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Why Do LDCs Face Obstacles to Development?

• Development through self-sufficiency– Characteristics:

• Pace of development = modest

• Distribution of development = even

• Barriers are established to protect local business– Three most common barriers = (1) tariffs, (2) quotas,

and (3) restricting the number of importers

• Two major problems with this approach:– Inefficient businesses are protected

– A large bureaucracy is developed

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Why Do LDCs Face Obstacles to Development?

• Development through international trade– Rostow’s model of development– Examples of international trade approach

• The “four Asian dragons”• Petroleum-rich Arabian Peninsula states

– Three major problems:• Uneven resource distribution• Increased dependence on MDCs• Market decline

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Why Do LDCs Face Obstacles to Development?

• International trade approach triumphs– The path most commonly selected by the

end of the twentieth century– Countries convert because evidence

indicates that international trade is the more effective path toward development

• Example: India

– World Trade Organization– Foreign direct investment

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Triumph of International Trade Approach

Figure 9-27 Figure 9-28

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Foreign Direct Investment

Figure 9-30

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Why Do LDCs Face Obstacles to Development?

• Financing development– LDCs require money to fund development– Two sources of funds:

• Loans– The World Bank and the IMF– Structural adjustment programs

• Foreign direct investment from transnational corporations

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Debt as a Percentage of Income

Figure 9-31

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Why Do LDCs Face Obstacles to Development?

• Fair trade approach– Products are made and traded in a way that

protects workers and small businesses in LDCs

– Two sets of standards• Fair trade producer standards• Fair trade worker standards

– Producers and workers usually earn more– Consumers usually pay higher prices

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Core and Periphery Model

Figure 9-32