CHARACTERISTICS OF UNDERDEVELOPED ECONOMIES COUNTRIES (UDCs)

The general nature of an under-developed economy may be gathered from the common economic characteristics of such an economy. It may be too much to talk of common economic characteristics of underdeveloped countries in view of the wide diversity; among under-developed countries, as revealed by the numerous case-studies that have been made. While it would be very difficult to locate a unrepresentative under-developed country, it is much easier to bring out some fundamental characteristics common to under-developed countries, which are considered below: (i) Deficiency of Capital. The insufficient amount of physical capital in existence is so characteristic a feature in all under-developed economics that they arc often called simply ‘capital-pour ‘ economics. One indication of the capital deficiency is the low amount of capital per head of population. Shortage of capital is reflected in the very low capital-labor ratio in the low-income countries. According to a survey by the United Nations Department of Economic Affairs in 1949 real capital per worker in Asia and Far East excluding Japan was only 10 per cent of the Not only is the capital stock extremely but the current nile of formation is also very low. In most under-developed countries, investment is only 5 per cent to RC cent of the national income, whereas in the United States. Canada, and Western Europe, it is generally from 15 per cent to per cent. The low level of capital formation in an underdeveloped country is due both to the weakness of the inducement to invest and to the low propensity and capacity to save. In such an economy, the low level of per capita income limits Ih.: size of till demand for manufactured output. which weakens the inducement to invest, The low level of investment also arises as a result of the lack of dynamic entrepreneurship, which was regarded by Schumpeter as the focal point in the process of economic development. At the root of capital deficiency is the shortage of savings. The level of per capital income being quite low, most of it is spent in satisfying the bare necessities of life, caving a very low margin of income for capital accumulation. ·Even’ I an increase in the level of individual incomes in under-developed economy, there docs usually follow a higher rate 5. U.N. Development of Economic Affairs- Economic Survey of Asia and lire Far East, 1949, (1950),