<5.1 LIVING STANDARDS>

• GDP per capita - LOW

• Life expectancy -  LOW

• Literacy rates - LOW

• Population growth - HIGH 

• Infrastructure - 

Road constructio spending

InTERNET USERS PER 100

Infrastructure refers to the system of transportation and the communications networks necessary for the efficient functioning of an economy, such as buildings, mass transportation, roads, water systems, ICT systems including the internet, airports and power supplies. According to the World Economic Forum, countries with very poor infrastructure include Bosnia and Herzegovina, Angola, Mongolia, Nepal, Lebanon and Chad. Table 21.3 shows the number of internet users per 100 people in 2012.

• Low foreign direct investment - The lack of capital resources also limits the ability of a country to create income and wealth. Foreign direct investment (FDI) refers to cross-border investment made by multinational companies and other investors. Poor countries, with their lack of economic growth and poor infrastructure, do not tend to attract FDI due to the expected high risks and low financial returns.

fdi INVESTMENTS

• Poor health care - Insufficient im·cstmem in health services hinders the ability of

a coumry to de\·clop. Health care expenditure per capita is low in LEDCs. Their

governments are unable to provide preventive and curative health care services

for the mass JX)pulation. According to the World Bank, the United States spends

$8362 per person on health care services, whereas this figure is only $21 in

Burundi, $18 in Niger, $16 in Ethiopia and just $12 in Eritrea.

• Labour productivity - output per worker - LOW to the combination of low literacy, low capital investment and poor health care abour productivity in LEDCs also tends to below.

• Public debt - Public debt refers to the money owed by the government (public sector). In general, LEDCs are far more likely to borrow money to finance their public sector expenditure, so the higher the public debt, the lower a country's standard of living tends to be. This is because the government will need to repay its loans, along with interest payments, rather than using the funds for investment in the economy. However, the huge impact of the global financial crisis has harmed MEDCs and not only LEDCs (sec Table 21.4 below). Japan tops the chart, largely due to the country's devastating earthquake and tsunami of March 2011, the country's worst natural disaster in history. In reality, it is common for LEDCs to pay more for financing their public debts, mainly due to the high- interest rates imposed and partly due to a fall in the value of their currency. This makes repayment of public debt increasingly unsustainable for LEDCs, leading to further borrowing and ever-increasing debts.

• Reliance on primary-sector output - Low-income countries tend to over-rely on the production and export of primary-sector output, such as agricultural products. These tend to ha\'e poor terms of trade in comparison with the export of manufactured products or tertiary-sector services. Table 2 1.5 compares the output from the three sectors of the economy for selected coutries.

• Corruption - A final characteristic of LEDCs is their high degree of corruption. There are huge opportunity costs of civil war, dishonest government officials, fraudulent behaviour and the purchase of arms and weapons. Corruption therefore hinders economic development and results in hugely unequal income distribution.

• Low GDP per capita - For economists, this is probably the key characteristic

of developing countries. GDP per capita is calculated by dividing the gross

domestic product of a coumry by its population to find the income level of the

average person. The lower the GDP per person, the poorer the country rends

to be. According to the World Bank, Luxembourg has the highest GDP per

head at $114508, whereas the Democratic. Republic of Congo has the lowest at

just$231.

• Low life expectancy - Life expectancy measures the number ofyears that the

average person in a country is anticipated to live for, based on statistical trends.

The lower the life expectancy, the poorer the country rends to be. Dara from the

World Bank support this, with the likes ofSierra Leone, Congo, Zambia and

Swaziland all having life expectancy ofbcrwecn 48 and 49 years.

• Low literacy rates - Literacy rates measure the proportion of the population

aged 15 and above who can read and write. Low-income countries have

insufficient investment in education and training, so their literacy rates rend

to be low. This has major consequence for employment, production and

productivity, thus negatively impacting on the GDP of the country. High -income

countries have 100 per cent literacy rates whereas low-income coumries have

very low literacy rates, such as Mali (31 per cent), Chad (34 per cent) and Guinea

(41 percent).

• High population growth- Population growth measures the annual

percentage change in the population ofa country. Poorer countries tend to

have high population growth rates for many reasons: a lack of family planning

and sex education, poor access to contraception and cultural norms (it is

common and widely accepted to have many children in some countries and

cultures).

• Poor infras t ructu re - Infrastructure refers to the system of transportation

and the communications networks necessary for the efficient functioning of

an economy, such as buildings, mass transportation, roads, \irater systems, JCT

systems including the internet, airports and power supplies. According to the

World Economic Fomm, countries with very poor infrasrrncture include Bosnia

and Herzegovina, Angola, Mongolia, Nepal, Lebanon and Chad. Table 21.3 shows

the number ofinterner users per 100 people in 2012.

Low foreign direct investment - The lack of capital resources also limits the

ability ofa country to create income and wealth. Foreign direct im·estment

(FDI) refers to cross-border investment made by multinational companies and

other investors. Poor coumries, with their lack of economic growth and poor

infrastructure, do not tend to attract FDI due to the expected high risks and low

financial returns.

• Poor health care - Insufficient im·cstmem in health services hinders the ability of

a coumry to de\·clop. Health care expenditure per capita is low in LEDCs. Their

governments are unable to provide preventive and curative health care services

for the mass JX)pulation. According to the World Bank, the United States spends

$8362 per person on health care services, whereas this figure is only $21 in

Burundi, $18 in Niger, $16 in Ethiopia and just $12 in Eritrea.

• Low lalxmr productivity - Labour productivity is a measure of the efficiency of

labour in the production process, such as output per worker (see Chapter 11). Due

to the combination of low literacy, low capital investment and poor health care ,

labour productivity in LEDCs also tends to be low.

• High public debt - Public debt refers to the money owed by the government

(public sector). In general, LEDCs are far more likely to borrow money to

finance their public sector expenditure, so the higher the public debt, the lower

a country's standard of living tends to be. This is because the government

will need to repay its loans, along with interest payments, rather than using

the funds for investment in the economy. However, the huge impact of

the global financial crisis has harmed MEDCs and not only LEDCs (sec

Table 21.4 below). Japan tops the chart, largely due to the country's devastating

earthquake and tsunami of March 2011, the country's worst natural disaster

in history.

In reality, it is common for LEDCs to pay more for financing their public debts,

panly due to the high interest rates imposed and partly due to a fall in the value of

their currency. This makes repayment of public debt increasingly unsustainable for

LEDCs, leading to funher borrowing and ever-increasing debts.

• Reliance on prima ry-sector output - Low-income countries tend to over-rely

on the production and export of primary-sector output, such as agricultural

products. These tend to ha\'e poor terms of trade in comparison with the export of

manufactured products or tertiary-sector services. Table 2 1.5 compares the output

from the three sectors of the economy for selected coumries.

• Corruption - A final characteristic ofLEDCs is their high degree of corruption.

There are huge opporumity costs of civil war, dishonest go~·ernment officials,

fraudulent behaviour and the purchase of arms and weapons. Corruption

therefore hinders economic development and results in hugely unequal income

distribution.