Understanding Economy


In recent literature economically less developed or underdeveloped countries are politely known as “developing as contrasted with the developed countries, which have achieved a high level of economic development. The first question is, where to draw the line between the developing and developed economies. It has been suggested that 25% of the income of the United States should represent this line.


According to Michael P. Todaro “The underdeveloped country is that in which people have a low level of living (i.e. poverty, poor health low educational standards, and the poor social services); low self-esteem (low respect, honor dignity) and limited freedom (freedom from external influence freedom of choice, etc.). All these three factors work in a commutative cause and effect process and increase underdevelopment”.

According to Stanley “A Country is said to be underdeveloped which is characterized by the Co-existence in greater or less degree of unutilized or underutilized manpower on the one hand and of unexploited natural resources on the other characteristics of an underdeveloped economy”.

Developing Economy:

According to Prof. Nurkse, “underdeveloped countries are those which when compared with the advanced countries are under-equipped with the capital in relation to their population and national resources. The term developing countries usually refers loosely to countries or regions with the level of real income and capital per head of population which are low by the standards of North America, Western Europe, and Australasia. In underdeveloped countries, there is no large scale agriculture and industry; subsistence production is generally important and markets are comparatively narrow; and the manufacturing industry is usually comparatively unimportant.


Following are the basic characteristics or features of developing countries:

1. Low Level of Living:

In developing nations the general level of living tends to be very low for the vast majority of people. These low levels of living are manifested quantitatively and qualitatively in the form of low income. (Poverty), inadequate housing, poor health, limited or no education, high infant mortality, low life and work expectancy, and in many cases a general sense of malaise and hopelessness.

2. Per Capita National Income:

Another characteristic of developing countries is that real per capita income is low because real national income is low and the population growth rate is high. (Per capita income is equal to Real National income divided by population). According to the Economic Survey of Pakistan (2008-09) per capita income is $1046 that was $ 1042 in the same period last year.

3. Health:

In addition to struggling with low income, many people in developing countries fight a constant battle against malnutrition, disease, and ill health. In the least developed countries of the world, life expectancy has risen from 55 years to 67 years.

4. Low Levels of Productivity:

In addition to low levels of living, developing countries are characterized by relatively low levels of labor productivity. Low levels of living and low productivity are self- reinforcing social and economic phenomena in third world countries as such, are the principal manifestations of and contributors to this underdevelopment.

5. Primitive Agriculture:

The basic reason for the concentration of people and production in agricultural and other primary production activities in developing countries is the simple fact that 3 low-income levels the first priorities of people are for food, clothing, and shelter Agricultural productivity is low not only because of the large numbers of people in relation to available land but also because L.D.C’s agriculture is often characterized by primitive technologies, poor organizations and limited physical and human capital.

6. Dependence on Primary Products & Raw Material Exports:

Most economies of less developed countries are oriented towards the production of primary products as opposed to secondary (manufacturing) and tertiary (service) activities. These primary commodities form their main exports to other nations.

7. Unfair Economic and Political Power:

For many less developed countries, a significant factor contributing to the persistence of low levels of living, rising unemployment, and growing income inequality is the unfair distribution of economic and political power between the rich and the poor nations.

8. Dualistic Economy:

Dualism means social and economic division in the economy. Developing countries are characterized by dualism. In developing countries, both market economy which is a well developed and subsistence economy which primitive and backward exist side by side. Per capita income in the market economy is high while it is low in a subsistence economy.

9. Natural Resources:

There is a shortage of natural resources in developing countries and those are underutilized due to a shortage of capital, skill, knowledge, and technology.

10. Lack of organizational abilities:

In developing countries, due to low levels of education, experience, and training, there is a shortage of leadership and organizational abilities.

11. Shortage of Capital:

Another common characteristic of developing countries is that there is a shortage of capital because of low levels of income, low rate of saving, low investment and unfair distribution of wealth.

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