[MUSIC] Welcome to The Power of Macroeconomics. [MUSIC] >> While much of the focus of our macroeconomic studies has been on the major industrialized nations of the world, we are going to turn our attention now to the developing countries of Africa, Asia, and Latin America. Home to about three-fourths of the worlds population. To begin, let's explain what we mean by a developing country. Some textbooks prefer the term less developed country or LDC while others simply say developing country or DVC. Regardless the most important characteristic of developing countries is that the people have low per capita incomes. In addition, people in developing countries usually have poor health and a short life expectancy, suffer from malnutrition and have low levels of literacy. To put a human face on this, put yourself now in the shoes of a typical 25-year-old in a low-income country, such as Mali, India or Bangladesh. Your annual income barely averages $500, your life expectancy is four-fifths that of the average person in an advanced country, and already two of your bothers and sisters have died before reaching adulthood. You can barely read, and you work very long hours in the fields without the benefit of machinery, and with but one-sixtieth the horsepower of a prosperous North American worker. At night you sleep on a mat in a one-room house along with your parents and grandparents and five children. Your house has no electricity, indoor toilet or fresh water supply. You have little household furniture, perhaps a table and a radio. Your only mode of transportation is an old pair of boots. While despite much sickness in your village, qualified doctors are far away tending to the needs of the wealthier families. You and your fellow citizens in the 40 poorest countries constitute 55% of the world population but must divide among each other only 4% of world income. You are often hungry, and the food you eat is mainly roughage or rice. You have little or no hope of ever seeing your life improve. This is a grim life, indeed. Now, let's take a more systematic look at this problem. Let's start with this table, which shows the stark disparity in wealth among the nations of the world. Here, we see that the richest 20% of the world's population captures almost 83% of its income, while the poorest 20% earns less than 2%. To understand why some countries reach their potential while others fail, we need to look more systematically now at the process of economic development. Recall that in our lesson on economic growth, we learned that productivity and growth in the modern industrialized economies depend largely on four major supply side factors. Human Resources, natural resources, capital formation and technology. Let's see now how each of these factors operate in developing countries. Let's start with human resources, and here we have two dimensions, the quantity of labor and its quality. On the quantity issue, because of rapid population growth, many poor countries are forever running hard just to stay in place. The problem is that even as a poor nation's GDP rises, so too does its population. So that many developing countries are never able to escape the Malthusian trap of high birth rates and stagnant incomes. This table and chart helped put this population problem in its appropriate global perspective. The table on the left shows how birthrates in developing counties like Pakistan, Venezuela, and Kenya are more than twice that of the United States. Now, take a look at the right-hand figure. How much is the world population expected to grow over the next century and in which category of countries will the bulk of this growth occur you can see that world population is expected to double over the next century or importantly as the brown and pink portions of the figure indicate most of this increase is expected to come in the low and middle-income countries of the world. However, with such high birth rates it will be extremely hard for poor countries to throw off their chains of poverty. So what strategies might be adopted to address overpopulation? One such strategy is to try and directly control that growth even when such actions run against prevailing religious norms. For example, some Catholic countries in Latin America have introduced educational campaigns and subsidised birth control despite church doctrine. In Asia, China has been particularly particularly forceful in curbing population growth by putting tight quotas on the number of births. And imposing economic penalties, and mandatory sterilization on those who violate their baby quota. Note, however, that some experts hold a view contrary to the traditional one that population growth can only be controlled directly. This demographic transition view holds that rising income first must be achieved before slower population growth can be achieved. It is an interesting argument based in large part on micro economic reason. The idea is that there are both marginal costs and marginal benefits associated with having another child. In the developing countries, the marginal benefits are relatively large because the extra child becomes an extra worker to support the family and a safety net for parents in their senior years. However in the wealthier, industrialized nations, the marginal cost of children is much greater than in the developing countries. Because of the high cost of things like healthcare, day care and education. At the same time in the industrialized nations, there is a government safety net for senior citizens in the form of retirement and healthcare programs so children as retirement insurance are less necessary. Thus in this demographic transition view, as a country industrialises, people will choose to have fewer children. And indeed in countries like Mexico, South Korea and Taiwan, we have seen birth rates drop sharply as their incomes rose and their populations received more education
