Reference Book – M.P. Todaro – Economic Development
The term developing economies is more commonly used in economic literature to represent those countries that are trying to develop their economy and achieve the status of high-income or developed countries with a better quality of life. These economies are in a gradual transformation of their economy and make the economy prosperous with a high standard of living. Though there is no unanimous definition of a developing economy, we generally consider the World Bank’s classification of countries based on their GNI Per Capita, where the countries classified as lower and middle-income are normally known as developing countries.
As of the World Bank’s classification for 2025, the countries with GNI per capita more than USD 14005 are high-income or developed countries, and those are said to be developing if their GNI per capita is USD 14005 or below.
Since the developing countries belong to a group, they do have some common characteristics, and these developing countries are not similar in every aspect; there are some structural differences between them.
Common characteristics of developing countries
1) Low Quality of Life: The developing countries have a lower quality of life in comparison to the developed countries. It is due to the lower level of income, poor quality of infrastructure, and poor quality of public services such as health, education, sanitation, etc.
2) High Dependence of the Agricultural and Primary Sectors: The developing country’s dependency on agriculture and the primary sector is higher than the developed countries in terms of the contribution to GDP, labor employment, and sources of livelihood.
For example, in the developed countries, the share of agriculture in GDP is around 5% with less than 5% population engaged in agriculture, but in the developing countries, the share of agriculture is significantly higher. For example, it contributes around 25% of GDP in Nepal.
3) Higher external dependency: Developing countries are more dependent on the developed in terms of foreign exchange, foreign investment, foreign employment, technology, etc. This dependency has created their lower bargaining power in the global economy.
4) Mass poverty and underemployment: Poverty is more common in developing countries. The rate of poverty is higher in developing countries than the developed countries. For example, Nepal’s poverty rate is around 20% while such poverty is below 5% in the developed countries. Similarly, in developing countries, underemployment is common, where a large number of laborers are found to be visibly inactive but make no significant contribution to production.
5) Insufficient utilization of the available resources: The resources available in the developing countries are either unutilized, underutilized, or misutilized. For example, there may be abundant natural resources, but due to a lack of financial and technical capacity, they are unexplored and underutilized. Similarly, the physical resources and human resources are also not fully utilized.
6) Imperfect and inefficient market structure: In the developing countries, the market is more imperfect and inefficient than in the developed countries. Monopoly, cartelling, and syndicates are commonly found in developing countries, and the government regulation is poor, which results in inefficient market outcomes.
7) Rigid social values and institutions: Developed countries have more flexible and democratic social values and institutions, which promote innovation, competitiveness, and efficiency. But the social values and institutions in the developing countries are more rigid, conservative, and less democratic. This type of rigid values and institutions results in poor innovation and competition.
8) Poor quality of human capital: Due to the poor quality of education, health, and a lower level of income, the quality of human resources is relatively poorer than the developed countries. So, the productivity and efficiency of the human capital in the developing countries are lower than that of the developed.
9) Technological backwardness and lower productivity: Due to poor investment in R&D, technological development is limited in the developing countries. They rely on traditional or backward technology, which has lower productivity, making the product costly.
Structural Diversities of Developing Countries
The developing countries are not similar in every aspect, and they have some structural differences, such as:
- Size of economy: In terms of the economic size, some developing countries are smaller, while others are bigger. Generally, GDP is considered an indicator of the size of the economy, and in terms of GDP, the developing countries are widely different. For example, India and Nepal are both developing countries where India’s GDP is more than 40 times bigger than Nepal’s. Similarly, in terms of per capita income (PCI), the developing countries are different. Because the developing countries belong to the group where the per capita income is USD 14005 or below.
- Size of the geographical structure: Geographical size determines the availability and accessibility of the resources, including the climate conditions. This is indirectly related to the productive capacity of the economy. In terms of geographical size, the developing countries differ. For example, Nepal and China are both developing countries, where China is 65 times bigger than Nepal. Similarly, in terms of the resource endowment and access to sea, the geographical nature and area matter,
- Demographics structure: The developing countries have different demographic structures in terms of the size of population, population growth rate, labor force participation rate, composition of population, etc. For example, Nepal and Bhutan are both developing countries, where Nepal has a higher population than Bhutan
- Historical background: The developing countries have different historical backgrounds. Some of them have a history of colonization, while some remained independent throughout. Some of the developing countries were formed recently, while some have a long history.
- Composition of economy and relative priority: Developing countries differ from each other in terms of the composition of GDP, where some of the countries have a higher share of the manufacturing sector, while others do not have such a contribution to GDP. Similarly, the contribution of different sectors to GDP is different across the developing countries. The developing countries may have different priorities for different sectors. For example, Bangladesh has to give priority to garments and textiles, Nepal, Bhutan, and the Maldives have given priority to tourism.
- Political ideology, structure, and system: Different developing countries have different political structures and systems. Some of them may be unilateral (एकात्मक) while others are federal. Some of the countries have a parliamentary system, while others have a directly elected presidential or prime ministerial system. For example, Bhutan is unitary while Nepal is federal. Nepal has a parliamentary system, while Bhutan has a monarchy.
- Cast/ethnic/religion composition: The different developing countries have different structures of cast/ethnicity/religion. Some countries have a multicultural ethnic group, such as Nepal, while others have a more or less homogeneous cast and ethnicity, such as in China. Similarly, in terms of religion and its composition, the developing countries are different; for example, Nepal has a Hindu majority, whereas Pakistan has a majority of Muslims.
- Nature of external dependency: Though all the developing countries are dependent on the external market. The nature and degree of their dependence are different. For example, Nepal is highly dependent on foreign employment and remittances, while China is more dependent on exports and FDI.