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What Characterizes a Developing Economy?

Since the 18th century, the father of economics was the Scottish philosopher Adam Smith. We study economics to know more about the goods and services produced in the nation, and how they are distributed and consumed. But do you have any idea why developing and developed economies are distinguished? Well, there are several important differences that form an interesting part of the study of economics. Are you aware of the characteristics of economic development, and what characterizes a developing economy? Let’s find out! 

1. What is meant by Economy?

The term economy means the conditions or structure of economic life in a country. It is defined as the management of the financial matters of a business, country, family, or community. It also includes the wealth that is received by the country from the industry and businesses prevailing in it. The stock market is an example of the economy. (See What are Traditional Economy Advantages and Disadvantages?)

2. What is Developed Economy?

The economy of a country with an abundance of resources and wealth that are available to its citizens is known as a developed economy. These economies produce better results as per the indexes used for measuring the economic and non-economic factors of the country. A few examples of a developed economies are the economies of Canada, South Korea, the United States, the United Kingdom, Norway, Japan, and Switzerland. 

3. What is meant by a Developing Economy?

The economy of a country that does not have sufficient resources and not fully developed wealth is known as a developing economy. Such an economy is still in the phase of reaching the level on the measurement index that the developed economy has already reached. In these economies, the citizens are facing various issues and depend on government policies for their survival. Countries like Africa, India, Turkey, etc. are marked with developing economies. Now we can find out what characterizes a developing economy. (See What is POI in Trading?)

4. What Characterizes a Developing Economy?

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Mostly these economies have problems that the government is unable to come over. Citizens are always facing issues like poverty, unemployment, and low standards of living. Such countries are still dependent on the agriculture sector to be their main occupation, but the lives of farmers are still not in a good state. There is poor sanitation and poor infrastructure along with prevailing poor health conditions for people living under the poverty line. Let’s go through the list and try to understand what characterizes a developing economy.

A) The Level of Income

It is one of the most prominent characteristics of a developing economy. The low per capita income (income of an individual in a country) prevents the person from investing their money or saving it. This is because the money that they earn is not sufficient for their needs. A large part of the population of such countries is trapped in the vicious circle of poverty. (See What are Characteristics of Good Money?)

B) Rate of Unemployment

In a developing economy, a large part of the population is unemployed. Unemployment can be seasonal and prevails mostly in rural areas where agriculture is the main occupation. A farmer working in fields will be sitting idle during the off-season for their crop.

Another type of unemployment prevails in urban areas where there are considerably fewer jobs but more workers. The underdeveloped industries and factories produce fewer jobs to meet the job requirements of the growing population. 

C) The Ever-Growing Population Growth

What characterizes a developing economy? Let’s talk about a major factor now. The population in such countries is on the rise each and every year. You can see a considerable increase in the total population due to their belief that more people in the family means more workforce that will bring more money. Due to this, the prevailing employment opportunities fall short, leading to more poverty. 

D) The Dependency on the Primary Sector

The term primary sector means all those activities that are involved in the extraction and exploitation of natural resources. For example, fishing, mining, agriculture, forestry, etc. In developing economies, the primary sector affects the growth or fall of the manufacturing and service sectors. Their demand depends on the income of the sustainability of the primary sector. 

E) High Dependency on Exports

In a developing economy, most of the production takes place in the primary sector, which means that the output and exports will also be from the primary sector. It leads to over-exploitation of the natural resources available in the country. However, the producers of these commodities are not developing and thriving at the rate of exports taking place from the country. 

F) Lower Standards of Living

While discussing what characterizes a developing economy, we cannot ignore the importance of income. People have less income, and they can hardly manage the necessities of life with it. Their standards of living are not so good, and they are using cheaper products of low quality. They cannot afford a safe and clean place to live, a healthy nutritious meal, and proper sanitation and hygiene are neglected. Low income and an ever-growing population in developing countries lead to a lower standard of living for the citizens. 

5. What are the Characteristics of Economic Development?

When an economy is in the phase of improving all the backward factors of the country, that situation is termed economic development. In the words of Amartya Sen, a renowned economist, economic development means creating freedom for people and removing obstacles to greater freedom. So, have you found out what characterizes a developing economy? Now, take a look at the factors that are known as the characteristics of economic development. 

A) It boosts National Income

National income means the total amount earned in the country. The economic development is marked by an increase in the per capita income of the people in the country which leads considerably to an increase in the gross domestic income. This further leads to a boost in the national income as a whole. (See How much money is in the world?)

B) It is a Continuous Process

Developing economies undertake various processes, plans, and programs to improve their economy. These are not just one-time processes because to develop a country these processes are continued in the long run. These processes include better and optimum use of human and financial resources of the country for a better and regular output without harming the workforce or the resources of the country.

C) Natural Resources are Properly Utilised

Developing countries try to reduce the exploitation of their natural resources to move further in their economic development process. It is the way through which these countries can keep up with the world economies. Human and natural resources are used to their potential to provide employment opportunities and other facilities like labor support, the best education, more employment opportunities, and chances of business expansion

D) Structural Changes are Visible

A developing economy during economic development will witness a structural change. It means the shift in opportunities from the agricultural (primary) sector to the manufacturing and service sector. With this, agriculture will not be the main occupation because of the development of more employment opportunities. 

E) Standards of Living are improved

What characterizes a developing economy and how is it related to economic development? To answer this question further, let’s discuss the standard of living. With an increase in the per capita income of people, their purchasing power is also increased. Now, people will consume better products and utilize better services in comparison to before. Increased incomes make it possible for them to save and invest the money which is then circulated by the banks. It further improves the industrial sector. (See What is Empowered Consumerism?)

F) There is Social-Economic Equality

The term social and economic equality means that people from different backgrounds have equal possibilities and opportunities to improve their lives. A majority of the population enjoys equality in income, wealth, status, and standard of living. 

So, these were the characteristics of economic development that show that the economy is on the path of development. Well, what characterizes a developing economy and what is meant by a developing economy have been explained as well. Now, you can easily identify whether the economy of a country is developed or developing. 


Written by Alex Williams

Alex Williams is a PhD student in urban studies and planning. He is broadly interested in the historical geographies of capital, the geopolitical economy of urbanization, environmental and imperial history, critical urban theory, and spatial dialectics.

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