Key Issue Four

LDCs have 2 problems: adopting policies that successfully promote development and finding
funds to pay for the development
Development through Self-Sufficiency
2 approaches to becoming developed: international trade, or self-sufficiency
Self-sufficiency has been the most popular one, adopted by China and India
Elements of Self-Sufficiency Approach
A country should spread investment as equally as possible across all regions and sectors
System is fair because residents develop along with the countryside and along with cities
Reducing poverty takes place over a few years, people becoming richer
Helps local businesses
3 Barriers: setting high taxes (tariffs) on imported goods, fixing quotas to limit the amount of
imported goods, and a requires a license to restrict the number of legal importers
Restricts local businesses from exporting goods
Example in India:
To import into India, foreign countries have to get a license which is a long task because they
have to go through many agencies
The government then restricts the number of imported goods
The government then puts taxes on the goods to double or triple the value
Indian businesses were discouraged from making products to export because Indian money could
not be converted
If companies could not make money selling inside of India, the government provided cheap
electricity or no debt
Problems with the Self-Sufficiency Alternative

Protection of inefficient businesses: businesses could sell all they made to people however they
want, there is not incentive to improve the quality, lower production costs, reduceprices, or
increase production. There was also no competition
Need for a large bureaucracy: the complex administration leads to corruption and abuse-
entrepanuerors wanted to advise people how to make a business instead of doing it themselves
and people would smuggle in imported goods and sell them at high prices
Development through International Trade
A country must have distinct and unique economic assets
Rostows Development Model
W.W. Rostow proposed a 5-stage model in the 1950s1.
The traditional society: not started the process of development, high % of people in agriculture
and in military and religion
The preconditions for takeoff: an elite group initiates economic activities, under the influence,
the population invests in water supplies and transportation
The takeoff: rapid growth is started in limited economic activities (clothing, food)
The drive to maturity: modern technology diffuses to other industries, workers become more
skilled
The age of mass consumption: the economy shifts from heavy goods like steel, to consumer
goods like refrigerators
Each country would be in one of these stages: MDCs are in stage 4 or 5; LDCs are in stages 1-3
A country in international trade benefits from exposure
Based on 2 factors:
1. Why cant all countries be an MDC?
2. LDCs must contain raw materials for the MDCs.
Examples of the International Trade Approach
Mid-20th century
The Four Asian Dragons:
The first countries to adopt this alternative were South Korea, Songapore, Taiwan,and Hong
Kong.
No natural resources
Influenced by Japan
Concentrated on production
Petroleum-Rich Arabian Peninsula States:
Includes Saudi Arabia, Kuwait, Bahrain, Oman, and the United Arab Emirates
Used petroleum revenues to finance large-scale projects like roads and houses
Problems with the International Trade Approach
3 problems:
1. Uneven resource distribution:
Arabian Peninsula achieved success because of its petroleum
Zambia is a leader in copper reserves, but is not making money because the prices for copper has
gone down
2. Increased dependence on MDCs.
Building up takeoff industries will take money away from the production of food and clothing
Rather than finance new development, the funds are used to pay theworkers.3.
3. Market decline
Many products have declined sharply even before the recession
International Trade Approach Triumphs
In the late 20th century, most countries were using the international trade approach,including
India.
Foreign companies were allowed to set up factories and sell in India
Tariffs and restrictions on imports and exports of goods were reduced or eliminated
Monopolies in communication, insurance, and other industries were eliminated
With increased competition, there were improvements in their products
During the self-sufficient era, Indias auto industry was controlled by Maruti
-Udyog Ltd, which was controlled by Indian government
In the international trade era, India sold it to Japan.
Countries like India converted because international trade was better and promoted development
World Trade Organization
WTO established in 1995.
It reduces boundaries to international trade in 2 ways:
Countries negotiate international trade restrictions such as quotas and tariffs
Restrictions on the movement of money by banks are eliminated.
Settles claims and disputes against countries violations
Attacked by protestors saying that they control large amounts of money behindclosed doors.2.
Foreign Direct Investment
Foreign Direct Investment (FDI): investments made by foreign countries to help the economy of
another country
Grew rapidly during the 1990s from $130 billion to $1.5 trillion
The level declined in the middle because of 9/11c.
Not flow equally:
went from MDC to LDC, while went from MDC to another MDC
China got 1/3 from LDCs, all the other Asian countries got 1/3, 1/5 to Latin America, and 1/10
to African countries.
Transnational Corporation: invests and interacts in countries other than the one that its
headquarters are in
Of the 500 largest TNCs, 140 have headquarters in the US, and 163 in Europe
Financing Development
LDCs get money from MDCs in 2 ways, loans and investments.1.
Loans
The 2 major leaders are the World Bank and the International Monetary Fund (IMF)
The World Bank:
Includes the International Bank for Reconstruction and Development (IBRD) and the
International Development Association (IDA)
The IBRD provides loans to reform public administrations and legal institutions, develop final
institutions, and implement transportation services.
The IDA supports countries that are too risky to qualify for IBRD loans
The IBRD loans more money from private investors
The IMF
Provides loans to countries that are experiencing balance-of-payment problems that affect trade
Designed to help stabilize and pay for imports
Based on size of the countrys economy
Both banks were conceived at the 1944 United Nations Monetary and Financial Conference in
Bretton Woods, New Hampshire after WWII and to avoid having another Great Depression
They build new infrastructures to make it more favorable for businesses
The World Bank considers half of its projects to be failures. Common reasons are:
Projects dont function because of faulty engineering
Aid is squandered, stolen, or spent on armaments by recipient nation
New infrastructure does not attract other investment
Many LDCs cannot pay back loans
Structural Adjustment Programs
Before granting debt relief, an LDC must make a Policy Framework Paper (PFP)
Structural Adjustment Program: includes economic goals, strategies, and external financial
requirements.
Requirements of the plan are:
Spend only what it can afford
Direct benefits to the poor, not just the elite
Direct investments from military to health and education
Invest scarce resource where they will have the most impact
Encourage a more productive private sector
Reform the government and inform the public
By reducing government spendings, these programs may:
Cuts in health, education, and social services that benefit the poor
Higher unemployment
Loss of jobs in state enterprise and civil service
Less support for those who need it most (poor pregnant woman, children)
Fair Trade
Fair Trade: products are made and traded according to standards that protect workers in LDCs.
standards are set by the Fairtrade Labelling Organizations International (FLO).

(2)
Trans fair USA certifies the products sold in the US that are fair trade
In North America, fair trade products are normally household items such a jewelry, whereas fair
trade items in Europe are food like coffee and honey.
Ten Thousand Villages is the largest fair trade organization in North America.
Fair Trade Producer Standards
Fair Trade advocates work with small businesses that are unable to borrow money from banks
These cooperation help them instead of just trying to make money.
Consumers pay more for items that are from fair trade.
Producers of fair trade items get more money back because they dont need a
Middle man.
Fair Trade Worker Standards
Fair trade returns an average of 1/3rd back to the producer in the LDC
Fair trade requires employees to pay workers fair wages
At least the countrys minimum wage
Workers are sometimes paid for their necessities such as food and education
Global Force, Local Impacts:
Brazil, China, Mexico are worlds largest/most populous countries
Middle pack of GDP per capita and most other HDI indicators
Contemporary Geographic Tools:
Walmarts merchandise is made in China
Shipped to America
Case Study Revisited:
Gender equality must be achieved so LDCs can develop