5 Ocak 2013 Cumartesi

An Essay About the Major Macroeconomic Differences between Developed, Developing and Underdeveloped Countries

Introduction
Due to the nature of the competition and the way of management, some companies are growing where the others stay stable. The same mentality is also correct for the countries as they have close relation in the world economy between each other like the companies have the cross-relations in an open market economy.

Therefore, in this study we will concentrate on which countries are developed, which countries are on the way of development and at last which countries remained backward by means of development. This development should not be only seen as the economic development but also human development, cultural development, technological development etc. But all of these factors are strongly correlated with each other and all of them affect the development status of a country.

The study will start with the concept of what developed country means and we will try to show the distinction between the developed and developing or underdeveloped countries. We will refer to IMF and UN for this distinction.

The above explanations may lead us to a very wide study, but we will limit our scope with “the macro economic differences between the developed countries and the others”. In the second part, unemployment, gross domestic product per capita, inflation will be mainly used in order to measure the macro economic differences between the development countries such as US, UK, Canada and the developing countries such as Turkey, Brazil, Argentina and finally the underdeveloped countries such as the African countries.

As the analyses go deeper, we expect to find the structural problems of the developing or underdeveloped countries and try to make some suggestions to these countries in order to make them to reach the development level. We will also question what the developed countries had done before to become this level of development. 

We hope this study will be useful for anyone who seeks information about the major economic and structural differences between these countries.

The Developed Countries and the Others

There may be several definitions regarding the developed countries but Kofi Annan’s definition is very clear and correct. He says that “a developed country is the one that allows all its citizens to enjoy a free and healthy life in a safe environment[1] This means that in a developed country, the citizens live a very safe and healthy life where the government cares about its citizens.

There are other terms which are mixed with the “developed country”. These are “industrialized country”, “advanced economy” and “first world country”. Since we will analyze the macro economic differences between the developed countries and the others, we need to show the developed countries by means of economic factors. International Monetary Fund (IMF) uses a term called “advanced economies” in order to describe the developed economies by means of economic factors. These countries are Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Iceland, Ireland, Israel, Italy, Japan, South Korea, Luxembourg, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, Taiwan, UK, US; plus Andorra, Bermuda, Faroe Islands, Holy See, Liechtenstein, Monaco, and San Marino.[2]

When we come to developing countries, we can say that although there should be a distinction between the developing countries and the underdeveloped countries or least developed countries, due to the criticism coming from the least developed or underdeveloped countries, the superior authorities such as IMF, IBRD etc try to use “developing countries” term for all countries other than the developed countries. We know that there are some countries like Turkey, Brazil, Argentina etc which are very close to developed countries and on the right path of development, but also there are some other countries like Afghanistan, Sudan, Yemen which are backward in this development race. Therefore, in this study we will define the second group countries as the developing countries and the last group as the under developed countries.

The developing countries are as discussed before; Turkey, Brazil, Argentina, China, India, Republic of South Africa etc most of which are also called as the newly industrialized countries.[3] The underdeveloped countries are mostly located in Africa and some countries in Asia such as Afghanistan, Somali, Yemen, Bangladesh, Nepal, Chad, Madagascar,  etc. These countries are underdeveloped by means of not only economic but also other factors.

1. The Macroeconomic Differences between Developed, Developing and Underdeveloped Countries

In this part, we will compare the three groups of countries (which were explained in the first part) through macro economic factors which are inflation, GDP per capita and unemployment. We have selected US, UK and Canada as the developed countries, Turkey, Brazil and Argentina as the developing countries and Sudan, Afghanistan and Yemen as the underdeveloped countries. The data have been gathered between 2000 and 2008 since 2008 was the global crises year.

1.1.      Inflation


Inflation is one of the most important macro economic variables which is used to show the stability and the welfare of a country. As we know that the more the inflation the less the development. In this section we will compare the inflation variables of the selected countries.

The following table is shown for the developed countries by means of inflation. As it is seen from the table, the average inflation has been 2% to 2.9% in the selected countries. Furthermore, the standard deviation which is used to measure the variability is quite low. This shows that these economies have been stable for the last 8 years.

Table 1. Inflation in the Developed Countries

Country
2001
2002
2003
2004
2005
2006
2007
2008
Average
ST dev
Canada
2.5%
2.3%
2.7%
1.8%
2.2%
2.0%
2.1%
2.5%
2.3%
0.30%
United Kingdom
1.2%
1.3%
1.4%
1.3%
2.0%
2.3%
2.3%
3.8%
2.0%
0.88%
United States
2.8%
1.6%
2.3%
2.7%
3.4%
3.2%
2.9%
4.2%
2.9%
0.78%

The second group countries show higher inflation rates where the standard deviation is also higher compared to the developed countries. The average inflation varies between 7.1% and 21.3% which is very high compared to the developed countries’ averages.

Table 2. Inflation in the Developing Countries

Country
2001
2002
2003
2004
2005
2006
2007
2008
Average
ST dev
Argentina
-1%
26%
13%
4%
10%
11%
9%
9%
10.1%
7.75%
Brazil
7%
8%
15%
7%
7%
4%
4%
6%
7.1%
3.45%
Turkey
54%
45%
25%
9%
8%
10%
9%
10%
21.3%
18.57%

When we come to the third group countries, we have seen that the inflation rates are higher than the first group countries but less than the second group of countries. However, if we neglect Turkey since it has lived with big inflation rates before, the inflation rates become lower than the underdeveloped countries as it is expected. Although the standard deviation don’t seem to vary for the past 8 years for the underdeveloped countries, in fact it has been changing but the data could not be retrieved from these countries due to the low information quality.

Table 3. Inflation in the Underdeveloped Countries

Country
2001
2002
2003
2004
2005
2006
2007
2008
Average
ST dev
Afghanistan, Rep. of.
n/a
n/a
24%
13%
12%
5%
13%
24%
15.3%
7.41%
Sudan
5%
8%
8%
8%
9%
7%
8%
16%
8.6%
3.21%
Yemen, Republic of
12%
12%
11%
12%
12%
18%
12%
17%
13.4%
2.74%

As it is seen from above, there are big differences in inflation between these countries. The lower the development level, the more the inflation.

1.2.      Gross Domestic Product per Capita


Gross domestic product per capita is also an indicator for the economic development level of the country. It is expected that the more the GDP per capita the more the development level. We will analyse if this is true for the selected countries.

We will again start with the developed countries. As it is seen from the below table, the GDP per capita is quite high for the developed countries. Furthermore, it is continuously rising in these countries.
  

Table 4. GDP per Capita in the Developed Countries

Country
2001
2002
2003
2004
2005
2006
2007
2008
Average
ST Dev
Canada
23,106.6
23,470.5
27,478.8
31,159.4
35,194.5
39,313.7
43,674.0
47,072.9
33,808.8
9,055.3
United Kingdom
24,891.2
27,219.2
31,278.7
36,755.9
37,863.4
40,237.5
46,098.6
45,681.0
36,253.2
7,928.1
United States
35,505.4
36,340.3
37,685.0
39,811.6
41,929.1
44,063.3
45,725.3
47,025.3
41,010.7
4,361.9

When we come to the developing countries, we see that the average GDP per capita is between USD 4.9 thousand and USD 6.6 thousand. This very low compared to the developed countries.

Table 5. GDP per Capita in the Developing Countries

Country
2001
2002
2003
2004
2005
2006
2007
2008
Average
ST dev
Argentina
7,231.5
2,605.1
3,370.6
3,975.3
4,704.3
5,458.2
6,609.4
8,522.2
5,309.6
2,033.6
Brazil
3,189.5
2,867.0
3,085.4
3,654.2
4,787.3
5,741.6
6,937.9
8,676.0
4,867.4
2,105.3
Turkey
3,019.2
3,562.3
4,616.2
5,872.4
7,109.9
7,759.6
9,569.0
11,463.2
6,621.5
2,941.9

At last, the underdeveloped countries show very low GDP per capita which shows that the living standards in these countries have been very low compared to the others.

Table 6. GDP per Capita in the Underdeveloped Countries

Country
2001
2002
2003
2004
2005
2006
2007
2008
Average
ST dev
Afghanistan, Rep. of.
n/a
175.8
186.3
218.1
252.6
289.3
350.1
456.6
275.6
100.2
Sudan
419.4
458.0
529.2
629.0
775.8
1,005.1
1,244.0
1,631.2
836.5
428.3
Yemen, Republic of
532.4
560.0
597.8
682.1
797.7
881.7
978.8
1,199.5
778.8
232.6

As expected, the more the GDP per capita the more the development level of the country.

1.3.      Unemployment


The last factor to be used in the comparison will be the unemployment level of the countries. As it is seen from the below table, the unemployment level is between 5.1% and 6.9% in the developed countries. The values did not tend to vary much in the past 8 years.

Table 7. Unemployment in the Developed Countries

Country
2001
2002
2003
2004
2005
2006
2007
2008
Average
ST dev
Canada
7.2%
7.6%
7.6%
7.2%
6.8%
6.3%
6.0%
6.2%
6.9%
0.6%
United Kingdom
5.1%
5.2%
5.0%
4.8%
4.8%
5.4%
5.4%
5.4%
5.1%
0.3%
United States
4.7%
5.8%
6.0%
5.5%
5.1%
4.6%
4.6%
5.6%
5.2%
0.6%

The second group countries show higher unemployment rates where the standard deviation is also higher compared to the developed countries. The average unemployment varies between 9.6% and 15.4% which is high compared to the developed countries’ averages.

Table 8. Unemployment in the Developing Countries

Country
2001
2002
2003
2004
2005
2006
2007
2008
Average
ST dev
Brazil
10.0%
10.0%
6.4%
12.3%
11.4%
9.8%
9.6%
8.0%
9.7%
1.84%
Turkey
5.6%
10.8%
10.8%
10.5%
9.3%
10.2%
10.2%
9.7%
9.6%
1.71%
Argentina
15.0%
25.0%
21.5%
17.3%
14.8%
11.6%
8.7%
8.9%
15.4%
5.79%
(Source: Indexmundi, “Unemployment Data”, http://www.indexmundi.com/g/g.aspx?c=ar&v=74)

When we come to the third group countries, we have seen that the unemployment rates are quite higher compared to both first and second group of countries. With this unemployment level, we should not expect welfare, secure and safe life in these countries.

Table 9. Unemployment in the Underdeveloped Countries

Country
2001
2002
2003
2004
2005
2006
2007
2008
Average
ST dev
Afghanistan
40.0%
40.0%
40.0%
40.0%
40.0%
40.0%
40.0%
40.0%
40.0%
0.00%
Sudan
4.0%
18.7%
18.7%
18.7%
18.7%
18.7%
18.7%
18.7%
16.9%
5.20%
Yemen
30.0%
30.0%
30.0%
35.0%
35.0%
35.0%
35.0%
35.0%
33.1%
2.59%
(Source: Indexmundi, “Unemployment Data”, http://www.indexmundi.com/g/g.aspx?c=ar&v=74)

As it is seen from above there are big differences in unemployment between these countries. The less the development level the more the unemployment. If one country lives with high unemployment rates the crime rate tends to rise and this triggers the civil rebels or wars.
  
Conclusion

In this study, we have tried to show the macroeconomic differences between the developed, developing and underdeveloped countries. We have understood that the developed countries are the countries which are offering healthier and safer life compared to the other group of countries. The developing countries are the ones which are on the right way for reaching the developed countries level. However, the underdeveloped countries couldn’t show enough progress in order to be called as one of the first two groups of countries.

The study showed that for the three macroeconomic factors, all of the factors showed better results for more developed countries. Especially, GDP per capita showed how much the underdeveloped countries are backward compared to the others. This might be the most important factor on top of the other factors since it shows the transaction capability of the people living in that economy. This is also one of the most important factors that show the monetary satisfaction of the public.

However, inflation rates show how the price stability is in that country. This means that if inflation is high in an economy, the central bank does not act well in order to manage the price stability. The poverty in an economy increases as the price stability decreases. This is due to the continuous increases in the goods or services which can not be compensated by the salary increases due to the low income level of the economy. This means that as the economy gets developed the inflation gets lower. This is proved in the above sections.

The unemployment rate is also important to show the unemployed people out of the population who eager to work. This is directly proportional with the direct investment level to that economy. As the number of enterprises increase, the unemployment gets lower. This means that as the development level increases the unemployment gets lower as seen in the previous sections.

After making these conclusions we need to make some recommendations for these three groups of countries:
Ø  The welfare of the underdeveloped countries should be increased in order to increase the consumption and finally the GDP of these economies
Ø  The developed countries should make direct investments in order to decrease the poverty and increase the income level of these countries
Ø  The population growth should be limited by applying different family planning policies. This is needed especially in the underdeveloped countries, but should be improved in the developing countries.
Ø  The education level should be increased in these countries in order to make them to develop their countries on their own.
Ø  The globalization should not be used in order to serve the needs of the developed countries. Globalization should also serve for the improvement of these underdeveloped countries.
Ø  The global financial players who are making fast transactions between different countries should be regulated by United Nations.
Ø  The poverty should be seen as one of the biggest problems of the world and United Nations with Unesco should make regional development plans.
Ø  The direct investments, new jobs, new career paths etc will also make the public to be away from crime since they will have job to work in.

[1] United Nation Information Services, Press Release No. G/05/2000,  12 February 2000.

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