[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

Review and Practice
SUMMARY
1. In less-developed countries, or LDCs, life expectancies
are usually shorter, infant mortality is higher, and people
are less educated than in developed countries. Also, a
larger fraction of the population lives in rural areas, and
population growth rates are higher.
2. In recent years, newly industrialized countries (NICs)
such as South Korea, Singapore, Hong Kong, and
Taiwan have managed to improve their economic status
dramatically. Other LDCs, like India, have expanded
food production considerably. But the standard of living
in some of the poorest LDCs, such as many African
nations, has actually been declining, as population
growth has outstripped economic growth.
3. Among the factors contributing to underdevelopment
are lack of physical capital, lack of education, lack of
technology, and lack of developed capital markets. The
factors interact: low education levels impede the transfer
of advanced technology; low incomes make it difficult
to invest heavily in education.
4. The success of the countries of East Asia is based partially
on activist government policies. These include
helping to develop and use markets rather than replacing
them; maintaining macroeconomic stability;
promoting high levels of investment (including in public
infrastructure) and saving; providing strong support
for education, including the education of women;
improving capital markets, which facilitate an efficient
allocation of scarce capital; promoting exports; fostering
equality; and promoting technology. The policies of
these countries helped to create a positive investment
climate (including for foreign investors) and to reduce
population growth.
5. Under communism, the state was responsible for all production:
central planners decided what to produce, how
it was to be produced, and for whom it was to be produced.
While there were some successes, especially in
the system’s early decades, eventually the lack of incentives,
the central planners’ lack of information, and the
distortions that were rife in the system took their toll.
6. The transition to a market economy has not been easy.
In most countries, output fell markedly and poverty
increased markedly. A few countries fared well.
7. After more than ten years of transition, it now appears
that the countries that rapidly brought inflation down
to moderate levels, then took a more gradual approach
to broader reforms—with greater emphasis on creating
an institutional infrastructure, creating jobs and new
enterprises, and creating competition—have done
better than those that adopted a more wholesale, shock
therapy approach.
KEY TERMS
less-developed countries (LDCs)
developed countries
industrialized countries
newly industrialized countries (NICs)
green revolution
sharecropping
land reform
dual economies
surplus of labor
export-led growth
globalization
outsourcing
central planning
REVIEW QUESTIONS
1. List some important ways in which LDCs differ
from more-developed countries. How have different
developing countries fared over recent decades?
2. What are the most important factors inhibiting growth
in the LDCs? Why is capital shortage alone not the most
important factor? How do some of the factors interact
with each other?
3. How does rapid population growth make it more difficult
for a country’s standard of living to increase?
4. What are some of the factors that contributed to the
East Asian miracle?
5. Why might fostering equality promote economic
growth?
814 ∂ CHAPTER 36 DEVELOPMENT AND TRANSITION