Economic Development of Third World Countries

Abstract
The paper examines social and economic issues relating to the development of Third World countries. The emphasis is placed on five major challenges the underdeveloped and developing nations face on their way to economic growth and prosperity. The report discuses overpopulation problem and also questions the effectiveness of foreign aid. Moreover, it provides information on impact of information technology, as well as addresses the issue of lack of economic diversification. Finally, it explains causes and consequences of corruption on economic growth.
Keywords: Third World, development, overpopulation, foreign aid, technology, diversification, corruption

Table of Contents
Abstract2
Introduction4
Brief history4
Classifications4
From Third World to First World6
Issues7
Population growth7
Foreign aid8
Information technology11
Economic diversification12
Corruption13
Conclusions16
References18

Economic Development of Third World Countries
History
The end of the World War II brought into being a number of new nations in Asia and Africa, which gained independence from colonial rule and were given a title of “Third World”. The term was created by French demographer Alfred Sauvy and was originally intended to distinguish newly emerged states from the Western industrialized nations and from those that formed the former Soviet bloc (Prachi, 2011).
Today the designation is used to describe the developing countries of Africa, Asia and Latin America, generally characterized as poor, heavily dependent on foreign aid, having unstable governments and the economies that rely on the exports of primary products in return of finished goods, also high rates of illiteracy, disease and population growth. The Third World nations can be categorized into various groups based on social, political and economic divisions (“Countries of the Third World”, n.d.).
Classifications
In terms of political rights and civil liberties, eight countries having the most repressive regimes were Cuba, Libya, Myanmar, North Korea, Somalia, Sudan, Turkmenistan and Uzbekistan, according to survey conducted by Freedom House, a watchdog organization. Within these countries, "state control over daily life is pervasive and wide-ranging, independent organizations and political opposition are banned or suppressed and fear of retribution for independent thought and action is part of daily life” (“Survey lists”, 2008).
Similarly, Reporter s Without Borders conducts and publishes annual survey of countries to their respect for press freedom. Access to information is a fundamental human right; however, it is heavily violated in many Third World countries though censorship and suppression of information, by oppression and persecution of journalists and the media. Eritrea, North Korea and Turkmenistan occupied the last three places in the index, immediately preceded at the bottom by Syria, Iran and Bahrain (“Press freedom”, 2012).
According to human development index (HDI), which is published annually by the United Nations (UN) and measures the average achievements in a country in basic dimensions such as life expectancy, education, literacy and standard of living, five countries with lowest scores were from Africa - Congo, Niger, Burundi, Mozambique, and Chad. From 187 nations surveyed, Congo ranked the last with HDI of 0.286 compared to 0.682 of the world’s average. The lowest human development rankings were not only in Africa but also included states in the developing region of Asia and Latin America (“Human development”, 2011).
Another category consist of the world’s most impoverished countries in terms of poverty level based on their low gross national income (GNI), weak human assets and high degree of economic vulnerability. Low income criterion is based on a three-year average estimate of GNI per capita. Weak human resources are measured by indicators of undernourishment, mortality of children, secondary school enrolment and adult literacy rate. High economic vulnerability is defined by population size, remoteness, share of agriculture, concentration of goods exported, forestry and fisheries in GDP, instability of agricultural production and victims of natural disasters. In 2011, forty eight countries were classified as the least developed countries (LDCs) by the UN. Geographically, 33 nations were from Africa, 14 from Asia and Pacific and 1 from Latin America and the Caribbean (“The least developed”, 2012).
Similarly, in terms of GNI based on purchasing power parity (PPP) per capita in International Dollars, the poorest nations with average annual income below $1000 earned by citizens were Congo, Liberia, Eritrea, Burundi and Niger, just to name a few. Sub-Saharan Africa, Middle East and North Africa, South Asia and Pacific raked the lowest among all the regions, according to the World Bank (“GNI per capita”, 2012).
From Third World to First World
A number of Third World countries were former colonies that were exploited by the European powers for many years. When the colonies gained their independence, most of them were faced with challenges to overcome the adverse economic situation created by colonialism. “Economic discipline, good management, strategic planning and competent political leadership are some of the attributes required to reverse such a condition” (Varma, n.d.). While so many nations lack these necessary characteristics and are still struggling today, there are quite a few success stories of countries shifting from the Third World to the First World.
Four Asian states, Taiwan, Hong Kong, Singapore and South Korea, known as the “Asian Tigers”, have risen out of extreme poverty to become some of the world’s richest nations. They stand as a proof that poverty is not an absolute trap and that actions can be taken to make populations remarkably wealthier in just a few decades. The “Asian Tigers” owe part of their success to their favorable geographic, which gave them abundant agriculture as well as advantageous locations, which served to attract foreign investment and international trade. Their prosperity and industrial development are also related to the ability to transition from merely agricultural economy to becoming major manufacturers and exporters of variety goods to the developed world. Moreover, capitalism regimes, favoring economic policies of free markets, low taxes and strong property rights, were greatly supported by their governments and the West. Most importantly, heavy investment in public health, education, infrastructure and technology increased their competiveness on the global market, which attracted further foreign direct investment and helped to create even more wealth (“Rise of Asia”, n.d.).
Issues
Population Growth
In October 2011, the human population of the world reached 7 billion (Goodkind, 2011). The number increased by 1 billion in just a little more than a decade, with most of the growth occurring in developing countries, increasing requirements for food, water and health care, where basic necessities were already scarce. Many social, economic and environmental problems stem from the overpopulation, preventing further development.
Poverty is strongly associated with the occurrence of large families and has emerged as a serious global issue. Nearly half the world, 48 percent, lives in poverty on less than the equivalent of $2 per day, including 80 percent of people in the Democratic Republic of Congo, 76 percent in India, 65 percent in Uganda (“World population”, n.d.). Malnourishment, lack of clean water, poor health, limited or no education, low life expectancy, overcrowding and inadequate housing are real problems for billions of people.
While developed countries are generally experiencing slow population growth, in today’s global economy, the growth of other nations has far-reaching effects on the rest of the world. Overpopulation burdens the environment with increasing demands for timber and fossil fuels, driving up the price of the raw materials industrialized nations need to import. Also, as forested land is cleared to support a growing population, the trees that produce oxygen, absorb carbon and help to slow global warming, are lost. The problem of global climate change affects everyone, in developed and developing countries alike (Lindsay, 2001).
In regions like sub-Saharan Africa, the Middle East and Southeast Asia, the lack of access to family planning services, contraception, education and social social programs, higher children mortality rates, as well as religion and cultural traditions make large families the norm (Lindsay, 2001).
Historically, population control has been implemented by limiting birth rates, usually by government mandates. In 1979, China employed one child per family policy, which offered special benefits for families that agreed to have only one child but punished the rest by imposing higher taxes, taking away benefits or employment. Unfortunately, the policy also led to forced pregnancy termination and sterilization practices that received world’s disapproval and tarnished China’s international image. According to China’s officials, the policy helped to reduce the country’s population by more than 400 million people (Hamme, 2011).
Other population control measures that are more socially and psychologically acceptable are focused on education and empowerment. These programs are aimed to educate people about overpopulation effects, family planning, reproductive health and birth control methods. Also, their intention is to create and make the appropriate health care services more accessible in the areas where birth rates are especially high (Watson, n.d.). Indonesia and Iran implemented one of the most successful family planning programs that proved to be working in stabilizing their population growth. In addition, Tunisia and Morocco improved women’s status and rights, granted with economic and political empowerment, which made a positive impact on their population management (Singh, 2005).
Foreign Aid
In response to Third World poverty, many developed nations created foreign aid programs in forms of humanitarian emergency, food aid, development aid, military assistance, etc. Foreign aid is not just about helping people in poor countries but also includes reasons of increased national security and economic interest. Purposes of funds include economic development, increased government accountability and basic services, like vaccines, clean water and education (“Foreign aid 101”, 2011).
Every year underdeveloped and developing countries receive tremendous assistance from foreign nations. In 2011, twenty five countries that received the highest foreign aid as percent of their GDP were from Africa. For example, Sao Tome and Principe, the second smallest African country, received 75.2 percent of its national income in aid (“Highest foreign aid”, 2012). The U.S. gives the most money overall but in relation to its economy size, it spent 0.19 percent of its GDP and ranked 21st place among all countries providing foreign assistance in 2011 (“Most foreign aid”, 2012).
Humanitarian assistance that mostly takes form of food and medicine aid is designed to avert immediate disaster. While it helps to avoid hunger and illnesses or death, it is only a temporal solution to alleviate immediate suffering. It weakens local markets, does not promote long-term sustainable growth and can actually hurt vulnerable economies. As an example, Haiti was flooded with foreign aid after 2010 quake. Many areas received food aid, particularly rice, which is primary Haiti’s food. As a result, assistance with free rice depressed prices for local farmers, forcing many out of business and leaving them with no income to support themselves and the families (Davidson & Kenney, 2010). Another major problem is that particularly food aid encourages nations to adopt policies that discourage production. For example, in Bangladesh, food aid led to the neglect of agricultural production because of the belief that other nations will provide sufficient amounts of free food. The end result of such programs is a complete dependence on food aid for many developing countries (Majewski, 1987).
Development aid focuses on alleviating poverty in a long run by providing financial resources to support economic, social, environmental and political development of the Third World. It funds a variety of research and planning projects and also gives budgetary and balance of payments help (Majewski, 1987). While development aid has great intentions, many question the effectiveness of the assistance. One of the criticisms is that it actually impairs growth process by expanding role and power of the government of the recipient nations, sometimes even leading to political exploitation. According to the report released by Human Rights Watch, Ethiopian government “has used donor-supported programs as political weapons to control the population, punish dissent, and undermine political opponents–both real and perceived. Local officials deny these people access to seeds and fertilizer, agricultural land, credit, food aid, and other resources for development”(Mariam, 2010). Another criticism is on tied aid, which often requires the recipients to purchase goods and use services from the donor, and / or open up the country to foreign investment, regardless if its readiness. In case of the U.S. anti-hunger programs, the majority of the U.S. donated food must be grown by the U.S. farmers, transported by the U.S. ships, and distributed by the USAID personnel. Many believe that it would be “more efficient to purchase food from farmers in regions close to famine-prone areas, thereby saving on shipping and storage costs and boosting the local agricultural community in the process” (“Development aid”, n.d.).
The problem of different forms of foreign aid is that they encourage the institutions that prevent progress while weakening those, which could bring the prosperity. By increasing the role of government and bureaucracy, the role of free markets and private entrepreneurship is minimized. An alternative policy of aiding the developing nations is through free trade, which would not solve all the problems but at least would increase the opportunities. It would encourage developing of new “institutions such as private property rights and free markets, which would lead to growth and prosperity” (Majewski, 1987).
Information Technology
The UN recognized the direct link between access to information technology and economic development of a country and set a goal to see half of the world's population to have access to the Internet and telecommunications by 2015. Over the past decade, there has been a significant progress in the use of information and communication technologies (ICTs) across the world. Despite the persistence of widespread poverty, the use of mobile phones especially grew in developing region, with most rapid growth in African states (Adera & May, 2011).
The mass spread of telephony is improving the quality of life for impoverished people in many ways. Aside from the advantage of facilitating communication, access to this technology is increasing income, improving health and safety, making life more convenient, and increasing national productivity. For example, farmers now can access essential agricultural information, advice and training that helps to improve their practices. Also, mobile technology allows those, who cannot afford computers, still stay in touch via text messaging and use a variety of data services, including banking transactions, news and market price updates. Moreover, patients can access doctors or national AIDS hotlines, call for medicine and arrange testing. Additionally, it helps vulnerable nations to cope with natural disasters by receiving advance warnings. Finally, information technology can contribute to broader education and creation of new jobs, which, in effect, helps to boost national GDP (Denison, 2009).
However, the expansion of ICT can also have direct negative outcomes. Studies suggest that access to ICT can be a cause of an intra-household conflict, can foster male control over resources, and direct household funds away from food and other essentials. Also, concerns are raised over the possible use of conflict minerals in the manufacture of ICT devices as well as the use of child labor (Adera & May, 2011). Additionally, it is possible that ICTs contribute to higher unemployment. If most jobs can be done by computers, there is no need for so many human resources. Moreover, ICTs could deepen the digital divide between developing and developed countries. People from developed countries are improving their technologies every day and developing countries cannot keep up with them. Even if the new technologies would be fully implemented in developing countries, it would bring little significance if the people do not have necessary skills to use them (Kojic, 2010). Economic Diversification
Global market has become a place where rich and poor countries are allowed to showcase what they can do for others. More diversified economies tend to play more important roles on the modern world’s economic arena, while in developing countries, export concentration is a critical obstacle to their sustained economic growth. A number of Third World nations depend heavily on a limited number of commodity exports and are vulnerable to domestic and international shocks (Mead & Persaud, 2009).
The study, conducted by Booze Allen consulting firm, based on the analysis of economies of a group of oil rich developing countries and a group of the most developed nations, concluded that there is a “clear link between economic diversification and sustainable growth”. According to the study, a number of Middle East countries rich in oil (e.g., Qatar, Abu Dhabi, Kuwait, etc.) tend to concentrate on one sector and forget about other economic segments, which suffer from poor productivity, technology and knowledge. These states are more politically and economically unstable compared to most developed countries, since they are influenced by external events, such oil market price drops or increases (Abouchakra, Moujaes, Najjar, & Shediac, 2008).
Similarly to the oil rich countries of the Middle East, many Third World states with commodity based economies (e.g., Afghanistan, Sudan, Uganda, etc.) focus on their main commodity exports and ignore other sectors. They trade their agricultural goods, minerals, oil, gas and other primary products for finished goods and services. The governments tend to invest in growth of the most profitable economy sectors in order to extract the most value in a short period of time (Abouchakra, Moujaes, Najjar, & Shediac, 2008). While high commodity prices helped these states to weather recent economic downturn, trading non-renewable natural resources and volatile agricultural products, which highly depend on fluctuation of the global commodity markets, is expected to lead to both economic and political instability in the near future (Mead & Persaud, 2009).
Local investment diversification to promote non-core industries’ growth is perceived as one of ways to create future economic and political stability in the developing countries. However, the process of diversification has to be gradual and rational in order to prevent solvency issues encountered by Dubai in 2008-2009, when the kingdom became insolvent overinvesting into fast development of alternative to oil sectors of local economy. Luckily Abu Dhabi was willing to bail out the neighbor but, in case of many developing countries, the search for a savior may not be as easy (Mead & Persaud, 2009).
Corruption
Corruption has been around for centuries and is the major cause of various social and economic issues around the world. Much of public corruption is related to government intervention to the economy, especially where government regulations are pervasive. Trade restrictions, government subsidies, price controls, low wages in civil service and natural resource endowments are also identified as potential sources for corruption, which “discourage investment, limit economic growth, and alter the composition of government spending, often to the detriment of future economic growth” (Mauro, 1997).
Transparency International publishes an annual report evaluating over 180 countries around the world to determine local corruption levels. Interestingly enough, most of the least developed countries with less than $5,000 of GDP per capita end up at the bottom of the list. Dictator led governments like Libya, Egypt, Yemen and Syria also wind up at the bottom of the ranking scale. Corrupt governments typically are run to enrich local political elite, often neglecting needs and desires of the populous (“CPI 2011”, 2012).
Corruption has considerable adverse effects on economic growth, essentially by reducing and deteriorating private investment. Investors are concerned about safety of their capital and pay close attention to the obstacles of starting and doing business in foreign countries, deciding if their ventures are worth of their time and money. One of the tools commonly used by companies is Doing Business in Transparent World report issued annually by the World Bank. The report evaluates regulations effecting domestic firms and ranks over 180 countries worldwide in areas such as starting a business, resolving insolvency and trading across borders. It helps potential investors to understand the efficiency and stability of the economies and to make well educated decisions on their investment preferences. For example, according to the WB report, it takes approximately 300 days to enforce a contract in the U.S., while in Sudan enforcement may require 810 days, and in Burundi this may take up to 832 days. Additionally, while in the U.S. companies may expect to recover 82 cents per each dollar, in most of the developing countries this number is typically below 35 cents per dollar. Moreover, since many multinational companies are incorporated in developed countries with strong anti-bribery laws, they tend to shy away from the foreign investment opportunities, which may require them to break their home country laws. Legal fees to fight corruption charges typically reach millions, and tarnished reputation and image are very costly as well (“Doing business”, 2011). Consequently, more corruption leads to less investment, and less investment leads to slower economic growth.
To fight corruption and thus improve the attractiveness for global business, developing countries should enhance their judicial system so it can be independent and fair to focus on effective and unbiased law enforcement. Also, corporate laws should be in place sufficiently protecting property rights. Moreover, the governments should grant more civil liberties to their citizens, which should lead to increased transparency and effectiveness of political institutions. If these fundamental conditions are met, private and public investors would gain trust, bring their capital and technology, and thus contribute in the development and growth of Third World economies (“CPI 2011”, 2012).

Conclusions
The term “Third Word” arose during the Cold War in order to separate former colonies from the Western states and the Socialist bloc. Today the name describes a large group of underdeveloped and developing countries in Africa, Asia and Latin America, with common characteristics such poverty, illiteracy, high birth rates, instability, and economic dependence on the advanced nations. The Third World nations are classified into various categories based on social, political and economic divisions. Still today, most of these countries are struggling to overcome adverse economic conditions left by colonialism, with the exceptions of a few, such as the rise of four “Asian Tigers”.
One of the biggest challenges Third World faces is overpopulation and mismanagement of the growth, which are major causes of many social, environmental and economic problems. The basic necessities such clean water, food, health care and shelter are already scarce in many impoverished areas and ever growing number of people just makes them less and less available. In addition to increased poverty, overpopulation also burdens the environment and has far-reaching effects on the rest of the world. Growth control methods have been established by many countries; however, only few of them were able to implement successful stabilization programs through education and empowerment.
In response to Third World poverty, many developed nations created foreign aid programs, with the U.S. being one of the top donors. Humanitarian assistance is designed to avert immediate disaster, prevent death, illnesses and hunger. However, it only provides a temporal solution that does not contribute to long-term sustainable growth. Another form of aid, development assistance, is aimed to alleviate poverty in a long run by providing financial resources to support development. It also receives criticism on expanding power of governments and bureaucracies, and minimizing role of private entrepreneurship. An alternative policy of aiding is through encouragement of free trade.
Over the past decade, there has been a significant progress in the use of information and communication technologies across the world, especially in impoverished countries of Africa, which has improved the quality of life for people in many ways. Aside from the advantage of facilitating communication, access to this technology is increasing income, improving health and safety, making life more convenient, and increasing national productivity. However, the expansion of ICT can also have negative outcomes such the use of child labor, higher unemployment, and deeper digital divide between underdeveloped and advanced nations.
There is a direct link between economic diversification and sustainable growth. A number of Third World nations are too dependent on a limited number of commodity exports and are vulnerable to domestic and international shocks. The export concentration is a critical obstacle to their sustained economic growth. Investment diversification and economic specialization are ways to create future economic and political stability in the developing countries.
Corruption is one of the major causes of various social and economic issues around the world. Trade restrictions, government subsidies, price controls, low wages in civil service and natural resource endowments are major sources for corruption. It discourages investment, limit economic growth, and alter the composition of government spending, often to the detriment of future economic growth. The way of fighting corruption and increasing global investment is through strong legal systems, protection of property rights, and liberalization of citizens’ privileges.

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