Less Developed Economies - Paper Example

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University of Richmond
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The main characteristics shared by less developed economies include:

a) Under-developed natural resources such as minerals secondary to limited exploration and exploitation

b) High dependence on agriculture with high percentages of the labor force being engaged

c) Lack of basic infrastructure and technology that drive development such as stable banks, reliable and expanded transport systems and big dams to generate water or electricity among others.

d) At the community level, there exists a vicious cycle of poverty (low investment rates-reduced levels of production-low capital-low investment degrees-reduced levels of production-low incomes).

e) Their economies are characterized by low levels of GDP

(Bardhan, 1993)

Question 2

The poverty cycle: when the incomes of the population are low, they spend most money on the necessities and save very little. This means that loanable funds are low and hence investors cannot get adequate funds. Low levels of investment means the general income of the country remains low and the cycle continues.

Political instability: when a countrys authority structure cannot control the distribution of infrastructure and resources, citizens are unable to develop economically due to lack of basic factors of production within their reach.

Capital flight: when investors cease to invest in a country due to various reasons and take their monies to another country, the flow of income to the original country decreases and hence growth is limited.

Inflation: high inflation rates reduce the consumption power of citizens, and hence low savings due to increased consumption. Low savings translate to lowered rates of investment.

Internal and external high debts: when a country borrows from another so as to finance projects, the borrowing country is often at the mercy and under the terms and conditions of the lender, hence limiting their investment scope. Further, the accruing high interest figures mean that the borrower will spend even more money paying of the loan than gaining from the undertaken project.

(Cypher and Dietz, 2008).

Question 3

Regarded as the capability approach, Sen suggests that development is greatly influenced by the authority that individuals have over their lives. For instance, if the citizens of a country have the freedom and right to choose their leaders without influence, then they would elect leaders that are geared towards development. Similarly, if the constitution of a nation allows the citizens to own private property, the citizens of that country would be motivated to invest so as to have enough financial resources to be able to own their own property. It is without question that human beings are the core factor of production, and therefore if given the power through human rights and freedoms, they will hugely influence progress, both economical and non-economical. Progress translates to reduced poverty levels and improved economic level of a country (Sen, 1988).


Bardhan, P. (1993). Economics of Development and the Development of Economics. The Journal of Economic Perspectives, 7(2), 129-142.

Cypher, J. M., & Dietz, J. L. (2008). The process of economic development. Routledge.

Sen, A. (1988). The concept of development. Handbook of development economics, 1, 9-26.



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