The World's Poorest Countries - Assignment Example

?World’s poorest countries In the 21st century many counties in the world are facing the problem of underdevelopment. The poorest countries are at a competitive disadvantage with the developed and the developing nations in each and every sector. The economic development of the poorest countries has always taken a major setback because of a variety of internal and external factors. The lack of facilities pertaining in the poorest countries also provides no further scope of improvement. As a result of the overall poor infrastructure, the existence of free trade is not possible in the regions. The paper aims to highlight the top ten poorest countries and study their economic and social condition to analyze the reason for the absence of free trade in the poorer countries. Free trade theory: Free trade theory of Ricardo signifies that two countries enter into the trade agreement can benefit from the process of trade if the countries maintains a difference in the relative cost in the production of the goods they trade in. The relative difference in efficiencies between the two countries will result in an advantageous position for both the countries even if one country has an absolute advantage over the other. However free trade is not possible in the poorer countries because of a variety of factors which are mentioned below. As result of the presence of the factors the countries fail to have efficiency in the production of goods without which they cannot enter into a free trade agreement. Free trade benefits both the party into action as both countries exchange the goods, in which they have higher efficiency and cost effectiveness. (Ian, 2011, pp.37-46) World’s poorest countries: The wealth of a country is determined to declare the current economic condition and to classify it as poor or rich. The standard process of measuring the wealth of the countries is the GDP and the per capita GDP. However, both the methods of GDP and per –capita GDP are not much of use during the comparison of the economies of a country across its boundaries. The measure of GDP based on purchasing power parity is however used in the comparison of the economies of the countries, between each other. Based on such comparison and the quantitative value arising from the results, countries are declared to be poor or rich. Countries with GDP per capita of $765 or lesser than that are declared to be the poor countries (The 10 poorest countries of the world, n. d) According to International monetary fund and the CIA world factbook, Zimbabwe was declared as the poorest country in the world in the year 2010. The study of the list of poorest country in the world also brings into notice that among the top 10 poorest country in the world, 9 of them are from the region of Africa which reflects the vulnerability of the African region. The table below shows the list of the top 10 poorest countries along with their respective GDP during the year 2010 as declared by the International monitory fund. Countries Annual GDP per- capita (in $) Zimbabwe 0.1 Democratic republic of Congo 334 Liberia 379 Burundi 401 Somalia 600 Niger 736 Eritrea 739 Sierra Leone 747 Afghanistan 800 (Top 10 poorest countries in the world 2010, 2010) Poverty is reigning in most of the countries. The causes underlying the poverty are varied in nature. It is not always the people who are responsible for the predicament. The governments of the country play a major role in framing policies which leads to the successful development, whereas failure from their behalf makes the people suffer for years. The leaders of the developed countries are also responsible as their external influences often make the government of poor countries helpless and results in unequal rules of trade. Structural adjustment has been one of the prime causes of poverty. To attract the investment form the developed nations, poor countries try to reduce the wage structure and provide cheaper resources but ultimately it results in the degradation of the economy and increases the poverty level among the people. The increase in volatility in the capital flow leads to the social unrest in the poorer countries. The overall economy of the poorer countries takes a further setback when they need to export at a cheaper rate and had to import the finished products at a higher rate which reduces the overall flow of money in the economy (Kwenda, 2010, pp.511-525). One of the major causes of the pathetic economic scenario in Zimbabwe can be attributed to the hyperinflation in the country which completely shattered the country’s economic stability. In 2009 Zimbabwe witnessed one of the worst inflation in the world economy where the inflation touched 87.9 sextillion percent (Hanke, 2010). Every sector of the economy in Zimbabwe crushed and eventually turned Zimbabwe to be the poorest country in the world. The amount of export in the year accounted for only $1.21 billion which was the lowest figure in the past 10 years. The unemployment rate also touched its peak in the year 2009, where a total of 95% of the population was unemployed (Zimbabwe unemployment rate, n. d) Export conditions in the world’s poorest countries. The poorest countries in the world face serious problems in their matter of export which does not lead to the cash flow in their economy. Absence of flexible policies regarding the export and import hampers their cause. Lack of infrastructure and presence of poor industrial capacity does not support the cause of export. The absence of better quality of land in vast regions of Africa does not support much irrigation and their agriculture sector is also hampered considerably and they are not left to export much of their agricultural products after their own use. However in some countries like Liberia which has optimum environmental condition for the growth of agriculture attains to reap a major benefit from their export. The underdevelopment in the industrial sector leads to the declining amount of export. In matters of total volume of export, Liberia stands in the bottom of the list of countries, producing considerable amount of export. Due to the absence of non-petroleum products it also has to import much of the resource from other countries which results in the imbalance trade activity of the country. Absence of Capital: High presence of capital or the appropriate flow of capital in the economy is a huge boost for any country. In most of the poorer countries, there is a huge shortage of capital which leads to the source of all problems. The absence of capital prevents the nation to invest in commercial ventures which would reap substantial benefit for the economy. The lack of capital is reflected in the socioeconomic condition of the people belonging to the country. Some of the African countries though have presence of huge natural resource, cannot utilize them in a proper fashion due to the lack of capital. As a result the countries cannot gain efficiency in the products of goods and service with which they can enter into free trade with other countries. The absence of free trade also prevents the poorer nations of the world to reap huge benefits arising from the free trades. Most of the poorer countries seek loan from global bodies like the World Bank and the International Monetary Fund to raise productivity in the nations. The poorer countries are thus burdened with high volumes of debt which takes a huge toll on them to repay back. The absence of the funds also prevents the countries towards a sustainable development and the countries lack behind in each and every sectors. Educational level: The accumulation of the human capital is one of the primary factors for the overall economic growth of a county. However poorer countries fail to provide adequate education to the children due to the lack of infrastructure and lack of funding. In most of the poor countries children do not have the primary level of education. The condition of education in the Sub Saharan regions of Africa is most tragic and the level of education is almost nil in some parts of Africa which is one of the major causes for the underdevelopment of the region In countries like Somalia and Afghanistan the literacy level is also very poor. In Somalia the overall literacy level is a mere 24% and in Afghanistan the situation is not different to Somalia as the overall literacy rate in the country is 28 percent (Jogwu, 2010, pp.490-498). The importance of the preliminary level of education has been highlighted by the global councils and the role of the education in the eradication of poverty has been specified on a constant basis. The absence of educated youth contributes to the serious shortage of skilled labor in the country as result the country fails to utilize the natural resources in a better way and fails to produce goods or services in a cost effective manner. Illiteracy is a huge threat to the overall progress and the countries cannot develop or improve the conditions of their poverty because of the presence of uneducated people. Unemployment: The rate of employment is also another important feature which determines the progress of a country and is also an important parameter which determines whether the country has any scope for entering into any free trade with other countries. Poorer countries provide less opportunities of the employment due to absence of adequate infrastructure and the falling level of literacy. The level of unemployment also reflects the narrow scope of opportunity which the countries have in matters to industrialization and also signifies the absence of productivity in the nation. In order to remove the problem of unemployment, a labor oriented rehabilitation program was launched in some parts of Africa but did not produced desirable results (Quagraine, et al, 2009, pp.87-96). As the unemployment of the nation rises it provides a message to the other countries that the struggling nation does not have the adequate resource to exploit, and also stresses on the fact that the presence of unskilled labor and lack of talent in the country provides no opportunity for the investors form the other countries to set up their ventures to promote the cause of the economy. Dependency Theory The dependency theory developed in 1950s explains the developmental state of an economy in presence of external factors like politics, culture, and economics which has a profound effect on framing of developmental policies. The theory is concerned with the distinction between undevelopment and underdevelopment. The poor state of the poorest countries of the world is due to lack of marketing of their resources. Countries with low GNP generally fall under the category of dependent states (Ferraro, 1996). Prebisch Singer Thesis The thesis is basically a proposition which terms have trade have universally deteriorated for poor countries while rich developed countries have always gained from terms of trade. The thesis has cited various reasons for this including high productivity in developed industrialized countries owing to internal factors like economies of scale, learning by doing theory etc. Empirical analysis has proved the concept of mutually beneficial world markets to be vague (Chen, et al, 1997, pp.18-63). Poor countries who have always assumed the role of suppliers of raw materials for primary products have suffered a loss in exports due to falling prices of raw materials. The distribution of gains from trade has never been equal. The inequality arises due to economic conditions prevailing in poor countries such as excess supply of labor which lowers the wages, low income elasticity of primary commodity exports which do not allow poor countries to grow and essential commodities which cannot be produced locally and hence imported. Conditions prevailing in world markets like trade cycles and low demand elasticity for poor countries have always favored the rich countries (Raffer, n. d). Cases and findings Trade Development Index (TDI) have always emphasized upon the fact that favorable human conditions are very important for trade to act as engine of growth. It also highlights the factors that help in getting desirable outcomes from trade. The countries have been ranked in accordance to their rankings in TDI. This is shown in the hypothetical below: Table 1: Countries ranked according to TDI Countries Rank Status Denmark 1 Developed United States 2 Developed United Kingdom 3 Developed Singapore 15 Developing Korea 25 Developing Malaysia 28 Developing African countries Bottom 20 Underdeveloped Source: Klein, 2005 The table above speaks for the entire scenario of poor countries suffering from trade. The poor countries have gained nothing from terms of trade. Hence we find only three developing countries making it to the top 30 list. The underdeveloped African countries have remained in the bottom level and showed no improvement from trade. Their condition tends to deteriorate with trade. Clearly development has only been for the rich nations. In recent times owing to international law a ban has been placed on goods produced by child labor. The goods coming from those countries using child labor are not allowed to be traded in international markets. It has been found that child labor is common in underdeveloped countries like Nigeria, Malawi and also developing countries like India and Pakistan. 215 million children are working illegally in these countries out of which 100 million are aged below 15. For African countries the proportion of child workforce is above 25%. Thus many goods produced by these are prohibited and not traded in world markets. Thus the countries have quite low export earnings and thus have a tendency to suffer from trade (Deghati, 2011). Poor countries suffer from trade also due to faulty land policies. In Sudan the land reform measures and privatization policies are such that land acquisition frequently occurs to be handed over to rich investors. As an example mainland for growing agricultural products had been snatched away from large and small farmers and acquired for Malaysian investments. This has hampered production of agricultural goods and also made the farmers jobless. This has resulted in both excess supply of labor and also the need to import those agricultural products which could have been produced domestically (Mahdi, 2009). Poor countries are suffering from due to imposition of barriers of trade on less developed countries. These restrictions can be regarded as unfair for most of the cases because it involves a lot of discrimination between developed and less developed countries. The case study of Uganda can illustrate this. To protect domestic production of sugar, government of Uganda has imposed an import duty of 25% on sugar. The international law for trade is putting pressures on the Uganda government to reduce such import duties. These trade agencies have left out the developed countries that impose high import duties on the same product. US import duty on sugar is 151% and for Western Europe it is 176%. These current liberalization policies had made things worse for the poor countries. This inequality has led to increased poverty (Trade Liberalization Statistics, n.d). Discussion: The study of the various socio economic conditions of the poorer nations reveals the fact that the opportunity of free trade is not present in the countries. The important factor required in the success of the free trade lies in the fact that the nations entering into the free trade should possess skills and resource to produce cost effective goods and services with which they can trade with other countries. It has been portrayed that the absence of adequate capital, labor and infrastructure prevails in most of the countries. Due to these factors, the countries are not able to produce goods which are cost effective and which will gain much profit for them if they enter into free trade agreement with the other countries. The findings prove the Prebisch Singer hypothesis true. Conclusion: The paper studies in detail about the various aspects of the poorer countries and studies whether any possibility of free trade exists among the poorer nations. The option of free trade would have definitely helped the countries to recover from their overall financial crisis, but the preliminary requirements of entering into the free trade are absent among the countries as highlighted in the study. It is recommended that the poorer nations should prevent them from entering into the free trade agreements unless and until they have the necessary infrastructure and they improve on their core sectors of the economy. If the countries decide to enter into free trade, it would become much more vulnerable for them instead of helping their situation. However the countries should make a strong effort in improving their conditions so that they are in a position to enter free trade as it will really provide an added advantage to them in the days to come (Geoffrey, 2004, pp.84-96). Help from the developed nations of the world are also required for the promotion of free trade among the poorer nations. References Chen, et al, (1997), Composite commodities and the Prebisch-Singer thesis, World Development, 25(11), 18-63 Deghati, M. (2011). Child Labor Guide, One World, Retrieved on December 13 2011fromhttp://uk.oneworld.net/guides/childlabour Ferraro, V. (1996), Dependency Theory: An Introduction. Advanced Online Publication. Retrieved on December 13 2011 from http://marriottschool.net/emp/WPW/pdf/class/Class_6-The_Dependency_Perspective.pdf Geoffrey, G, (2004), Globalization's Missing Middle, Foreign Affairs, 83(6), 84-96 Hanke, S, H, (2010), Individual liberty, free market, and peace, cato, retrieved on December 9, 2011 from:http://www.cato.org/zimbabwe Ian, F, (2011), The theory of Comparative advantage, Social Policy, 41(1), 37-46 Jogwu, C, N, O, (2010), ADULT ILLITERACY: THE ROOT OF AFRICAN UNDERDEVELOPMENT, Education, 130(3) 490-498 Klein, LR. (2005). Developing countries in International Trade, UNCTAD, Retrieved on December 13 2011 from http://www.unctad.org/en/docs/ditctab20051_en.pdf Kwenda, P, (2010), An Analysis of Welfare Changes in Zimbabwe, African Development Review, 22(4), 511-525. Mahdi, ST, (2009). Trade Liberalization and Poverty Reduction in Developing Countries: The Case of Africa, World Trade, World Poverty: Third Conference of Institute of Human Rights, Retrieved on December 13 2011 from http://www.ipfw.edu/hri/WTO/WTO-Mahdi.pdf Quagraine, V, K, et al, (2009), Improving Labor-Based Road Rehabilitation in Ghana, Journal of Management in Engineering, 25(2),.87-96 Raffer, K, (n.d). Sir Hans Singer: Advocating a Fair Distribution of the Fruits of Progress. Advance Online Publication. 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