countries, like the industri-
sustain their own growth.
alized ones, need to follow policies that curb

Checking for Understanding Applying Economic Concepts
1. Main Idea Describe the nature of economic 6. Primitive Equilibrium Imagine that a society is
development. Does development happen all in primitive equilibrium”nothing is changing
at once? Explain. internally to begin economic development.
Describe an event that could be a potential
2. Key Terms Define primitive equilibrium,
source of change.
3. List the stages of economic development.
4. Describe what actions industrialized countries
7. Making Inferences The International Bank
can take to help developing countries.
for Reconstruction and Development was
5. Describe recommendations that the World organized near the end of World War II. For
Bank has for developing countries. what purpose do you think it was founded?
Practice and assess key social studies skills with
the Glencoe Skillbuilder Interactive Workbook,
Level 2.

DECEMBER 7, 1998
In 1951 the Indian Institutes of Technology
(IIT) was founded. The school was estab-
lished to produce an educated class to
build dams, bridges, and power plants for
the newly independent country. Today, IIT
graduates are seen as the key to helping
India prosper.

Whiz Kids
Some of the most prominent chief executives,
presidents, entrepreneurs, and inventors in the
world are graduates of IIT, India™s elite institu-
tion of higher learning. Its impossibly high stan- job opportunities in 1998. In the more popular
dards, compelling the mostly male student body computer-science programs, nearly 80% leave for
to average fewer than five hours of sleep a night, Silicon Valley. . . . While IIT does offer graduate
produce [numerous] graduates who are masters programs, students know that an advanced degree
at problem-solving. . . . from a U.S. institution is the entry ticket to an
The rise of IITians, as they are known, is a American or global corporation”and big bucks.
telling example of how global capitalism works . . . The bottom line for students and grads is
today. The best companies draw from around the that India has produced a world-class university at
world, and the result is a global class of worker: the surprisingly little cost. By nurturing the schools,
highly educated, intensely ambitious college grad the government hopes to reap huge rewards as
who seeks out a challenging career, even if it is these grads invest in India and draw it further into
thousands of miles from home. By rising to the the circle of global trade and prosperity.
top of Corporate America, these alumni lead all
”Reprinted from December 7, 1998 issue of Business Week, by special
other Asians in their ability to reach the upper ech- permission, copyright © 1998 by The McGraw-Hill Companies, Inc.
elons of world-class companies. . . .
And the Indian government, to its credit,
Examining the Newsclip
has not tried to keep these first class students at
home. In many ways, the IIT grad is the hottest 1. Understanding Cause and Effect In gen-
export India has ever produced. . . . eral, how has global capitalism affected
. . . Thousands of graduates have [immigrated] today™s college student?
to the U.S., causing the Indian government anxi- 2. Making Predictions Do you think India will
ety over the brain drain of its brightest. A full 30% benefit as IIT graduates move into the global
of the graduating class”over 500 students”headed workplace? Why or why not?
to the U.S. for graduate degrees and better

Financing Economic Development
Main Idea Key Terms
Economists suggest that developing countries can expropriation, soft loan, free-trade area, customs
make progress by encouraging foreign direct invest- union, European Union (EU), euro, ASEAN, cartel,
ment, building human capital, and encouraging population density
regional cooperation.
After studying this section, you will be able to:
Reading Strategy
1. Describe one internal and two external sources
Graphic Organizer As you read the section, complete
of funds for economic development.
a graphic organizer similar to the one below by
2. Explain the role of international lending and
describing what may result if resources are mobilized
developing agencies.
for the wrong reasons.
3. Explain how regional cooperation can assist eco-
nomic growth.
Mobilization of Applying Economic Concepts
resources for
Growth and Development Do you think you would
wrong reasons
buy more products if you didn™t have to pay tariffs?
Read to find out why free-trade areas are helping
developing nations today.

Cover Stor y or a developing country to foster industries in
which it has a comparative advantage, it needs
capital. Funds may be needed, for example, to
Is Dollarization on the Ho provide irrigation for farms or heavy equipment for
l Reserve Chair- mining. Capital is also needed to build roads and
RK (CNNfn)”Federa
ay that “dollariza- highways for bringing products to ports for shipment
Greenspan said Thursd
man Alan might help the
tin American countries to the rest of the world.
tion” by La
Financial capital generally can come from differ-
United States if it
promoted stability in ent sources, but it is always hard to obtain unless the
developing countries have a certain degree of finan-
the region.
Dollarization is cial stability. One interesting attempt to achieve
when another financial stability, as you read in the cover story,
country adopts Salvado involves the potential use of the United States dollar
ran curr
instead of ency
the dollar in place of existing domestic currencies.
its own currency. Co
such a move include
reportedly considering
Mexico, Argentina and El Deputy Treasury Development With Internal Funds
span appeared with
at a Senate Banking
y Lawrence Summers
Secretar that would arise if Internal funds are an important source of
aring to discuss issues
panel he t the dollar as their capital. In many cases, they may be the
untries wanted to adop
other co
only source of capital for a developing country.
own currency.
To generate these internal funds from savings, an
”CNNfn, April 22, 1999
economy must produce more than it consumes.

Savings in a Market Economy
If a developing country is modeled after a mar-
ket economy, the incentive to save stems from the
profit motive. Firms often try to borrow funds for
various projects, and banks charge interest rates on
Brady Bonds Brady bonds provide developing
savings that are set by the forces of supply and nations a way to restructure their sovereign debt
demand. If the demand for money is high, the rate obligations to foreign commercial banks. In a Brady
will rise, and more saving will be encouraged. restructuring, a portion of the developing country™s
Saving, in turn, produces financial capital. debt is forgiven with the balance being exchanged
One economy that developed in this way was for various series of bonds. The maturity of these
Hong Kong. Before reunification with China, gov- new obligations is extended, reducing the country™s
annual debt service requirements. To attract
ernment interfered very little, and people were free
investors, Brady bonds are often backed by U.S.
to pursue almost any economic activity they
Treasury securities and offer investors attractive
desired. By 1997, Hong Kong™s per capita GNP was
about 90 percent of that of the United States, and
more than 40 times greater than China™s.

Savings in a Command Economy might be interested in the country™s natural
Other developing countries, such as Cuba, the resources. This happened in the Middle East with
Dominican Republic, and Uganda, had command its abundance of oil, in Chile with its abundance of
economies at one time or another. However, because copper, and in Asia with its abundance of
the citizens were also poor, they had no ability to mahogany and teakwood.
save on their own. Despite the poverty, their govern- If foreign investments are to work, the arrange-
ments were still able to force savings on the econ- ment must be beneficial to both the investor and
omy. This was done by forcing people to work on the host country. Many investors are unwilling to
farms, roads, or other projects the government take major risks unless they are sure that the devel-
thought were needed for economic development. oping country is politically stable. Developing
Unfortunately, history shows that although com- countries that follow a policy of expropriation”
mand economies can mobilize resources, they do the taking over of foreign property without some
not always use them to promote economic growth. sort of payment in return”make it harder for all
More often, resources are mobilized for political rea- developing nations to attract foreign capital.
sons or personal gain. In addition, nearly all forced Another way to obtain external funds is through
mobilizations fail to instill long-term incentives or borrowing from foreign governments. The United
work ethics in the people. When resources are mobi- States and other industrialized countries, including
lized for the wrong reasons, the cost in personal, eco- Canada and those in Western Europe, grant some
nomic, and political freedoms is higher than most aid to developing countries.
people want to pay. The former Soviet bloc also gave economic assis-
tance to developing countries. More than 50 per-
cent of its aid, however, went to allies such as Cuba,
Development With External Funds Ethiopia, Afghanistan, and Iraq. Like most other
foreign aid, it was given mostly to promote politi-
No matter what system of government a less
cal, rather than economic, ends.
developed country has, it is never easy to
A third way a country can get external financial
develop an economy with internal funds alone.
assistance is by obtaining a loan from an interna-
Therefore, some developing countries try to obtain
tional agency. The International Bank for
external funds. There are three ways they can do this.
Reconstruction and Development”part of the
One way a country can obtain external funds is
World Bank Group”helps developing countries
to attract private funds from foreign investors who

with loans and guarantees of loans from private output”in the world, although the United States has
sources. In the past, many of the loans have been since caught up in terms of GNP. The EU is a single
for projects such as dams, roads, and factories. market because there are no internal barriers regulat-
More recently, loans have been made to develop- ing the flow of workers, financial capital, or goods
ing nations in an effort to get them to change their and services. Citizens of the EU hold common pass-
economic policies. ports, can vote in European elections, and can travel
Another part of the World Bank Group is the anywhere in the EU to work, shop, save, and invest.
International Finance Corporation (IFC), an The final stage of European integration is
agency that invests in private businesses and other scheduled for 2002 when the EU introduces a sin-
enterprises. The International Development gle currency”the euro”to replace the majority of
Association (IDA) makes soft loans”loans that individual national currencies now issued by the
may never be paid back”to the neediest countries. member nations.
The rates on IDA loans are interest-free and may be
for periods of 35 or 40 years.
Countries can also get help from the IMF. After
The economic success of the EU has encouraged
the Berlin Wall came down and the Soviet Union
other nations to try regional cooperation. In 1967
collapsed, a number of former Soviet bloc coun-
five nations”Indonesia, Malaysia, Singapore, the
tries wanted to trade their currencies on global
Philippines, and Thailand”formed the Association
exchanges. The IMF provided loans to help with
for Southeast Asian Nations, or ASEAN.
the conversion. Today, such currencies as the
Today, ASEAN is a ten-nation group working to
Hungarian forint, the Polish zloty, and the Czech
promote regional peace and stability, accelerate
Republic™s koruna are listed on world markets. This
economic growth, and liberalize trade policies in
is important because investors must be able to pur-
order to become a free-trade area by 2008.
chase the currencies of these countries to conduct
international trade with them.
Regional Cooperation
Some countries have joined together to form
a free-trade area”an agreement in which
two or more countries reduce trade barriers and tar-
iffs among themselves. The free-trade area does not
try to set uniform tariffs for nonmembers. Other
countries have formed a customs union”an agree-
ment in which two or more countries abolish tariffs
and trade restrictions among themselves and adopt
uniform tariffs for nonmember countries.

The European Union
The most successful example of regional cooper-
ation in the world today is the European Union
(EU). The EU, formerly known as the European
External Funds This hydroelectric dam is part
Community, started out as a customs union and
of the Uribante-Caparo development in the
now consists of the 15 member nations shown in
Venezuelan Andes. Through what agencies can
Figure 19.2 on page 536.
developing countries borrow money to finance
In January 1993, the EU became the single projects?
largest unified market”in terms of population and

Figure 19.2

15 existing members:
Austria 1955
Belgium 1952
Denmark 1973 Sweden
Finland 1995
France 1952 Finland
Germany 1952
Greece 1981
Ireland 1973 Estonia
Italy 1952 To be considered
Luxembourg 1952 for membership,
Netherlands 1952 2002“2006
Portugal 1986 Czech Republic
Spain 1986 Estonia
Sweden 1995 Hungary
Netherlands Poland
United Kingdom 1973 Germany Poland
Belgium Slovenia
Czech Republic
Austria Hungary
Italy Former
Republics Bulgaria


Reading Maps The 15 members of the European Union currently make up the largest single market
in the world, with more than 370 million people. What are the benefits of membership in the EU?

OPEC most standards. In Iran, revolution interrupted the
development of the domestic economy. After Iraq
A number of oil-producing nations have joined
invaded Kuwait, Iraq suffered huge losses during
to form a cartel”a group of producers or sellers
the Persian Gulf War. Overproduction by OPEC
who agree to limit the production or sale of a prod-
also pushed oil prices down.
uct to control prices. OPEC™s members were able to
take advantage of a natural monopoly and push up
world oil prices. Since it was organized in 1960,
The South Korean Success Story
OPEC has successfully transferred trillions of dol-
lars from the industrialized nations to the OPEC One of the most successful developing
members as a result of higher prices paid for oil. nations is South Korea. In the early 1950s,
Even with all this financial capital, however, the South Korea was one of the poorest nations in Asia.
growth rates of most OPEC nations were low by It had the highest population density”number of

people per square mile of land area” Economic Development
in the world. It also had a war-torn
economy that had to be rebuilt.
The South Korean government
opened its markets to world trade.
In addition, the government
focused only on a few industries
so that its people could gain expe-
rience producing and exporting for
world markets. Businesses in the
South Korean economy first began
to produce inexpensive toys and
consumer goods for the world mar-
ket. Next, they moved into textiles
such as shirts, dresses, and sweaters.
Then they invested in heavy indus-
try, such as shipbuilding and steel
manufacturing. Later, South Korea
produced consumer and electronic
goods such as radios, televisions,
microwave ovens, and home com-
puters. Most recently, the country
has been making a strong bid as
South Korea The Republic of Korea, also know as South
a leading producer of automobiles.
Korea, overcame overwhelming odds to become the second
The South Korean experience
largest economic power in Asia and the eleventh largest in the
shows that a country can change a
world. What plans did South Korea implement to bring about
war-damaged economy to a well- economic growth?
developed, highly industrial one.

Checking for Understanding Applying Economic Concepts
1. Main Idea What can a country do to encour- 6. Growth and Development Provide an example
age economic development? to support the following statement: Economic
growth in developing nations is often slowed
2. Key Terms Define expropriation, soft loan,
by the internal political problems and external
free-trade area, customs union, European
political goals of industrialized nations.
Union (EU), euro, ASEAN, cartel, population
3. Describe one internal and two external
sources of funds for economic development.
7. Drawing Conclusions Developing countries
4. Describe the role of international lending and often need capital from foreign investors.
developing agencies. What economic and political conditions
serve to encourage this kind of investment?
5. Explain how regional cooperation aids
economic growth. Practice and assess key social studies skills with
the Glencoe Skillbuilder Interactive Workbook,
Level 2.

Summarizing Information
Have you ever read something and just a short time later forgotten what it
was all about? Summarizing information”reducing many sentences to just a
few well-chosen phrases”helps you remember the main ideas and important
facts contained in a longer reading selection.

Learning the Skill
To summarize information, follow
these guidelines:
• Your summary should be much
shorter than the reading selection.
• Yoursummary should contain the
main ideas of the reading selection.
• Your summary should not contain
your opinion. It should contain
only the opinion of the person who
wrote the selection.
• Your summary sentences and
phrases should not be copied word
for word from the selection. Write a Memorial sculpture, Hiroshima Peace Park
summary in your own words to be
sure that you understand the main
ideas of the selection.
Western nations to developing countries dropped from 60
percent to 17 percent.
Practicing the Skill
1. What is the main idea of this paragraph?
Read the selection below, then answer
2. What are the supporting details of the main idea?
the questions that follow.
During the 1950s, foreign aid from 3. Write a short summary that will help you remember
industrialized countries was considered absolutely what the paragraph is about.
necessary for the economic growth of developing
nations. European countries and Japan, just
beginning to recover from the massive destruction of
World War II, were unable to provide aid during
Spend fifteen minutes reading and summarizing
that period. The United States, which had helped
two articles on the front page of today™s news-
with Japan™s and Europe™s recovery, provided the
paper. Circle the articles and have a classmate
largest share of aid to developing nations during that ask you questions about them. How much were
decade. When Europe and Japan became richer, the you able to remember after summarizing the
distribution burden shifted. From 1960 to 1990, the information?
United States™s percentage of total aid supplied by the
Practice and assess key social studies skills with the
Glencoe Skillbuilder Interactive Workbook, Level 2.
Section 1 • The World Bank also recommends that the develop-
ing countries themselves invest in people, improve
Economic Development (pages 521“526) the climate for enterprise, open their economies to
international trade, and revise their macroeconomic
• Developing countries have the same problems that policies.
industrialized countries have, only their problems
are much larger.
• Section 3
With more than 1.2
billion people in the
Financing Economic Development
world existing on an
income of less than
(pages 533“537)
$1 a day, concern for
developing countries
• Developing countries need to encourage saving
is humanitarian as to secure a domestic source of investment funds.
well as political. Command economies often try to force saving
• Developing countries by mobilizing resources in a manner that restricts
face numerous obsta- individual freedoms.
cles, including population pressures from high crude
• Attempts to secure capital through expropriation
birthrates and increasing life expectancies. usually backfire because foreign investors become
• A shortage of natural resources, limited education fearful of investing.
and technology, religion, large external debts,
• External funds are sometimes available from foreign
capital flight, corruption, and the aftermath of war governments and banks; the World Bank and the
all add to the problems of developing countries. IMF also provide considerable assistance.
• The IMF and the World Bank are two international
• Some countries have been able to help themselves
agencies that help with development. through regional cooperation in the form of a
free-trade area, or a
customs union such
Section 2 as the European
A Framework for Development • The ten ASEAN
countries are working
(pages 528“531)
to develop a free-trade
• It helps to think of economic development as pro- area by 2008.
ceeding in stages, even if this does not always
• The oil-producing
describe the pattern experienced by every nation. nations also organized
• The stages include primitive equilibrium, breaking a cartel, called OPEC,
with primitive equilibrium, takeoff, semidevelop- to increase the price
ment, and high development. of oil.
• •
The World Bank recommends that developed South Korea is a striking example of a developing
nations reduce trade barriers, reform macroeconomic nation having achieved success: it has developed
policies, increase financial support, and support the from a poor war-torn economy to the eleventh-
policy reforms of the developing countries. largest economy in the world.

9. When _____ takes place, it is harder for developing
nations to attract foreign capital from industrialized
10. The number of people per square mile of land is a
Self-Check Quiz Visit the Economics: Principles
measure of _____ .
and Practices Web site at epp.glencoe.com and
click on Chapter 19”Self-Check Quizzes to pre-

Reviewing the Facts
pare for the chapter test.

Section 1 (pages 521“526)
1. Identify three reasons why industrialized countries
are concerned about the problems of developing
Identifying Key Terms nations.
2. Name the condition in which the average number
Write the key term that best completes the following
of births and deaths are approximately equal.
3. Identify two agencies that help developing
a. population density f. expropriation
b. customs union g. free-trade area
c. primitive equilibrium h. cartel
d. external debt i. crude birthrate Section 2 (pages 528“531)
e. capital flight j. takeoff
4. Describe what happens in a developing country in
the stage of breaking with primitive equilibrium.
1. A(n) _____ is the formal arrangement to limit the
5. Identify four changes that take place in the takeoff
production of a product.
stage of economic development.
2. A cooperative trade arrangement among nations
6. List the four World Bank recommendations for
that does not set uniform tariffs for nonmembers
developing nations.
is called a(n) _____ .
3. A(n) _____ is a cooperative trade arrangement
Section 3 (pages 533“537)
among nations that sets uniform tariffs for
nonmembers. 7. Name three sources of financial capital for
4. A developing country may have a very high _____ ,
contributing to rapid population growth. 8. Explain how a developing country can attract for-
eign capital.
5. When _____ becomes too large, countries have
difficulty paying the interest. 9. List three international agencies that provide funds
for economic development.
6. The least developed stage in economic development
is called _____ .
Thinking Critically
7. The third stage of economic development is the
_____ . 1. Predicting Consequences What do you think
8. The problem of _____ occurs when corrupt offi- would happen if industrialized nations and inter-
cials take money out of the country and deposit national agencies chose to withdraw support for
it abroad. developing nations?

2. Summarizing Information What are the functions is only expected to be 10 percent larger, what will be
of the IMF? Use a graphic organizer similar to the the per capita GNP in 10 years?
one below to help answer the question.

Thinking Like an Economist
of the IMF
What advice would you give a developing nation
that was trying to decide between a command-type
economy and a market-based economy?
3. Demonstrating Reasoned Judgment Would it
be effective policy for the United States to increase
Technology Skill
financial aid to developing nations, regardless of
their internal political conditions or economic Using E-Mail For one week, keep a journal of all the
policies? Explain the reasoning behind your economic problems of developing nations that you
answer. hear reported in the news. List the countries in one
column and their problems in a second column.
4. Making Generalizations Studies indicate that, in
general, landlocked nations tend to have lower per Using the information you collected, write a plan
capita income levels than surrounding nations that detailing how the United States could assist in allevi-
are bordered by oceans and seas. Why do you ating some of the economic problems of a specific
think this is the case? country. E-mail your plan to your local representa-
tive or legislator. Be sure to support your proposal
with statistics, facts, quotes, and historical events.
Applying Economic Concepts
1. Growth and Development How will the eco-
nomic growth and development of developing
countries affect you in the future?
Summarizing Information A summary is a list
2. Primitive Equilibrium Why is it increasingly of the major points or themes of something. To
summarize is to present those points or themes
unlikely that countries in the world today will
briefly and without details. Read the following
remain in the primitive equilibrium stage of
excerpt, then summarize the main points.
economic development?
A problem for many developing countries is a
3. Drawing Conclusions Developing nations often lack of infrastructure. Infrastructure refers to
need capital from foreign investors. What economic the physical developments necessary for effi-
cient production and distribution of goods
and political conditions serve to encourage this
and services. Such things as roads, ports, elec-
kind of investment? tric generators, telephones, and sewers are
considered infrastructure. Without these
things, it is difficult for an economic system
Math Practice to function efficiently. The lack of infrastruc-
ture makes it impossible for such countries to
compete successfully with more developed
Suppose that a small country has a per capita GNP
nations. Building an infrastructure is very
of $20,000 and a population of 1,000,000. How large expensive. Many developing nations cannot
is the total GNP? If population is expected to grow afford to invest in these improvements.
by 20 percent in the next ten years, and if total GNP
Practice and assess key social studies skills with
the Glencoe Skillbuilder Interactive Workbook,
Level 2.

Issues in Free

Issues in Free
Although it may surprise many Americans, child labor is prevalent in many parts of the world
today, especially in developing countries. The estimates vary, but perhaps 200 million children
under the age of 12 work regularly instead of going to school. Sometimes, the children start to
work as soon as they are able; some of the youngest workers are just three years old.
Should the United States take steps to end child labor? Many people answer that question
with a resounding “Yes!” They hold that child labor is immoral. The children, they say, are vir-
tual slaves. Many are treated harshly, even cruelly”forced to work 12-hour days at mind-dulling
yet dangerous tasks. These activists have put forth a variety of proposals aimed at eliminating
child labor throughout the world.
Other people, however, oppose any such action. While deploring any mistreatment of chil-
dren, they emphasize the contexts in which the children live. The cultures in many developing
countries, they point out, support children working, while the state of the economies of these
countries often requires it. Westerners, they say, may oppose child labor, but are in no position
to force their beliefs onto other countries.

As you read the selections, ask yourself: Should the United
States work to abolish child labor in developing countries?

sentiment around its eradication. The sheer magni-
tude of the problem suggests a movement in law
P R O Child Labor Is quite divergent from plain reality. The gross dimen-
sions of the problem provide alarming support for
“Reprehensible” the conclusion that cultural relativism may be pre-
vailing”that local exceptionalism may dominate
over convergent trends.
[There is] an unmistakable trend . . . toward con-
vergence on global condemnation of child labor. . . .
However, . . . global child labor continues to
flourish. The movement toward convergence in law
seems strangely detached from everyday experience.
Because it is illegal almost everywhere, child labor
remains largely a hidden phenomenon, confined to
the back channels and informal sectors of many
economies, including advanced economies. The
simple fact that child labor remains widespread
would seem to belie any convergence of global

But examination of the history of child labor in international conference on
advanced economies brings the argument full cir- child labor. . . .
cle. While it can be argued that use of child labor Americans are finding out
is particular to a nation™s current stage of eco- our lush economy provides
nomic development (a relativist argument), it also luxuries to American families
appears to be true, in the main, that advanced and children not afforded in
nations, always and everywhere, have grown many other countries, particu-
beyond their heavy reliance on child labor and, larly poor ones. Most devel-
thus, every nation should eventually be expected oping countries rely heavily
to do so (a universalist argument). When the on child labor. . . .
debate is shifted in this way, the relevant question In developing countries,
becomes: is heavy reliance on child labor neces- children are considered eco-
sary to economic development? We have shown nomic commodities. Parents
that it is not; that it has always been economically love their children, of course,
inefficient and injurious. . . . but they rely on them to help
Child labor is inappropriate because, first, it is support the family and that
(or will come to be seen as) morally reprehensible is considered normal. As a
and, second, it is economically inefficient and result, the more children a poor family has, the
injurious. Case closed. greater a labor pool it possesses.
Former Pakistani Prime Minister Benazir
”Hugh D. Hindman and Charles G. Smith,
Bhutto once told me that her country, one of the
Journal of Business Ethics
worst offenders, has passed laws that ban child
labor. But every time she would try to enforce
them, hundreds of thousands of parents would
storm her residence. . . .
Every American would tell you our goal is to
“Cultural wipe out child labor completely: to bring develop-
ing nations on par with us economically so they
C O N Interference Is no longer need to make 6-year-olds toil.
But . . . the fear is cultural, not economic,
Not the Answer” extinction. . . .
[W]e™ll just have to learn to watch and worry,
because, as we are just beginning to recognize, cul-
Ah, America! Thy commandeering ways!
tural interference is not the answer.
We, the self-styled world™s policeman, are see-
ing the error in our authoritarianism, our imposi- ”Bonnie Erbe, Journal of Commerce
tion of U.S. values on foreign cultures, our
self-righteous yet mistaken belief that our way is
the best way, indeed, the only way. . . . I™m talking
Analyzing the Issue
about child labor. . . .
1. What are two basic objections that Hindman
Even the previously unbending International
Labor Organization has recognized the validity of and Smith raise against child labor?
not trying to force other cultures to adopt 2. Would Hindman and Smith consider Erbe™s
Western ideals. Several years ago it amended its argument “relativist” or “universalist”?
broad-brush policy against all child labor after Explain.
hearing from children in a variety of cultures at an
3. Do you think the United States should take
steps to end child labor in developing coun-
tries? Explain your position.

In order to accomplish
economic develop-
ment, the nations of the world
have to overcome the problems
that hinder their economic
growth and they must make use
of their resources effectively. To
learn more about the challenges
and opportunities of a global
economy, view the Chapter 27
video lesson:
Global Economic Challenges

Chapter Overview Visit the Economics: Principles
and Practices Web site at epp.glencoe.com and
click on Chapter 20”Chapter Overviews to pre-
view chapter information.

Dish-shaped solar power reflectors
at a solar power station
The Global Demand for Resources
Main Idea Key Terms
Worldwide economic challenges include overpopula- subsistence, nonrenewable resources, embargo,
tion, food shortages, resource depletion, and envi- gasohol, aquifer
ronmental pollution.
Reading Strategy After studying this section, you will be able to:
Graphic Organizer As you read the section, complete 1. Explain Malthus™s views on population growth.
a graphic organizer similar to the one below by 2. Explain the importance of conserving nonrenew-
explaining the difference between renewable and able resources.
nonrenewable energy resources and providing two 3. List ways that people are using renewable energy
examples of each. resources to conserve scarce resources.
4. Identify other resources endangered by population
Renewable Nonrenewable
resources resources
How do they differ? Applying Economic Concepts
Scarcity Have you ever had a water shortage in your
Example Example
area? Read to find out how the price system works to
solve this problem.
Example Example

carcity has been defined as the fundamental
Cover Stor y economic problem. You experience scarcity at
the personal level, and scarcity is also a prob-
Six Billion People on Earth lem at the national level, even for relatively prosper-
ous nations such as the United States. At the global
WA S H I N G T O N level, scarcity reveals itself through food, energy, and
(AP)”Chances are it other resource shortages”all of which are com-
will be a boy born in the pounded as world population grows.
Third World on Oct. 12 The world population has now surpassed 6 billion,
[1999], but no one will
and, as you read in the cover story, the next billion
know exactly which
will be here before long. In many respects, the earth
child pushes the world™s
is a very small planet, and it seems to be getting
population to 6 billion. ed
Earth™s population surpass
smaller every day.
It took most of 6 billion in 1999.
age of humanity y


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