A national and international perspective is needed to understand the phenomenon of underdevelopment. It is important to recognize that the causes and potential solutions of problems such as poverty, low productivity, population growth, unemployment, and reliance on primary product exports originate both domestically and globally. The poor, inequity, and low productivity that characterize most developing countries are the result of economic and social forces, both internal and external.
In order to achieve economic and social development, developing countries must develop appropriate strategies, while the present international economic order must be modified to make it more responsive to the development needs of poor nations . Following are eight critical components of developing economics.
Structural Diversities in Developing Countries
1) The Size of the Country (Geographic Area, Population and Income)
The physical size and population of a country, as well as its level of national income and per capita income, determine its economic potential and distinguish one developing country from another. It is common for large countries to benefit from diverse resources, large potential markets, and a lesser reliance on foreign sources for materials and products. Administrative control, national cohesion, and regional imbalance are also affected. Inequality or equality in income distribution does not necessarily correlate with a country’s size, per capita national income, or distribution of income.
2) Its Historical and Colonial Background
Colonial background nations have typically modeled their economic structures, as well as their educational and social institutions, on those of their colonial rulers. The economies and political structures of newly independent nations like those in Africa are more likely to be consolidated and evolved than simply promoted for rapid economic growth.
3) Physical and Human Resources
A country’s ability to grow economically depends heavily on the endowment of its physical resources (land, minerals, and other raw materials) and human resources (numbers of people and their level of education). The Persian Gulf oil states are an extreme example of favorable physical resource endowment. Climate and geography can also play a significant role in the success or failure of a development project.
It is not only the number of people and their skill level that matter when it comes to human capital endowments, but also their cultural outlooks, attitudes toward work, access to information, and willingness to innovate, as well as their desire to improve themselves. Human resources play an important role in determining a country’s economic structure, and they differ from region to region.
4) Ethnic and Religious Composition
The success of failures or development efforts is often influenced by ethnicity and religion. Political instability and ethnic strife are more likely to occur in countries with greater ethnic and religious diversity. There are more than five significant ethnic groups in more than 40% of world nations today. Most of these groups experience discrimination in some form. Development success or failure can depend on the ethnic and religious composition of a developing nation and whether or not that diversity leads to conflict or cooperation.
5) Relative Importance of the Public and Private Sectors
There is a mixture of public and private ownership and use of resources in most developing countries. Historical and political circumstances play a major role in determining the relative importance of two entities. In countries with a large foreign-owned private sector, there are usually both opportunities and problems not found in countries with a smaller number of foreign investors. A country with a large public sector will naturally have different economic policies than one with a large private sector, such as those that aim to promote more employment.
Direct government investment and large rural works programs will take precedence in economics dominated by the public sector, whereas special tax allowances may be more common in economies where the private sector is emphasized. In developing countries, corruption varies widely and may affect both the size of the public sector and how privatization programs are designed.
6) Industrial Structure
Development nations differ most in the relative importance of agriculture, manufacturing, and services. As a result of their longer history of independence and generally higher levels of national income, Latin American countries have more advanced industrial sectors than African and South Asian nations. Taiwan, South Korea, and Singapore, among others, have rapidly become industrialized states in the 70s and 80s as a result of their accelerated manufacturing growth.
It is important to note that despite common problems, development strategies can vary from one country to another based on the nature, structure, and degree of interdependence among its primary, secondary, and tertiary industrial sectors. Agricultural, forestry, and fishing are the primary sectors; manufacturing is the secondary sector; and commerce, finance, transport, and services are the tertiary sectors.
7) External Dependence on Economic, Political and Cultural Forces
Size, resource endowment, and political history all influence the degree to which a country is dependent on foreign economic, social, and political forces. International investment and trade with developed nations are highly dependent on small nations. Foreign and often excessively capital-intensive technologies of production are imported into almost all small nations. Dependence on external forces and other external factors significantly affects a country’s ability to chart its own economic and social destiny.
8) Political Structure: Power and Interest Groups
It is the political structure, as well as the vested interests and allegiances of ruling elites (e.g. large landowners) that determine the strategies available, as well as the main obstacles to economic and social change. The decision-makers are typically urban industrialists, bankers, foreign manufacturers, the military, and unionists. There is a greater degree of control by small, powerful elites in developing countries than in developed ones.
The development of a nation will often not be possible without corresponding changes in its social, political, and economic institutions (e.g., land tenure systems, governance forms, educational structures, labour market relationships, property rights, control and distribution of physical and financial assets, taxation and inheritance laws, credit provision).