Answer to Question #283747 in Macroeconomics for ABEX

Question

39. Why is that difficult to escape underdevelopment in a polarized society?

How does this explain the fact that middle income countries grow faster than both low and high income countries?

Answer 1

In a polarized society, underdevelopment usually refers to untapped potential, i.e., an economy that has not evolved to its full potential or has a long way to go before reaching full capacity. An underdeveloped country is one that has a fair chance of using additional capital, labor, natural resources, or any combination of these to help its current people reach a higher standard of life. The failure to meet the basic needs of their populations and to satisfactorily respond to their economic, social, and other basic needs are characteristics of undeveloped and developing societies. The shared economic traits of such a civilization can reveal the general nature of an underdeveloped polarized society. While categorizing which country is underdeveloped may be tough, highlighting some key characteristics of underdeveloped and developing civilizations will be considerably easier. These includes: Low levels of technology, low levels of productivity, a low average real income and a low growth rate of per capital income, and a high consumption ratio or a low savings ratio.

The lending-deposit rate spread no longer matters as much in middle-income countries. In high-income nations, this indicator of financial system underdevelopment binds much less frequently and has a weaker impact on GDP. The findings show that as countries rise up the wealth scale, inefficiencies in the financial sector become less important in comparison to other factors. Similarly, when one moves up the income scale, the gender ratio becomes less essential, albeit the percentage of the working-age population remains important, indicating that demographic characteristics become less important as one moves up the income scale. Other elements begin to have a larger impact at this phase. These factors include whether the country is experiencing a banking or currency crisis, the size of capital inflows excluding foreign direct investment, and the size of government debt as a percentage of GDP, all of which have a negative impact on growth.