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Developing Countries And The World Economy

The world economy has many Developing Nations. Today, I am here to talk about the role of financial institutions such as the World Bank and aid organizations such as CAA and the success of current strategies in promoting development. The basis of international institutions and organizations’ roles is assisting developing countries to improve their development performance. The development of economies is enhanced from the change from simple forms of organization and production to complex modern ones such as the role played by financial institutions such as the World Bank and aid organizations such as CAA. As this is the subject of development economics, Developing countries as whole economies can be poor; or they can grow but still leave large sections of their people in poverty.

A developing country can be a result of many characteristics: resources, historical background, population, economic structure, and system. They are basically an underdeveloped country that reflects a failure to gain levels of living throughout most of their population. Yet there has been a significant improvement by these countries the general level of living as growth. The information I will be discussing will be relevant to what is the World Bank and what is its focus? What is the CAA as an aid organization? what is economic development and how it can be improved? distinguishing the similarities among underdeveloped countries with examples, the strategies implemented and how successful are financial institutions and aid organizations.

If we look at Economic growth, it does not necessarily ensure that economic development has occurred. Factors that influence growth are increased production, the level of production sustainable, distinguishing growth as basically a mean of increase in national output of more goods and services; and development, growth with structural change or process by which widespread improvements in levels of living are generated and sustained. Typically, in the early stages of developing economies have most of their production and labor force in agriculture. The GDP measures are fundamentally economic growth measures of developing countries. This can be used as an aggregate measure of the countries national product or income used in both Gross Domestic Product and Gross National Product. The real GDP and GNP contribute to the developmental outcomes significantly.

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Increasing per capita is associated with the education levels of the population, increasing life expectancy, and increasing health standards. There are however limitations of GDP per capita distribution, non-monetary sector international comparisons, and degradation of natural resources. Developmental levels are compared with countries both wealthy and poor. The World Bank can institute various strategies in promoting development that is if the economies are not in serious trouble. The bank grants loans only to member nations, for the purpose of financing specific projects. Before a nation can secure a loan, advisers and experts representing the bank must determine that the prospective borrower can meet conditions stipulated by the bank. Most of these conditions are designed to ensure that loans will be used productively and that they will be repaid.

The bank requires that the borrower be unable to secure a loan for the particular project from any other source on reasonable terms and that the prospective project be technically feasible and economically sound. The World Bank, main objectives initially were to assist in the reconstruction and development of damaged economies by facilitating the investment of capital for productive purposes. In recent times its focus has been on assisting developing countries. They also assist in promoting private foreign investment by means of guarantees or participation in loans and to supplement private investment by providing, finance for productive purposes out of its own capital. Once a basic knowledge of the work of the World Bank is known, I will give you an example in involvement in developing countries:

Recently the World Bank has just indicated that Indonesia’s 2001 budget deficit, which is being forced up by growth pressure would not be fundable. The current estimation of a 3.7 percent budget deficit could rise to at least 5-6 percent. A situation is neither desirable nor fundable. The government is very limited in its ability to raise extra revenue, partly because of the state of Indonesia’s tax system and high debt. Indonesia’s public debt already stands at over 100 percent of GDP which severely limits the ability to fund more debt. Indonesia bonds are impossible to sell to foreign investors and there is already a flood of domestic bonds on the issue to fund the Government’s bank restructuring program. Unless it can quickly get its finance back into shape Indonesia will be forced to rely on foreign aid donors to fund the budget deficit.

Aid organizations such as CAA are the help provided by developed nations such as Australia, the USA, and Japan to the developing nations. More specifically, aid refers to the net flow of official development assistance provided by governments and institutions of industrialized countries. Institutions aim to improve the levels and effectiveness of economies, the basic aim to other countries is to improve their standard of living, through the promotion of economic development through funds. The following information expands on the impact of aid from neighboring countries: This is an example of a Timor, as an emerging country needs all the revenue from the development of oil resources that represents East Timor’s best prospects of being recognized as a country friendly to foreign investment. Australia has a clear vested interest in taking a generous approach to revenue split under the existing arrangements.

This is because of its role in accepting the Indonesian occupation and because it is better for East Timor to fund itself from oil revenue than to get it recycled from Australia in higher aid. The aid dependence on Australia of neighboring Papua New Guinea and its tendency to blame its problems on Australia is typical of relationship models to be avoided with East Timor. After all that Timor has been through, it will be a particular tragedy if more oil money than expected undermines diversified economic development. Most loans have been granted to economically developing countries in Africa, Asia, and Latin America. Despite many developing countries, each country varies widely as a separate economy: Africa is being improved forecasting more than 4 percent growth rising one percent since last year, South and East Asia is experiencing a slowdown and should lose growth as well as a slight decrease in Latin America.

Interestingly enough countries that are developing nations, are one-third of the world’s population, are located in Latin America, Africa, and Asia. Some are moving out of their previous situation and are on the verge of joining the ranks of industrialized countries. The bank gives particular attention to projects that directly benefit the poorest people in developing nations by helping them to raise their productivity and to gain access to such necessities as to their standard of living. If we look at these types or particular economies we can see that there most productivity comes from agriculture. Direct involvement of the poorest people in economic activity is being promoted by providing loans for agriculture and rural development, small-scale enterprises, and urban development. The bank also expands its assistance to energy development and environmental concerns.

Between output and input, the output being goods and services, the input the factors of production used to produce those goods and services. As productivity generally refers to labor productivity: output per worker in the economy. Maximizing productivity is the key to economic development. Human capital is the main form of utilizing production by means of short-term improvements in productivity that may reflect capacity utilization. Human capital focuses on the attention on the fact that human labor is a resource in which nations must invest if they are to advance. The skills, health, motivation, and mobility that increase the productivity of human resources are the result of expenditures on these attributes. Comparing developing to developed countries and using world average figures are useful measures of relative economic performance. In a comparison of both developed and developing nations in relation to world results.

The crude birth and death rates, which also incorporate the percentage growth rates for that particular year show that it is easily distinguished that developing countries have a high crude birth rate, a higher crude death rate, and a higher growth rate. The indications of poverty recently indicate that firstly in all developing countries the indication in the household final consumption expenditure (per capita growth) that last recorded at 0.6 percent. It has been stated that in some of the less developed countries, a third of the world’s population survive on less than US41 a day, a total of 1313.9 people. According to the World Bank infant deaths have decreased, life expectancy has risen on average by four months a year, and growth in food production has exceeded the growth of population. The World Bank isn’t an institution that only provides assistance to governments in poor developing economies. It attempts to create an environment where the foreign business is willing to invest in their countries. The assistance the World Bank provides is:

  • Investing in people through improvements in health and education
  • Protect the environment
  • Encouraging and assisting the development of a strong private business sector
  • Improve the efficiency, quality, and reliability of government services.
  • Promotes reforms that will deliver stable macro-economic conditions and long-term planning.

Theories used to explain the nature of development; the dominant causes of developing economies and are guidance for implemented strategies to achieve development. The economy has a variety of similar issues although each has its unique characteristics. The schools of thought on development are:

  • Modernization
  • Structuralism
  • Dependency
  • Basic need
  • Neoclassical

The theories are main goals, target variables, policy focus, and role of government. The different schools of development thought suggest strategies to pursue development. They range from a focus on local needs to a focus on the global economy and from an active role for government to a minimal role for government. The World Bank has been heavily criticized in recent years for its poor performance in development economics, especially with regard to the social and environmental issues of the development in Third World economies. As organizations are often seen as being in control of the major economic power. The bank itself has admitted considerable wrongdoing. However, it is arguable that it is less at fault than many of the corrupt or incompetent regimes whose schemes it is called on to fund. The bank’s role in development has in any case diminished with the vast influx of private capital into profitable projects in developing countries. Health, education, and other fields unlikely to yield profits remain in need of an institution such as the World Bank.

Bibliography:

  • Text: L. Kirkwood, J. Swiericzuk, T Cronk, I. Seale- Economics for the real world 2, First Published 2000 by Pearson Education Australia Pty Limited, South Melbourne, Australia.

Financial Reviews

  • Main source: The Australian Financial Review
    Friday 20 April 2001
  • Page 23-Aaron Patrick and Paul Cleary (World)- “Indonesian deficit not fundable”
  • Page9- Paul Cleary (Opinion)-“Timor oil and troubled waters”

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