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45: Problems and their Consequences for the Developing Countries

Problems faced by Developing Countries

1. Unemployment
  • It increases government spending on unemployment benefits
  • It reduces government revenue from income tax
  • It reduces economic output and reduces living standard
  • It increases social cost and crimes
  • It leads to loss of skills of labour
  • It leads to loss of morale
  • It leads to lost output
  • It leads to poverty

2. Higher population growth
  • It requires a higher government expenditure on infrastructure and basic facilities
  • It makes the resources more scarce
  • There is a greater chance for increased poverty
  • It encourages the production of more consumer goods at the expense of capital goods
  • It leads to social problems like overcrowding and congestion
  • It is embedded with mass unemployment
  • It pulls up the price level

3. Congestion, social problems and terrorism
  • It increases social cost
  • It discourages Foreign Direct Investment (FDI)
  • It leads to lost of prestige
  • It reduces export (especially services like tourism)
  • It leads to a wastage of human resource

4. Natural calamities (such as Tsunamis)
  • It leads to unnecessary duplication of works
  • It destroys natural resources
  • It reduces economic growth
  • It requires more resources and time for reconstruction
  • It immediately requires more capital

5. Lack of Foreign Direct Investment and grants
  • It reduces economic growth
  • It reduces employment opportunities
  • It requires heavy local investment

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