What is a Developing Economy?
These nations often rely heavily on agriculture or natural resource extraction rather than advanced industrialisation or a diverse business sector.
Economic Characteristics
- Lower standards of living and quality of life - In developing economies, a significant portion of the population often struggles to meet basic needs
- Limited access to clean water, adequate nutrition and reliable electricity
- Housing conditions may be poor, and many people live in overcrowded or substandard dwellings
- High levels of poverty and income inequality - A large percentage of the population in developing economies lives below the poverty line
- Often a stark contrast between a small wealthy elite and the majority of citizens who struggle financially
- Limited access to quality healthcare and education - Often underfunded and understaffed
- Poor health outcomes and lower life expectancies
- Limited educational opportunities means lower literacy rates and fewer people receiving higher education
- Higher unemployment rate and underemployment - Often struggle to create enough jobs for their growing populations
- Many people work in informal sectors with little job security or benefits
- Underemployment is common, where individuals work fewer hours than they’d like or in jobs that don’t fully utilise their skills
- Dependence on a narrow range of exports - Many developing economies rely heavily on exporting a small number of primary commodities or agricultural products
- Makes them vulnerable to price fluctuations in global markets and limits their economic diversification
- Focusing too much on these few products can make it harder for the country to develop other industries, sometimes called the “resource curse”
These characteristics are interconnected and can create a cycle that’s difficult to break without significant policy interventions and economic restructuring.
So what countries have developing economies?
From these graphs, can you identify which countries you think are developing economies?
Nigeria is often referred to as the “giant of Africa” and is a former UK colony located in West Africa.
- Nigeria’s population is projected to grow from 184 million to 320 million by 2040, which would make it the 4th most populous country in the world.
- Oil accounts for 75% of government revenue, but economic growth is increasingly driven by non-oil sectors like manufacturing and services.
- Despite its wealth, Nigeria faces significant challenges - a quarter of Africa’s extreme poor live there, and the country struggles with high maternal and child mortality rates
- In early 2024, Nigeria’s inflation rate hit a 24-year peak, exacerbating poverty levels in the country
- Children born in Nigeria in 2020 are expected to achieve only 36% of their potential productivity as adults, due to education and health limitations
Areas for economic growth:
Nigeria is Africa’s largest producer of crude oil, and 15th largest in the world (BBC). To maintain sustainable economic growth, Nigeria should focus on transforming its oil sector from a primarily extractive industry into a comprehensive, value-added manufacturing hub.
This transformation could create job opportunities, reduce import dependence, develop skills and improve infrastructure.
However, this process must be managed carefully to avoid the pitfalls seen in the past, particularly in the Niger Delta region:
Since the 1950s, Shell has extracted billions of dollars worth of oil from the area, leading to severe environmental degradation and economic disparity. The local Ogoni people, under the leadership of Ken Saro-Wiwa, formed MOSOP to protect these issues. Tragically, this movement faced violent suppression, culminating in the controversial execution of Saro-Wiwa and eight other activists in 1995.
Following a change in administration in 2023, Nigeria’s new government started making big changes to help the country’s economy grow and become more stable. They implemented subsidies on the production of petrol, and changed how foreign money is exchanged. To help poor families deal with rising prices because of these changes, the government is giving money to 15 million households for a short period of time (World Bank).
These changes are important, but they might make things a bit harder at first. The government hopes that after the initial shock, the economy will start growing slowly but steadily, especially in areas not related to oil. They think that letting the exchange rate be more flexible, it will help the country’s money situation, however, there are risks if these changes aren’t continued or if other problems like insecurity or climate issues get worse.
Pakistan is a South Asian country bordering India, Afghanistan, China and Iran.
- Pakistan’s tax-to-GDP ratio is around 10%, one of the lowest globally
- The country’s external debt and liabilities exceed $130 billion in 2024, up 27% from 2023
- The Pakistani rupee has stabilised somewhat after losing 60% of its value against the US dollar in two years (2021-2023)
- Pakistan is home to the second highest mountain the world, K2
- Only 13% of woman in Pakistan own bank accounts, the fourth-lowest proportion in the world
Areas for economic growth
The Pakistan government has been working closely with the International Monetary Fund (IMF) to stabilise the economy, resulting in a decrease in inflation from 38% to 11.8% between 2023 and 2024 and an increase in foreign exchange reserves from $2.9 billion to over $9 billion.
Moving forward, experts suggest that Pakistan should focus on expanding its tax base rather than increasing taxes on those already paying. As mentioned above, the country’s tax-to-GDP ratio is around 10%, with sectors like agriculture, retail and real estate being significantly undertaxed. Additionally, the government could aim to create a budget that supports economic activity and encourages investment, rather than solely focusing on meeting revenue targets.
Some other countries with developing economies include Moldova, Costa Rica, Albania, Vietnam, Bangladesh and Kenya to name a few.
Forms of assistance given to developing economies
- Capital (money) - direct financial assistance
- Food and supplies - provide essential food items or agricultural supplies to nations facing food shortages or to support long-term food security programs
- Medical assistance - can include sending medical professionals, medicines and equipment
- Training services - may offer educational programs or technical expertise to help build capacity in various sectors
- Infrastructure support - assistance in building or improving physical structures like roads, bridges, schools, or water systems
Foreign aid has a long history, dating back to the American Revolution when France provided military assistance to the colonial forces, helping them secure independence. This concept of nations supporting each other evolved over time, but it was during and after World War II that foreign aid became a more formalised and widespread practice.
The Marshall Plan, implemented by the United States to help rebuild Western Europe after the war, is often cited as a landmark example of large-scale foreign aid that had significant geopolitical and economic impacts.
FOR
- plays vital role in global development
- helps alleviate poverty
- improves public health
- fosters economic growth in developing nations
AGAINST
- creates dependency on donor nations
- undermines local initiatives and economic self-sufficiency
- challenges in ensuring aid reaches its intended recipients
- aid can be misused or badly managed
Lets look at what countries are providing foreign aid đź‘€
- The United Nations recommends developed countries spend 0.7% of their gross national income on ODA, however, only Luxembourg, Sweden, Norway and Germany met or exceeded that level in 2022.
- The total contribution of member countries actually only averaged 0.37%, a lot lower than the UN’s targets.
- The countries that provided the most aid, according to the OECD, was the United States, Germany, Japan, the United Kingdom and France, with the United States providing $60.05 billion in 2022.
- According to Concern Worldwide U.S., the countries that received the most foreign aid from the U.S. in 2023 included Ukraine, Israel, Ethiopia, Jordan and Egypt.
While the United States contributes only 0.23% of its Gross National Income to foreign aid, it remains the largest donor in absolute terms, providing the highest total monetary assistance globally.
Impact of Developing Economies on the UK
The impact of developing economies on the UK closely mirrors the effects of globalisation, as trade between developing nations and the UK is inherently part of global commerce. To revisit these impacts click here ▶️ Global Trade
The DCTS is a UK government initiative launched in June 2023, replacing the previous Generalised Scheme of Preferences (GSP). The DCTS aims to promote sustainable growth in developing countries by offering them more generous trade preferences when exporting to the UK. It covers 65 countries across 3 tiers: Standard Preferences, Enhanced Preferences, and Comprehensive Preferences, with each tier offering increasing levels of tariffs reductions and market access.
Some key features of the DCTS includes:
- Lowering or removing tariffs for economically vulnerable countries
- Simplifying seasonal tariffs on agricultural products
- Removing low “nuisance” tariffs
- Providing duty-free access for least developed countries on all products except arms and ammunition
- Simplifying rules of origin to make it easier for developing countries to qualify for preferential treatment
How it impacts UK firms and economy:
IMPACTS ON UK FIRMS:
- Increased competition - more competition from imports
- Supply chain opportunities - simplified rules of origin allow for more flexible sourcing of materials
- New market access - new export opportunities
- Innovation pressure - drives UK firms to innovate to remain competitiveness
- Diversification of suppliers - access to a wider range of suppliers, potentially reducing supply chain risks
IMPACTS ON UK ECONOMY:
- Consumer benefits - lower tariffs may lead to reduced prices and increased variety of goods
- Trade diversification - reduce reliance on a limited number of trading partners
- Potential job market shifts - sectors may face job losses due to increased competition
- Economic partnerships - foster stronger economic ties
- Inflation management - access to cheaper imports could help manage inflationary pressures
- Long-term economic strategy - aligns with the UK’s post-Brexit trade strategy