Essay on the impact of Economic growth in developing countries



Impact of Economic growth in developing countries

Economic growth is an important factor in reducing poverty and generating the resources necessary for human development and environmental protection.

There is a strong correlation between gross domestic product (GDP) per capita and indicators of development such as life expectancy, infant mortality, adult literacy, political and civil rights, and some indicators of environmental quality.

However, economic growth alone does not guarantee human development. Well-functioning civil institutions, secure individual and property rights, and broad-based health and educational services are also vital to raising overall living standards. Despite its shortcomings, though, GDP remains a useful proxy measure of human well-being.

The world economy has grown approximately five fold since 1950, an unprecedented rate of increase. The industrialised economies still dominate economic activity, accounting for USS22.5 trillion of the USS27.7 trillion global GDP in 1993.

Yet a remarkable trend over the past 25 years has been the burgeoning role played by developing countries, in particular the major factor in this development has been the steady integration of the global economy.

Since the Second World War, international trade has grown consistently faster than output and now accounts for approximately 25 per cent of world GDP.

Other measures of globalisation include the enormous expansion of international financial markets, the spread of new technologies that have revolutionised international communications and encouraged the development of transnational patterns of production and consumption, and the fourfold increase in foreign direct investment flowing to developing and transition economies over the past decade.

However, this overall picture masks large, growing disparities among the developing countries; not all countries have been able to take advantage of the benefits of globalisation.

Since about 1980, the fastest-growing economies of Asia and Latin America have been characterised by high rates of domestic savings, declining dependence on agriculture, and a rapid growth in trade, especially of manufactured exports.

The emerging economies of the developing world such as Brazil, China, Indonesia, and Mexico have been increasingly attractive to private finance; two-thirds of the USS95.5 billion foreign direct investment flows in 1995 went to just six developing countries.

In addition, of the estimated 12 million jobs created by transnational corporations' investment in developing countries, about half are in China.

Alongside this unprecedented economic surge, some 100 countries have experienced economic decline or stagnation; in 70 of these countries, average incomes are lower today than they were in 1980.

Factors in this decline include continued dependence on exports of primary commodities and falling commodity prices, high levels of indebtedness, slow progress with political and macroeconomic reform, and, in some countries, political instability and armed conflict.

These circumstances have discouraged foreign direct investment and contributed to a continuing decline in the real level of official development assistance from the industrialised countries.

This is a critical development, given that such assistance constitutes nearly two-thirds of net monetary flows to low-income countries. In the case of the transition economies, political and economic turmoil following the fall of Communist regimes has led to sharp declines in income and standards of living since 1990.

The net result of these contrasting trends is that more than 3.8 billion people have seen their incomes rise by 3 per cent or more from 1980 levels, but some 1 billion others more than one-fifth of the world's population are worse off.

In the developing countries as a whole, broad-based, balanced economic growth has enabled giant strides in key indicators of human development since 1960: infant mortality rates have been reduced by one half and adult illiteracy rates by nearly one half.

Since 1975, the rate of underweight children under 5 years of age declined by almost one half. At the same time, whole regions remain sunk in poverty; they are sidelined from the global economy and are in danger of falling further behind in coming decades.

Poverty remains an enormous problem worldwide, despite major reductions over the past 50 years. Within the developing countries, about one-third of the population lives on less than US$ 1 a day. (The World Bank defines poverty as an income of less than US$ 1 per day, using purchasing power parity in other words, exchange rates adjusted to the local currency.)

By this measure, although the percentage of the world's population living in poverty declined slightly between 1987 and 1993 (from 30.1 percent to 29.4 percent), the absolute number of people living in poverty increased from 1.2 billion to 1.3 billion people.

Although some Asian countries, such as Indonesia, have made considerable progress in reducing poverty, in south Asia, progress has been slow. In sub-Saharan Africa and in Latin America and the Caribbean, the percentage of the population living in poverty actually increased slightly between 1987 and 1993.