INTRODUCTION TO ECONOMICS CETERIS PARIBUS

ECONOMICS AS A SOCIAL SCIENCE Latin for "holding other things constant."

Social Science is, in its broadest sense, the study of The assumption that all other things remain equal. A
society and the manner in which people behave and dominant assumption in mainstream economic thinking,
influence the world around us. it acts as a shorthand indication of the effect of one
economic variable on another, provided all other
a. Economics and Development Studies variables remain the same.
b. Sociology and Anthropology MICROECONOMICS
c. History Focuses on how individual consumers and producers
d. Archaeology make their decisions. This includes a single person, a
household, a business, or a governmental organization.
e. Human Geography Studies the implications of individual human action,
specifically about how those decisions affect the
f. Law and Criminology
utilization and distribution of scarce resources. It shows
g. Education how and why different goods have different values, how
individuals make more efficient or more productive
h. Linguistics and Translation Studies decisions, and how individuals best coordinate and
cooperate with one another.
i. Political Science
MACROECONOMICS
j. Media and Communication
Studies the overall economy. This can include a distinct
k. Cultural Studies
geographical region, a country, a continent or even the
l. International Relations whole world. Topics studied include
government fiscal and monetary policy, unemployment
m. Philosophy rates, growth as reflected by changes in the Gross
n. Psychology Domestic Product (GDP) and business cycles that result
in expansion, booms, recessions and depressions.
o. Business and Management
THE ECONOMIC PROBLEM
ECONOMICS
Adam Smith (1723-1790)
Economics is a social science concerned with
the production, distribution and consumption of goods "Father of Modern Economics"
and services. Adam Smith published "An Inquiry into the Nature and
It talks about the theories, principles and models that Causes of the Wealth of the Nations" in 1776. This book is
deal with how the market process works. It attempts to one of the earliest known compilation of economic
explain how wealth is created and distributed in concepts, and is regarded as the "Bible of Capitalism."
communities. "Unlimited Wants, Limited Means." The economic
Economics attempts to explain economic behavior, which problem exists because, although the needs and wants of
arises when scarce resources are exchanged. people are endless, the resources available to satisfy
needs and wants are limited. Scarcity is one of the
Economic Methodology is the study of how economics fundamental issues in economics. The issue of scarcity
functions, how it could function, and how it should means we have to decide how and what to produce from
function, and of the various presuppositions and limited resources. It means there is a constant
conditions of all these. opportunity cost involved in making economic decisions.

Economics assumes that human behavior reflects WE CAN'T HAVE IT ALL!

"Rational Self-Interest. Individuals look for and pursue
opportunities to increase their utility. Utility is the Economizing problem is all about choice. We must decide
pleasure, happiness, or satisfaction obtained from what we will have and what we will forego. There is a
consuming a good or a service. need to make choices because economic wants exceed
economic means.
Trade-off is the concept wherein choosing more of one made by the government and there is no free market at
thing can only be achieved by giving up something else in play.
exchange.
Economies that have access to large amounts of valuable
Making an economic choice creates a sacrifice because resources are especially prone to establish a command
alternatives must be given up, which results in the loss of economic system. In those cases the government steps in
benefit that the alternative would have provided. The loss to regulate the resources and most processes
of the next best option represents the real sacrifice and is surrounding them. In practice, the centralized control
referred to as Opportunity Cost. aspect usually only covers the most valuable resources
within the economy (e.g. oil, gold). Other parts, such as
SOLVING THE ECONOMIC PROBLEM agriculture are often left to be regulated by the general
Paul Samuelson (1915-2009) population.

First American to win the Nobel Prize in Economics Laissez-faire is French for "allow them to do." This
approach was proposed by Adam Smith in The Wealth of
According to Paul Samuelson, in order to help solve the the Nations, with the introduction of the Invisible
problem of scarcity all societies, no matter how big or Hand concept.
small, developed or not, we must endeavor to answer
three basic questions... A laissez-faire economic system relies on free markets
and does not allow any kind of government involvement
What to produce? in the economy. In this system, the government does not
control any resources or other relevant economic
How to produce?
segments. Instead, the entire system is regulated by the
For whom to produce? people and the law of supply and demand.

THE PRODUCTION POSSIBILITY FRONTIER (PPF) The laissez-faire economic system is a theoretical
concept. That means, there is no real example of a pure
Represents the point at which a country’s economy is market economy in the real world. The reason for this is
most efficiently producing its goods and services and, that all economies we know of show characteristics of at
therefore, allocating its resources in the best way least some kind of government interference.
possible. If the economy is producing less than the
quantities indicated by the PPF, this is a sign that A mixed economic system refers to any kind of mixture
resources are not being used to their full potential. of a market and a command economic system. It is
sometimes also referred to as a dual economy. Although
THE MARKET SYSTEMS there is no clear-cut definition of a mixed economic
system, in most cases the term is used to describe market
A traditional economic system focuses exclusively
economies with a strong regulatory oversight and
on goods and services that are directly related to its
government control in specific areas (e.g. public goods
beliefs, customs, and traditions. It relies heavily on
and services).
individuals and doesn’t usually show a significant degree
of specialization and division of labor. In other words, Most western economies nowadays are considered mixed
traditional economic systems are the most basic and economies. Most industries in those systems are privately
ancient type of economies. owned whereas a small number of public utilities and
services remain in government control. Thus, neither the
Large parts of the world still qualify as traditional
private nor the government sector alone can maintain the
economies. Especially rural areas of second- or third-
economy, both play a critical part in the success of the
world countries, where most economic activity revolves
system.
around farming and other traditional activities. These
economies often suffer from a lack of resources. Either THE LAW OF DEMAND
because those resources don’t naturally occur in the
region or because access to them is highly restricted by The law of demand is a microeconomic law that states,
other, more powerful economies. ceteris paribus, as the price of a good or service
increases, consumer demand for the good or service will
A command economic system is characterized by a decrease, and vice versa.
dominant centralized power (usually the government)
that controls a large part of all economic activity. This Demand is the amount of some product that a consumer
type of economy is most commonly found in communist is willing and able to purchase at each price.
countries. It is sometimes also referred to as a planned
economic system, because most production decisions are
The law of demand says that the higher the price, the Price ceilings and floors prevent a price from rising above
lower the quantity demanded, because or falling below a certain level.
consumers’ opportunity cost to acquire that good or
service increases, and they must make more tradeoffs to MARKET SATURATION
acquire the more expensive product. Market saturation is a situation that arises when the
THE LAW OF DIMINISHING MARGINAL UTILITY volume of a product or service in a marketplace has been
maximized. Growth can be achieved through product
Focused on the Demand side. Ceteres paribus, as improvements or through products being designed to
consumption of one thing increases, marginal utility wear down.
derived from each additional unit declines.

FACTORS AFFECTING DEMAND OUTSIDE OF CETERIS

PARIBUS ECONOMICS AND DEVELOPMENT

INCOME | UNEMPLOYMENT RATES | CHANGING TASTES THE SCIENCE OF MACROECONMICS

| CHANGING DEMOGRAPHICS | CHANGES IN THE PRICES Microeconomics is the study of how households and
OF RELATED GOODS AND SERVICES | CHANGES IN firms make decisions and how these decision makers
EXPECTATIONS ABOUT FUTURE PRICES AND EVENTS interact in the marketplace. A central principle of
THE LAW OF SUPPLY microeconomics is that households and firms optimize —
they do the best they can for themselves, given their
The law of supply is the microeconomic law that states objectives and the constraints they face. In
that, ceteris paribus, as the price of a good or service microeconomic models, households choose their
increases, the quantity of goods or services that suppliers purchases to maximize their level of satisfaction, called
offer will increase, and vice versa. utility, and firms make production decisions to maximize
their profits.
Unlike demand, supply refers to the willingness of a
seller to sell the specified amount of a product within a Macroeconomics is concerned with the overall economy.
particular price and time.
Because economy-wide events arise from the interaction
THE LAW OF DIMINISHING MARGINAL RETURN of many households and firms, macroeconomics and
microeconomics are inextricably linked. When we study
Focused on the Supply side. Ceteris paribus, if one factor the economy as a whole, we must consider the decisions
of production is increased while other factors are held of individual economic actors.
constant, the marginal output per unit will eventually
diminish. EVERYTHING IS DATA!

FACTORS AFFECTING SUPPLY OUTSIDE OF CETERIS Scientists, economists, and detectives have much in
PARIBUS common: they all want to figure out what’s going on in
the world around them. To do this, they rely on theory
COST OF PRODUCTION | NATURAL CONDITIONS | and observation. They build theories to try to make sense
TECHNOLOGY | TRANSPORT CONDITIONS | of what they see happening. They then turn to more
GOVERNMENT REGULATIONS AND POLICIES | PRICES systematic observation to judge the theories’ validity.
OF RELATED GOODS Only when theory and evidence come into line do they
EQUILIBRIUM feel they understand the situation.

Economic theory suggests that, in a free market there will Casual observation is one source of information about
be a single price which brings demand and supply into what’s happening in the economy. When you go shopping,
balance, called equilibrium price. you notice whether prices are rising, falling, or staying
the same. When you look for a job, you learn whether
If the price exceeds the equilibrium price, firms are hiring. Every day, as we go about our lives, we
a surplus occurs. participate in some aspect of the economy and get some
sense of economic conditions.
If the price is below the equilibrium price,
a shortage occurs. Today, economic data offer a systematic and objective
source of information, and almost every day you can hear
PRICE CEILING AND PRICE FLOOR
or read a story about some newly released statistic.
Legally mandated maximum and minimum price.
Most of these statistics are produced by the government. promote the standard of living and economic health of a
Various government agencies survey households and specific area. Economic development may be defined as a
firms to learn about their economic activity — how much selective attack on the worst forms of poverty. It implies
they are earning, what they are buying, whether they the process of higher level of productivity in different
have a job or are looking for work, what prices they are sectors of the economy. It is a process of stepping up the
charging, how much they are producing, and so on. From rate of capital formation that is needed for rapid capital
these surveys, the agencies compute various statistics development.
that summarize the state of the economy. Economists use
these statistics to study the economy; policymakers use Economic Development
them to monitor developments and formulate policies. ➢ Economic Factors
Governments and economic analysts all over the world - Traditional Approach
use three different statistics to implement economic - Growing Economy Approach
policies that could help their economies progress: ➢ Non-Economic Factors

GDP, tells us the nation’s total income and the total ECONOMIC DEVELOPMENT
expenditure on its output of goods and services. The Traditional Approaches to economic development
consumer price index, or CPI, measures the level of policies have been developed from the perspective of
prices. The unemployment rate tells us the fraction of what was necessary to attract and keep businesses in
workers who are unemployed. local communities. This approach defines development
WHAT ACTUALLY IS DEVELOPMENT? strictly in economic terms. In the past, economic
development was regarded as an increase in real GDP
Development is a process that creates growth, progress, over a long period of time. A long run expansion in
positive change or the addition of physical, economic, production was to be achieved by rapid industrialization
environmental, social and demographic components. The of the country at the expense of rural development. The
purpose of development is a rise in the level and quality growth development at that time mainly meant a growth
of life of the population, and the creation or expansion of of material production. Traditional Approach thus
local regional income and employment opportunities, implies a sustained annual increase in GDP or GNP.
without damaging the resources of the environment.
Development is visible and useful, not necessarily Growing Economy Approach, on the other hand, defines
immediately, and includes an aspect of quality change development including improvements in material welfare
and the creation of conditions for a continuation of that especially for persons with the lowest income and
change. eradication of mass poverty with the availability of
resources and their distribution. In this approach, human
The international agenda began to focus on development resources are at the core of economic development.
beginning in the second half of the twentieth century. An
understanding developed that economic growth did not The non-economic factors are those factors present in
necessarily lead to a rise in the level and quality of life for society which have no direct effect in the economy of a
populations all over the world; there was a need to place country. The non-economic factors relate to sociocultural
an emphasis on specific policies that would channel and political changes in society which either lead to
resources and enable social and economic mobility for economic growth or serves as a hindrance to growth. (e.g.
various layers of the population. religion, culture, social activities, uprisings.)

WHAT ACTUALLY IS DEVELOPMENT? It is also necessary to understand the concept of

underdevelopment while studying development. This
“Development” as a long-term process of structural takes place when resources are not used to their full
societal transformation. socio-economic capabilities or potential. Thus, it results
in local or regional development at a slower pace than it
“Development” as a short-term-to-medium term should be.
outcomes of desirable targets
Underdevelopment is also caused by the coexistence of
“Development” as a dominant discourse of western unutilized and underutilized manpower and exploited
modernity and unknown resources.
ECONOMIC DEVELOPMENT Among underdeveloped economies, countries with a high
Economic development generally refers to the sustained, rate of development are called developing countries.
concerted actions of policymakers and communities that
THE GROSS DOMESTIC PRODUCT (GDP) THE CONSUMER PRICE INDEX (CPI)

An estimated value of the total worth of a country’s The Consumer Price Index is a measure that examines
production and services, within its boundary, by its the weighted average of prices of a basket of consumer
nationals and foreigners, calculated usually over the goods and services. Changes in the CPI are used to assess
course on one year. It is the total worth estimated in price changes associated with the cost of living; the CPI is
currency values of a nation’s production in a given year, one of the most frequently used statistics for identifying
including service sector, research, and development. That periods of inflation or deflation. It is calculated by
translates to a sum of all industrial production, taking price changes for each item in the
work, sales, business and service sector activity in the predetermined basket of goods and averaging them.
country.
Basket of goods refers to a relatively fixed set of
GDP enables policymakers and central banks to judge consumer products and services valued on an annual
whether the economy is contracting or expanding, basis and used to track inflation in a specific market or
whether it needs a boost or restraint, and if a threat such country. How should economists aggregate the many
as a recession or inflation looms on the horizon. GDP is prices in the economy into a single index that reliably
the primary measure for identifying and measuring measures the price level? They could simply compute an
phases of the country's business cycle, such as recession average of all prices. But this approach would treat all
and expansion. goods and services equally.

GDP ≠ GNP CPI = (Q x New Price of Good in the same basket) + (Q

x New Price of Good in the same basket)
GNP is an estimated value of the total worth of
production and services, by citizens of a country, on its (Q x Base Price of Good in the same basket) + (Q x
land or on foreign land. Base Price of Good in the same basket)

NOMINAL AND REAL GDP CPI AND INFLATION

When the GDP is estimated at current prices, it exhibits Inflation is defined as a sustained increase in the general
Nominal GDP. The nominal GDP is the value of all the final level of prices for goods and services in a country, and is
goods and services that an economy produced during a measured as an annual percentage change. Under
given year. It is calculated by using the prices that are conditions of inflation, the prices of things rise over time.
current in the year in which the output is produced. Put differently, as inflation rises, every peso you own
buys a smaller percentage of a good or service. When
Real GDP is when the estimation is made at constant prices rise, and alternatively when the value of money
prices. The real GDP is the total value of all of the final falls you have inflation.
goods and services that an economy produces during a
given year, accounting for inflation. Computing for Inflation Rates:

Real GDP per Capita is a measurement of the total Year 2 CPI - Year 1 CPI = n
economic output of a country divided by the number of
people and adjusted for inflation. It's used to compare the Inflation Rate = 100 x n/Year 1 CPI
standard of living between countries and over time. CPI AND INFLATION
Real GDP per Capita = Real GDP/Population WHAT CAUSES INFLATION?
THE GOSS NATIONAL INCOME (GNI) There is no single theory for the cause of inflation that is
Gross national income is a measurement of a country's universally agreed upon by economists and academics,
income. It includes all the income earned by a country's but there are a few hypotheses that are commonly
residents and businesses, including those earned abroad. held. Take note that inflation does not apply to the price
level of just one good, but rather to how prices are doing
GNI per capita is a measurement of income divided by the overall.
number of people in the country.
Demand-Pull Inflation – is caused by the overall increase
The World Bank provides this information. The value is in demand for goods and services, which bids up their
converted to US Dollars. prices. This theory can be summarized as "too much
money chasing too few goods”. If demand is growing
faster than supply, prices will increase. This usually
occurs in rapidly growing economies.
Cost-Push Inflation – caused when companies' costs of Examples include stay-at-home parents, the retired, or
production go up. When this happens, they need to students.
increase prices to maintain their profit margins.
Increased costs can include things such as wages, taxes, Computing for Unemployment Rates:
or increased costs of natural resources or imports. Unemployment Rate = 100 x Unemployed /Labor
Monetary Inflation – Inflation is caused by an oversupply Force
of money in the economy. Just like any other commodity, KINDS OF UNEMPLOYMENT
the prices of things are determined by their supply and
demand. If there is too much supply, the price of that Frictional unemployment arises when a person is in-
thing goes down. between jobs. After a person leaves a company, it
naturally takes time to find another job, making this type
OTHER EVENTS RELATED TO INFLATION of unemployment short-lived. It is also the least
Disinflation is a condition where inflation is still positive, problematic from an economic standpoint.
but the rate of inflation is decreasing – for example from Cyclical unemployment comes around due to the business
+3% to +2%. cycle itself. Cyclical unemployment rises during
Hyperinflation is unusually rapid inflation, typically more recessionary periods and declines during periods of
than 50% in a single month. In extreme cases, this economic growth. Cyclical unemployment tends to create
inflation gone awry can lead to the breakdown of a more unemployment. This is because the laid-off workers
nation's monetary system or even its economy. have less money to buy the things they need, further
lowering demand.
Stagflation is a condition of slow economic growth and
relatively high unemployment – economic stagnation – Structural unemployment comes about through
accompanied by rising prices, or inflation, or inflation technological advances, or when people lose their jobs
and a decline in Gross Domestic Product (GDP). because their skills are outdated.

Deflation is when the general level of prices are falling. It Seasonal unemployment results from regular changes in
is the opposite effect of inflation. Deflation tends to occur the season. (e.g. Ski Instructors, resort workers)
more rarely and for shorter periods of time than inflation. Classical Unemployment happens when wages are higher
Deflation occurs typically during times of recession or than the laws of supply and demand would normally
economic crisis and can lead to deep economic crises dictate.
including depression, which then causes a deflationary
spiral. Underemployment - Underemployed workers have jobs,
but they aren't working to their full capacity or skill level.
The reason for this is the so-called deflationary spiral:
when prices are going down, why would you spend your
money today, when each dollar will be more valuable
THE DEVELOPING COUNTRIES
tomorrow? And why spend tomorrow when each dollar
can buy more the day after? THE CHARACTERISTICS OF THE DEVELOPING
COUNTRIES

STANDARD OF LIVING
UNEMPLOYMENT
STANDARD OF LIVING REFERS TO THE LEVEL OF
Unemployment is a phenomenon that occurs when a
WEALTH, COMFORT, MATERIAL GOODS, AND
person who is actively searching for employment is
NECESSITIES AVAILABLE TO A CERTAIN
unable to find work. Unemployment is often used as a
SOCIOECONOMIC CLASS OR GEOGRAPHIC AREA.
measure of the health of the economy. The most
STANDARD OF LIVING IS A COMPARISON TOOL USED
frequented measure of unemployment is the
WHEN DESCRIBING TWO DIFFERENT GEOGRAPHIC
unemployment rate, which is the number of unemployed
AREAS. METRICS MAY INCLUDE THINGS LIKE WEALTH
people divided by the number of people in the labor
LEVELS, COMFORT, GOODS, AND NECESSITIES THAT ARE
force.
AVAILABLE TO PEOPLE OF DIFFERENT SOCIOECONOMIC
Labor Force is the number of people in a country who CLASSES IN THOSE AREAS. THE STANDARD OF LIVING IS
are employed plus the unemployed. Not everyone who is MEASURED BY THINGS THAT ARE EASILY QUANTIFIED,
jobless is automatically counted as unemployed. Many SUCH AS INCOME, EMPLOYMENT OPPORTUNITIES, COST
are jobless by choice and aren't looking for work. OF GOODS AND SERVICES, AND POVERTY.
STANDARD OF LIVING OF LIFE CAN INCLUDE CONDITIONS IN THE
WORKPLACE, HEALTHCARE, EDUCATION, AND
CLASS DISPARITY MATERIAL LIVING CONDITIONS.
POVERTY RATE
QUALITY AND AFFORDABILITY OF HOUSING FACTORS CONTRIBUTING TO LOW STANDARD OF
HOURS OF WORK REQUIRED TO PURCHASE LIVING
NECESSITIES
GROSS DOMESTIC PRODUCT (GDP) FACTORS THAT CAN CONTRIBUTE TO A LOW LIVING
AFFORDABLE ACCESS TO QUALITY HEALTHCARE STANDARDS INCLUDE LACK OF ADEQUATE INDUSTRY IN
QUALITY AND AVAILABILITY OF EDUCATION A PARTICULAR AREA, LACK OF JOBS, INSUFFICIENT
INCIDENCE OF DISEASE HEALTH CARE SERVICES, LACK OF PUBLIC
INFRASTRUCTURE TRANSPORTATION, LACK OF FOOD OR WATER,
NATIONAL ECONOMIC GROWTH ECONOMIC GOVERNMENT OPPRESSION, AND MANY MORE
AND POLITICAL STABILITY POLITICAL AND FACTORS.
RELIGIOUS FREEDOM ENVIRONMENTAL QUALITY THE LIFE EXPECTANCY OF A PARTICULAR SEGMENT OF
CLIMATE SOCIETY MAY ALSO CONTRIBUTE TO A LOW STANDARD
SAFETY OF LIVING. PEOPLE WHO HAVE LESS ACCESS TO
HUMAN DEVELOPMENTINDEX (HDI) QUALITY FOODS AND CLEAN HOMES, CITIES, AND
COUNTRIES GENERALLY DIE EARLIER THAN PEOPLE IN
THE HUMAN DEVELOPMENT INDEX (HDI) IS A MORE DEVELOPED AREAS THAT OFFER GOOD FOOD
STATISTIC DEVELOPED AND COMPILED BY THE UNITED AND CLEANLINESS.
NATIONS TO MEASURE VARIOUS COUNTRIES’ LEVELS
OF SOCIAL AND ECONOMIC DEVELOPMENT. IT IS PEOPLE IN THESE POORER AREAS ALSO TEND TO BE
COMPOSED OF FOUR PRINCIPAL AREAS OF INTEREST: LESS SATISFIED WITH THEIR LIVES, WHICH CAN
MEAN YEARS OF SCHOOLING, EXPECTED YEARS OF CONTRIBUTE TO INCREASED MORBIDITY. CRIME RATES
SCHOOLING, LIFE EXPECTANCY AT BIRTH, AND GROSS CAN BEGIN TO RISE, FURTHER EXACERBATING THE
NATIONAL INCOME (GNI) PER CAPITA. THIS INDEX IS A LOW STANDARD OF LIVING IN AN AREA AND
TOOL USED TO FOLLOW CHANGES IN DEVELOPMENT POTENTIALLY LEADING TO AN INCREASE IN
LEVELS OVER TIME AND COMPARE THE DEVELOPMENT MORTALITY RATES. LACK OF PUBLIC SERVICES SUCH AS
LEVELS OF DIFFERENT COUNTRIES. POLICE AND FIRE CREWS CAN PERPETUATE THE HIGH
CRIME RATES AS WELL.
THE HDI WAS ESTABLISHED TO PLACE EMPHASIS ON
INDIVIDUALS' OPPORTUNITIES TO REALIZE SATISFYING SUCH POVERTY AND HIGH CRIME RATES CAN BE
WORK AND LIVES. EVALUATING A COUNTRY’S CAUSED BY SEVERAL FACTORS, INCLUDING
POTENTIAL FOR INDIVIDUAL HUMAN DEVELOPMENT GOVERNMENT CORRUPTION, LACK OF FUNDING FOR
PROVIDES A SUPPLEMENTARY METRIC FOR BASIC PUBLIC SERVICES, OCCURRENCE OF NATURAL
EVALUATING A COUNTRY’S LEVEL OF DEVELOPMENT DISASTERS SUCH AS DROUGHTS, FLOODS, AND
BESIDES CONSIDERING STANDARD ECONOMIC GROWTH HURRICANES, OR ISOLATION FROM OTHER SOCIETIES.
STATISTICS, SUCH AS GDP. THIS INDEX ALSO CAN BE CORRUPT GOVERNMENTS EXIST THROUGHOUT THE
USED TO EXAMINE THE VARIOUS POLICY CHOICES OF WORLD, AND THE GENERAL POPULACE OF THAT
NATIONS; IF, FOR EXAMPLE, TWO COUNTRIES HAVE COUNTRY CAN SUFFER IMMENSELY. THE DISTRIBUTION
APPROXIMATELY THE SAME GNI PER CAPITA, THEN THE OF WEALTH IN A COUNTRY CAN BE SKEWED SO THAT
HDI CAN HELP TO EVALUATE WHY THEY PRODUCE VERY FEW PEOPLE HAVE THE MOST MONEY, WHILE
WIDELY DISPARATE HUMAN DEVELOPMENT THE MAJORITY OF PEOPLE MUST MAKE ENDS MEET
OUTCOMES. WITH VERY LITTLE. THIS CAN LEAD TO UNREST IN
QUALITY OF LIFE SOCIETY, ANGER TOWARD THE GOVERNMENT, AND
UPHEAVAL THAT LEADS TO EVEN MORE STRIFE IN AN
QUALITY OF LIFE IS A MORE SUBJECTIVE AND AREA.
INTANGIBLE TERM THAN STANDARD OF LIVING. AS
SUCH, IT CAN OFTEN BE HARD TO QUANTIFY. THE WAR IS PERHAPS THE BIGGEST CONTRIBUTING FACTOR
FACTORS THAT AFFECT THE OVERALL QUALITY OF LIFE TO A LOW STANDARD OF LIVING. WAR-TORN AREAS
VARY BY PEOPLE'S LIFESTYLES AND THEIR PERSONAL TEND TO SUFFER IMMENSELY BOTH DURING AND
PREFERENCES. REGARDLESS OF THESE FACTORS, THIS AFTER THE WAR HAS TAKEN PLACE, AND IT CAN TAKE
MEASURE PLAYS AN IMPORTANT PART IN THE DECADES FOR A SOCIETY TO REBUILD AFTER BATTLES
FINANCIAL DECISIONS IN EVERYONE'S LIVES. SOME OF HAVE TAKEN PLACE. MORTALITY RATES ARE LIKELY TO
THE FACTORS THAT CAN AFFECT A PERSON'S QUALITY RISE SIGNIFICANTLY DURING AND AFTER A WAR, AND
ACCESS TO BASIC SERVICES SUCH AS HEALTH CARE IS TRANSITIONING DUE TO MIGRATION; ADVANCES IN
LIKELY TO BE LIMITED FOR LONG PERIODS OF TIME. PUBLIC HEALTH AND MODERN CONTRACEPTION.
DESTRUCTION OF BUILDINGS, ROADS, AND OTHER
PROPERTIES IS LIKELY, AND FAMILIES MAY BE
DISPLACED FOR MONTHS OR YEARS ON END.

LOW LEVEL OF PRODUCTIVITY

POOR PRODUCTIVITY HAMPERS WAGE GROWTH

STOKING PUBLIC DISSATISFACTION.

“PRODUCTIVITY ISN’T EVERYTHING, BUT IN THE LONG

RUN IT IS ALMOST EVERYTHING. A COUNTRY’S ABILITY
TO IMPROVE ITS STANDARD OF LIVING OVER TIME
DEPENDS ALMOST ENTIRELY ON ITS ABILITY TO RAISE
ITS OUTPUT PER WORKER.” - PAUL KRUGMAN FACTORS
THAT COULD HOLD BACK PRODUCTIVITY INCLUDE AN
AGING POPULATION, CORRUPTION, WEAK
INFRASTRUCTURE, LACK OF TECHNOLOGICAL
ADVANCEMENT.

RAPID POPULATION GROWTH

RAPID POPULATION GROWTH LEADS TO A COUNTRY

WITH A YOUNG AVERAGE AGE. YOUNG POPULATIONS POPULATION EACH COUNTRIES:
REQUIRE CREATION OF NEW INFRASTRUCTURE
INCLUDING SHELTER, HEALTH CARE, AND SCHOOLS. IF AUSTRIA: 9,006,400 SWITZERLAND: 8,654,618
THE COUNTRY HAS THE RESOURCES TO EMPLOY THEIR
AUSTRILIA: 25,499,881 UK: 67,886,004
NEW LABOR, THE POPULATION INCREASE CAN LEAD TO
RAPID ECONOMIC GROWTH. IF, ON THE OTHER HAND, DENMARK: 5,792,203 INDIA: 1,380,004,385
THE COUNTRY CANNOT UTILIZE ITS WORKFORCE
PRODUCTIVELY, THEN UNEMPLOYMENT RISES, OFTEN NORWAY: 5,421,241 INDONESIA: 273,523,620
LEADING TO CIVIL STRIFE AND EMIGRATION. ZIMBABWE: 14,862,927 KENYA: 53,771,300
THE CAPACITY OF THE LEAST DEVELOPED COUNTRIES* BURUNDI: 11,890,781 PHILIPPINES: 109,581,084
TO EXPAND PUBLIC SECTOR SERVICES, SUCH AS
EDUCATION AND HEALTH, IS CHALLENGED BY THE
RAPIDLY INCREASING NUMBERS OF CHILDREN AND
YOUTH, WHICH HAVE BEEN RISING FASTER THAN DEPENCY BURDEN
SERVICE SUPPLY. THE DEPENDENCY RATIO IS A MEASURE OF THE
THE MALTHUSIAN CATASTROPHE NUMBER OF DEPENDENTS AGED ZERO TO 14 AND OVER
THE AGE OF 65, COMPARED WITH THE TOTAL
IN 1798, THOMAS MALTHUS WARNED IN HIS ESSAY ON POPULATION AGED 15 TO 64. THIS DEMOGRAPHIC
THE PRINCIPLE OF POPULATION ABOUT THE PERILS OF INDICATOR GIVES INSIGHT INTO THE NUMBER OF
OVERPOPULATION AND HOW POPULATION GROWTH PEOPLE OF NON-WORKING AGE, COMPARED WITH THE
WILL EXHAUST THE WORLD FOOD SUPPLY BY THE NUMBER OF THOSE OF WORKING AGE. IT IS ALSO USED
MIDDLE OF THE 19TH CENTURY. TO UNDERSTAND THE RELATIVE ECONOMIC BURDEN
OF THE WORKFORCE AND HAS RAMIFICATIONS FOR
THE MALTHUSIAN CATASTROPHE IS BASICALLY IS A TAXATION.
PREDICTION THAT GROWING POPULATION WILL SOON
OUTPACE THE PLANET’S AGRICULTURAL PRODUCTION
CAPACITY. IN OTHER WORDS, AT SOME POINT, THERE
WILL BE FAR TOO MANY PEOPLE AND A VERY LIMITED
FOOD SUPPLY, LEADING TO GREAT UNREST.

ALTHOUGH SCIENTISTS ARGUE THAT MALTHUS

OVERLOOKED TECHNOLOGICAL ADVANCEMENTS
ESPECIALLY IN FOOD PRODUCTION; DEMOGRAPHIC
UNEMPLOYMENT AND UNDEREMPLOYMENT UNDERDEVELOPMENT IN THE DEPENDENT COUNTRY;
A COUNTRY’S ADOPTION OF POLICIES TAILORED TO
WHILE UNEMPLOYMENT AND UNDEREMPLOYMENT THE INTERESTS OF A STRONGER COUNTRY MAY
ARE STILL A MAJOR CONCERN AMONG MANY INHIBIT THE WEAKER COUNTRY’S DOMESTIC GROWTH,
INDUSTRIALIZED COUNTRIES, THESE ISSUES HIT SPEED ENVIRONMENTAL DESTRUCTION, OR CREATE
DEVELOPING COUNTRIES MUCH HARDER. TEMPORARY GROWTH THAT PRECLUDES SUSTAINABLE
IN SOUTH ASIA, LATIN AMERICA, AND AFRICA, A DEVELOPMENT AND ECONOMIC INDEPENDENCE.
CONTEXT OF MASSIVE INFORMALITY AND POOR LESS-DEVELOPED COUNTRIES’ RELIANCE ON FOREIGN
ACCESS TO SOCIAL PROTECTION MAKES WORKERS CAPITAL CAN ALSO PERPETUATE DEPENDENCY. MUCH
PARTICULARLY VULNERABLE TO SHOCKS, WHETHER OF THE FINANCIAL CAPITAL AVAILABLE IN A
THEY BE ECONOMIC (BANKRUPTCY, DISMISSAL, ETC.) DEVELOPING COUNTRY ARRIVES FROM OUTSIDE ITS
OR PERSONAL (ILLNESS, OCCUPATIONAL ACCIDENT, BORDERS. THAT CAPITAL MAY TAKE THE FORM OF
ETC.). MASS UNEMPLOYMENT AND FOREIGN AID OR FOREIGN DIRECT INVESTMENT (FDI),
UNDEREMPLOYMENT EXACERBATE INEQUALITIES AND WHICH INCLUDES ACTIVITIES SUCH AS HOSTING
FUEL A SENSE OF RESENTMENT, OCCASIONALLY FOREIGN FIRMS THAT PROVIDE JOBS, INCREASE
LEADING EVEN TO VIOLENCE. DOMESTIC CAPITAL FLOWS, AND GENERATE TAX
HE MAJORITY OF WORKERS IN DEVELOPING DOLLARS. HOWEVER, FDI ALSO MAY GENERATE
COUNTRIES "ARE ENGAGED IN LOWPRODUCTIVITY PROBLEMS. FOREIGN FIRMS FROM DEVELOPED
WORK THAT IS OFTEN PHYSICALLY ONEROUS BUT YET NATIONS TYPICALLY DOMINATE THE LOCAL MARKET,
YIELDS ONLY MEAGRE EARNINGS." PREVENTING OR DISCOURAGING THE DEVELOPMENT
OF LOCAL INDUSTRIES. MOREOVER, THE
IN DEVELOPING COUNTRIES, WHERE JOB MARKETS ADMINISTRATION OF THE HOST COUNTRY MAY BE
ARE PARTICULARLY TIGHT, SPECIAL ATTENTION MUST ASKED TO PROVIDE TAX INCENTIVES TO KEEP THE
BE GIVEN TO ENSURING THAT THESE EMPLOYMENT FOREIGN COMPANY IN THE COUNTRY. THE HOST
SERVICES ALSO TARGET EMPLOYERS IN ORDER TO COUNTRY MAY ALSO RELAX WORKPLACE OR
HELP THEM CREATE POSITIONS–INCLUDING IN ENVIRONMENTAL REGULATIONS TO INDUCE FOREIGN
INFORMAL BUSINESSES, WHICH MAKE UP THE COMPANIES TO ESTABLISH OR MAINTAIN BUSINESSES
MAJORITY OF THE ECONOMIC FABRIC. THERE.
COMMODITY DEPENDENCE

A COUNTRY IS CONSIDERED TO BE DEPENDENT ON THE DEVELOPMENT THEORIES

COMMODITY EXPORTS WHEN COMMODITIES
CONSTITUTE THE PREDOMINANT SHARE OF ITS
EXPORTS. RATIONAL CHOICE THEORY
A COMMODITY, ALSO CALLED PRIMARY PRODUCT OR Rational choice theory states that individuals use rational
PRIMARY GOOD, IS A GOOD SOLD FOR PRODUCTION OR calculations to make rational choices and achieve
CONSUMPTION JUST AS IT WAS FOUND IN NATURE. outcomes that are aligned with their own personal
COMMODITIES INCLUDE CRUDE OIL, COAL, COPPER OR objectives. These results are also associated with
IRON ORE, ROUGH DIAMONDS, AND AGRICULTURAL maximizing an individual's self-interest. Using rational
PRODUCTS SUCH AS WHEAT, COFFEE BEANS OR choice theory is expected to result in outcomes that
COTTON. provide people with the greatest benefit and satisfaction,
THESE ECONOMIES ARE SUSCEPTIBLE TO VOLATILE given the limited option they have available. Adam Smith
GLOBAL COMMODITY PRICES, ESPECIALLY WHEN THEY is usually credited as the father of the Rational Choice
OVER-SPECIALIZE (DUTCH DISEASE). Theory.

FOREIGN DEPENDENCY Many mainstream economic assumptions and theories

are based on rational choice theory. Rational choice
FOREIGN DEPENDENCY, IS A GLOBAL POWER theory is associated with the concepts of rational actors,
STRUCTURE IN WHICH WEAKER COUNTRIES ARE self-interest, and the invisible hand.
ECONOMICALLY RELIANT ON STRONGER COUNTRIES,
ALLOWING THE STRONGER COUNTRIES TO EXERCISE An example of a rational consumer would be a person
SIGNIFICANT CONTROL OVER THE WEAKER choosing between two cars. Car B is cheaper than Car A,
COUNTRIES’ ECONOMIC AND POLITICAL BEHAVIOR. so the consumer purchases Car B.
FOREIGN DEPENDENCY GENERALLY FOSTERS
EVOLUTIONARY ECONOMICS developed and undeveloped societies. Folk society is
loosing its characteristics because of urban contact.
Evolutionary economics is a theory proposing that Isolation, kinship system, group feeling, homogeneity, is
economic processes evolve and that economic behavior is no more there.
determined both by individuals and society as a whole.
The term was first coined by Thorstein Veblen, an LINEAR GROWTH THEORIES
American economist and sociologist. It shuns the rational
choice theory of traditional economics, arguing that One of the first growth theories was that proposed by
psychological factors are key drivers of the economy. American economic historian Walt Whitman Rostow in
the early 1960s. As a vigorous advocate of free market
Evolutionary economists believe the economy is dynamic, capitalism, Rostow argued that economies must go
constantly changing, and chaotic, rather than always through a number of developmental stages towards
tending toward a state of equilibrium. Most evolutionary greater economic growth. He argued that these stages
economists agree that failure is good and just as followed a logical sequence; each stage could only be
important as success as it paves the way to economic reached through the completion of the previous stage.
prosperity by encouraging greater efficiency and the
development of better products and services. It also Traditional society, dominated by agriculture and barter
teaches us more about how society's needs develop over exchange, and where science and technology are not
time. understood or exploited.

Veblen used an example of social hierarchy and status to Pre-take-off stage, with the development of education
make his point, noting that demand for some goods tends and an understating of science, the application of science
to increase when the price is higher—otherwise known to technology and transport, and the emergence of
as conspicuous consumption. Conspicuous consumption entrepreneurs and a simple banking system, and hence
is the purchase of goods or services for the specific rising savings.
purpose of displaying one's wealth. Take-off, with positive growth rates in particular sectors
Austrian economist Joseph Schumpeter also played an and where organized systems of production and reward
important role in the development of evolutionary replace traditional methods and norms.
economics. His model of Creative Destruction described The drive to maturity, with an ongoing movement
the essential nature of capitalism as a relentless drive towards a diverse economy, with growth in many sectors.
toward progress, expanding on Veblen’s early
observations. Schumpeter argued that human The stage of mass consumption, where citizens enjoy
entrepreneurs are the main drivers of economic high and rising consumption per head, and where
development and that markets are cyclical, moving up rewards are spread more evenly.
and down, as companies constantly compete to find
The importance of savings and investment is also central
solutions to benefit mankind.
to the work of Roy F. Harrod and Evsey D. Domar. For
FOLK-URBAN CONTINUUM Harrod and Domar, economies must save and invest a
certain proportion of their income to grow at a certain
We categorize settlements along a continuum, as there rate – failure to develop is caused by the failure to save,
are many settlements that show both rural and urban and accumulate capital. For takeoff to happen, savings
features, sitting between the extremes of a lone house in must be accumulated.
the countryside and an expanding metropolis. This idea
was promulgated by Robert Redfield. According to Harrod and Domar's theory, there are two
determinants of the rate of growth of a country. The first
Due to the vast number of services that cities provide, looks at the relationship between changes in the capital
they attract people from the surrounding area who do not stock of a country, that is its capital investment, and its
have access to these services locally. As we move along output, called the capital-output ratio. This shows how
the continuum from the most rural to the most urban much new capital is needed to create a given amount of
locations, the number of services provided by each new national income. The second element of the model
settlement increases. considers the relationship between savings and national
In folk-urban-continuum, folk society comes in contact income is called the savings ratio, and this shows how
with urban civilization and inherits certain much is saved from a given amount of national income.
characteristics. So a folk society has certain
characteristics of folk and certain characteristics of
urban. It is between literate and illiterate, between
HARROD & DOMAR’S LINEAR GROWTH THEORY discrimination, and domestic violence. It ascribes most of
the fundamental developments in human history, such as
democracy and civil rights, to capitalistic attempts to
control the masses (as opposed to a desire for social
order).

With the rise of capitalism, Marx theorized that the

bourgeoisie, a minority within the population, would use
their influence to oppress the proletariat, the majority
class.
The simple circular flow model indicates the connection INTERNATIONAL DEPENDENCE REVOLUTION
between savings which provides a flow of funds, and for
investment, which requires abstinence from consumption Essentially, international-dependence models view Third
in order that resources can be freed up for investment. World countries as beset by institutional, political, and
Investment itself is an injection back into the circular economic rigidities, both domestic and international, and
flow, and increases the economy capacity to produce caught up in a dependence and dominance relationship
more output in the future. to rich countries. Within this general approach there are
three major streams of thought: the neocolonial
STRUCTURAL FUNCTIONALISM dependence model, the false-paradigm model, and the
dualistic-development thesis.
The origin of contemporary references to social structure
can be traced to the French social scientist Emile NEOCOLONIAL DEPENDENCE MODEL
Durkheim, who argued that parts of society are
interdependent and that this interdependency imposes The first major stream, which we call the Neocolonial
structure on the behavior of institutions and their Dependence Model, is an indirect outgrowth of Marxist
members. To Durkheim, the interrelations between the thinking. It attributes the existence and continuance of
parts of society contributed to social unity—an Third World underdevelopment primarily to the
integrated system with life characteristics of its own, historical evolution of a highly unequal international
exterior to individuals yet driving their behaviour. capitalist system of rich country-poor country
relationships. Whether because rich nations are
A school of thought according to which each of the intentionally exploitative or unintentionally neglectful,
institutions, relationships, roles, and norms that together the coexistence of rich and poor nations in an
constitute a society serves a purpose, and each is international system dominated by such unequal power
indispensable for the continued existence of the others relationships between the center (the developed
and of society as a whole. In structural functionalism, countries) and the periphery (the LDCs) renders
social change is regarded as an adaptive response to attempts by poor nations to be self-reliant and
some tension within the social system. When some part independent difficult and sometimes even impossible.
of an integrated social system changes, a tension between
this and other parts of the system is created, which will FALSE-PARDIGM MODEL
be resolved by the adaptive change of the other parts. A second and a less radical internationaldependence
CONFLICT THEORY approach to development, which we might call the False-
Paradigm Model, attributes Third World
Conflict theory, first developed by Karl Marx, is a theory underdevelopment to faulty and inappropriate advice
that society is in a state of perpetual conflict because of provided by well-meaning but often uninformed, biased,
competition for limited resources. and ethnocentric international "expert" advisers from
developedcountry assistance agencies and
Conflict theory holds that social order is maintained by
multinational donor organizations. These experts offer
domination and power, rather than by consensus and
sophisticated concepts, elegant theoretical structures,
conformity. According to conflict theory, those with
and complex econometric models of development that
wealth and power try to hold on to it by any means
often lead to inappropriate or incorrect policies.
possible, chiefly by suppressing the poor and powerless.
A basic premise of conflict theory is that individuals and DUALISTIC-DEVELOPMENT THESIS
groups within society will work to try to maximize their
own wealth and power. Implicit in structural-change theories and explicit in
international-dependence theories is the notion of a
Conflict theory has sought to explain a wide range of world of dual societies, of rich nations and poor nations
social phenomena, including wars, revolutions, poverty, and, in the developing countries, pockets of wealth within
broad areas of poverty. Dualism is a concept widely CLASSIFYING THE COUNTRIES OF THE WORLD
discussed in development economics. It represents the
existence and persistence of increasing divergences THREE WORLDS, ONE PLANET
between rich and poor nations and rich and poor peoples The 1st, 2nd, and 3rd Worlds
on various levels.
People often use the term “Third World” as shorthand for
THE CONCEPT OF DUALISM EMBRACES FOUR KEY poor or developing nations. By contrast, wealthier
ELEMENTS countries such as the United States and the nations of
1.Different sets of conditions, of which some are Western Europe are described as being part of the “First
"superior" and others "inferior, " can coexist in a given World.” Where did these distinctions come from, and why
space. do we rarely hear about the “Second World?”

2.This coexistence is chronic and not merely transitional. The “three worlds” model of geopolitics first arose in the
The international coexistence of wealth and poverty is mid-20th century as a way of mapping the various
not simply a historical phenomenon that will be rectified players in the Cold War. The origins of the concept are
in time. complex, but historians usually credit it to the French
demographer Alfred Sauvy, who coined the term “Third
3.Not only do the degrees of superiority or inferiority fail World” in a 1952 article entitled “Three Worlds, One
to show any signs of diminishing, but they even have an Planet.
inherent tendency to increase. The interrelations
between the superior and inferior elements are such that In this original context, the First World included the
the existence of the superior elements does little or United States and its capitalist allies in places such as
nothing to pull up the inferior element. Western Europe, Japan and Australia. The Second World
consisted of the communist Soviet Union and its Eastern
NEOCLASSICAL COUNTER REVOLUTION European satellites. The Third World, meanwhile,
encompassed all the other countries that were not
This advocates for freer markets and the dismantling of actively aligned with either side in the Cold War. These
public ownership, central planning by the state and were often impoverished former European colonies, and
government regulation of economic activity. included nearly all the nations of Africa, the Middle East,
Underdevelopment results from poor resource allocation Latin America and Asia.
due to incorrect pricing policies and too much state
intervention of overly active developing country THE COLD WAR
governments, thus slowing the pace of economic growth.
The era known as the "Cold War" was a political
NEW GROWTH THEORY constellation of countries with two different world-views.
On one side were the industrialized capitalist nations
The new growth theory is an economic concept, positing aligned with the USA, called the Western Bloc, which likes
that humans' desires and unlimited wants foster ever- to call itself the "Free World" or the "Western world." On
increasing productivity and economic growth. It argues the other side were the Communist workers and peasants
that real GDP per capita will perpetually increase because states of the Eastern Bloc, the socialist countries within
of people's pursuit of profits. The theory emphasizes the the power fabric of the Soviet Union, and Mao's China.
importance of entrepreneurship, knowledge, innovation,
and technology, rejecting the popular view that economic The term cold war is used because there was no large-
growth is determined by external, uncontrollable forces. scale fighting directly between the two superpowers, but
they each supported major regional conflicts known as
A significant aspect of the new growth theory is the idea proxy wars. The conflict was based around the ideological
that knowledge is treated as an asset for growth that is and geopolitical struggle for global influence by these two
not subject to finite restrictions or diminishing returns superpowers, following their temporary alliance and
like other assets such as capital or real estate. Knowledge victory against Nazi Germany in 1945.
is an intangible quality, rather than physical, and can be a
resource grown within an organization or industry. THE FIRST WORLD
Under the new growth theory, nurturing innovation
internally is one of the reasons for organizations to invest The term First World refers to the developed, capitalist,
in human capital, which is aligned with the Human industrial countries, generally aligned with NATO and the
Capital Theory. USA. The bloc of countries aligned with the United States
after World War II, which had more or less common
political and economic interests. The first worlds were
Belgium, France, Iceland, Netherlands, Spain, Canada,
Italy, Germany, Norway, Turkey, Denmark, Greece, 2ND WORLD?
Luxembourg, Portugal, U.K., Israel, Japan, South Korea,
Australia, New Zealand, Austria, Switzerland, Ireland, and WHY DON’T WE HEAR THE “2ND WORLD” ANYMORE?
Sweden. Today, the powerful economies of the West are still
THE SECOND WORLD sometimes described as “First World, ” but the term
“Second World” has become largely obsolete following
The Second World refers to the former communist- the collapse of the Soviet Union. “Third World” remains
socialist, less industrialized states known as the Eastern the most common of the original designations, but its
Bloc. The countries in the sphere of influence of the meaning has changed from “non-aligned” and become
Soviet Union. The Second Worlds were Albania, Armenia, more of a blanket term for the developing world.
Azerbaijan, Belarus, Bosnia and Herzegovina, Bulgaria,
China, Croatia, Czech Republic, Estonia, Georgia, East THE GLOBAL NORTH AND THE GLOBAL SOUTH
Germany, Hungary, Kazakhstan, Kyrgyzstan, Laos, Latvia, Economic and political definitions of regions vary but
Lithuania, Macedonia, Moldova, Mongolia, Montenegro, what is agreeable is that regions are a group of countries
North Korea, Poland, Romania, Serbia, Slovakia, Slovenia, located in the same geographically specified area
Tajikistan, Turkmenistan, Ukraine, Uzbekistan, and organized to regulate and oversee flows and policy
Vietnam. choices. The Global North and South is the concept of a
THE THIRD WORLD gap between the Global North and the Global South in
terms of development and wealth.
The Third World was all the other countries. The mainly
underdeveloped agricultural states and nations of Africa, THE BRANDT LINE
Asia, and Latin America, where the blessings of Developed in the 1980s by Willy Brandt as a way of
civilization benefited only a small ruling elite and the showing the how the world was geographically split into
corporations and upper classes of the former colonial relatively richer and poorer nations. Richer countries are
powers. Nowadays, the term Third World is more often almost all located in the Northern Hemisphere, with the
replaced by the terms Least Developed Countries (UN) or exception of Australia and New Zealand. Poorer countries
LowIncome Countries (World Bank.) Whatever term is are mostly located in tropical regions and in the Southern
used, it serves to designate countries that suffer from Hemisphere.
high poverty, high child mortality, low economic and
educational development, and low self-consumption of
their natural resources. Countries that are vulnerable to
exploitation by large corporations and industrialized
nations.

These are the developing and technologically less

advanced nations of Asia, Africa, Oceania, and Latin
America. Third world nations tend to have economies
dependent on the developed countries and are generally
characterized as poor with unstable governments and
having high fertility rates, high gender-related illiteracy
and are prone to diseases. One of the critical factors is the
lack of a middle class; there is a huge impoverished
population and a small elite upper class that controls the
country's wealth and resources. Most Third World
nations also have very high foreign debt levels.

THE FOURTH WORLD

The term "Fourth World" first came into use in 1974 with
the publication of George Manuel's: The Fourth World: An
Indian Reality. The term refers to nations (cultural
entities, ethnic groups) of indigenous peoples living
within or across state boundaries.