Essay On Economic System In Developing Country


This paper is constructed to delve into the discussion dynamics of economic growth in developing countries. As per the criteria defined by the United Nations, a developing country is one such which has a standard of living on the lower side of the scale, and their dependency in terms of economic sustainability is heavily tilted toward agriculture (Olowogbon et al., 2019). In other words, industrialisation is low there. As a result, the HDI also varies from low to moderate. According to the UN, the regions where the developing countries lie are Africa, Asia and Latin America (Van Loon et al., 2020). More specifically, some countries known as developing nations are Egypt, Cuba, BRICS countries, Congo, Mexico and several others. This paper argues that the economic systems in developed countries need to be assessed in a different light than the traditional growth theories. When economic growth has been analysed, the segments of social systems and the interdependent relationship between economic and non-economic factors need to be evaluated. This evaluation needs both domestic and global perspectives. Developing countries' development and economic growth cannot be considered sufficient if the basic needs of life are only met. Along with it, inequality reduction, self-esteem improvement and freedom of choice expansion must also be highlighted (Semasinghe, 2020). The upcoming sections will discuss these aspects in the light of recent global incidences and align the same for the developing countries and regions.

Critical Issues Faced By Developing Countries:

Roughly 152 countries are considered developing in nature with a dependency on agriculture and a lower Human Development Index. Almost all major African countries are considered developing countries, and it has been noticed that the economic performance in these countries has deteriorated over the years (Omar & Inaba, 2020). Some critical issues faced by the countries were social and economic inequality, conflict and forced displacement, distrust in government, climate change and environmental exploitation. More specifically, this deterioration has been witnessed from the end of the last century, and there has been no significant improvement. A strong theoretical underpinning will be necessary to determine the reasons for these critical issues the developing countries face in achieving economic growth. According to the classical growth theory, a country can attain economic growth through capital accumulation and reinvestment of the profit derived from comparative advantage and specialised production (Lueger, 2018). The second theory is the Mercantilism theory, which states the wealth calculating of a country is done by its reserve of gold and surpluses gained from international trade. The third theory, the neo-classical theory, argued that economic growth is correlated with the factor inputs like labour, productivity, workforce strength and others. Fourthly, the endogenous growth theory states that a country can attain high economic growth through human capital development and technological advancement. Finally, Keynes argued that when a country's aggregate demand increases through either consumption, investment or government spending, the country will attain higher economic growth by accelerating the real output production (Palley, 2019).
Empirical data for developing countries like South Africa, Latin American nations and BRICS showed that the GDP growth rate was slower than developed countries. Indeed, the economic condition of the mentioned countries was not aligned as the growth theories stated. For instance, the product markets experienced a distortion in Africa, and the capacity of the financial markets was restricted, which slowed capital accumulation (Atkin & Khandelwal, 2020). Aside from that, other factors contributing to the plummeting growth were high risk, inadequate social capital and inadequate infrastructure. This decreased the confidence of the people in their economic system. For example, in Myanmar, there are several sources of mass power generation. However, still, the country faces inadequate power supply because the government has monopolised the system, and financial capital resources are not used in proper sectors. Another burning example is Syria, where the unemployment rates were skyrocketing due to the inadequacy of the government, corruption became an unavoidable part of the people, and people experienced less to no economic freedom (Nimer, 2018). From this background, the conflict started and presently, the country is one of the most devastated.

Four major microeconomic areas that can describe the critical issues developing nations face in attaining growth are lack of trade openness, less to no social capital, social risk and inefficient public services. For instance, two decades back in Africa, the government undermined the market, and the return on assets started to decline. As a result, the private investors resourced their capital out of the country, and the nations faced a lack of capital accumulation and wealth which slowed down their growth (Aremo & Abiodun, 2020). Hence, from this discussion, it can be understood that the hurdle in attaining economic and social development for developing countries the main factors contributed are over dependency on the system and the system’s inadequacy to provide strong institutions, create sound human and physical capital, reducing conflicts and poverty and enhance the productivity level in the country. Additionally, lack of international trade and dependency on foreign aid created problems, and economic growth attainment about social development became problematic for these developing nations.

Strategy Implementation During The Pandemic

The covid-19 pandemic emerged on the earth during the year 2020. Since then, not only has the world been facing medical and health issues, but also the economies are facing severe downward spiralling in their operational dynamics. In Asia, the exports were decreasing severely, the Growth rate in Africa decreased by 50%, and in Latin America additional 30 million were in danger of falling below the poverty line (, 2020). However, as per the World Bank report, the impact of economic hardship is felt everywhere in developing countries but not every member of the society got affected on the same level. For instance, women and low-skilled labours were already going through rough patches before the pandemic. After the lockdown initialisation to contain the virus when economic operation stood still, these people faced more difficulty finding jobs. As a result, in Latin America, 4.7 million people were dragged below the poverty line from the middle-income group due to job loss. The same for African developing countries was calculated to be 40 million (, 2021). Another social area which got impacted by the pandemic was the education system. During the lockdown phase, most universities in developed countries turned towards the virtual mode of operation; for developing countries, the lack of infrastructure created barriers for them to adopt the same (Mishra, Gupta & Shree, 2020). More than 1.6 billion students experienced problems in their learning which decreased their chance of getting a job upon entering adulthood because this gap was experienced in their learning phase.

From this discussion, it can be said that developing countries were facing issues related to lower economic growth. To address this, there are several policy implications that the countries can select. Firstly, the countries can initialise vaccination through which the virus spread can be contained, and economical operations can get started in the countries. Next, as empirical data have proven, the governments can free up their contingency funds through fiscal measures to initiate support packages for the health and care industry, small businesses, unemployed and low-income grouped people and accelerate foreign currency generating export activities by giving a tax relaxation. Thirdly, governments can increase their spending on the economy so that the economic and productivity operations start to gear up. The country can increase its GDP accumulation through increased real output. Through monetary measures, the countries can develop their credit industry so that domestic business can recreate their operations to increase their personal and the country’s economic growth. Furthermore, through the proper market and industry analysis, the countries can identify the high productive sector and abundant factors of production and channel their resources in the same for capital accumulation and economic growth. In Asia, South America, and Africa, the government’s budget was constructed focusing on these fiscal policy measures, and the major expense was allotted to the healthcare industry. Furthermore, in the African countries, the export of essential medical supplies was restricted to support the domestic economy (Dzinamarira Dzobo & Chitungo, 2020). In a situation like this, the developed countries can provide the developing countries with socio-economic assistance to deal with the economic degradation.
The developed economies can arrange for financial aid to support the developing countries. The aid can be directed to the areas of saving lives, securing the foundation of the economy, protecting the poor and strengthening policies and institutions for resilience. Saving lives can be done by providing vaccines, upgrading the healthcare facilities and equipment and providing strengths to frontline workers. The Foundation of the developing economies can be secured by increasing the small and medium enterprises access to finances and capital and creating social infrastructures for them. Poor in developing countries can be protected through job creation, improving social assistance and providing water and hygiene. Finally, the policy and institution can be strengthened through economic reforms, supporting the government budget and creating an epidemic surveillance system. The first-world countries that are members of IDA provide this economic and social assistance to the developing countries of Africa, East Asia and Pacific, Europe and Central Asia, Latin America and the Caribbean, Middle East and North Africa and South Asia (, 2021).

Policies Of Developing Countries To Overcome Growth Problems

No matter the country’s economic condition, governments worldwide have always focused on achieving higher economic growth through policy implications. These policies have enhanced development, increased growth, decreased poverty and addressed other success-related areas. Empirical data collected from developing and emerging countries had shown that nations in the past had experienced a higher level of growth only when they accelerated their effectiveness in accelerating competition in their market economy (Sergi et al., 2019). In that way, strong companies that enjoyed the upper hand in the market and the world as catalysts for economic growth were created. However, not only was the domestic development sufficient, but if the developing countries aimed to increase the overall economic performance, cross-border activities also needed to be well constructed and consistent. Following are the main policies developing nations can adopt to overcome their economic growth problems.
1. Creating stability in the macroeconomic environment and taking up fiscal and monetary policy measures. For instance, the BRICS countries depend on their central banks to control inflation and decrease budget deficits. China and India are two countries attaining higher economic growth (Adedoyin et al., 2020). Still, if not monitored properly, their inflationary rates can go through the roof, and the economy can get overheated.
2. The domestic regulations need to be relaxed so that private companies can emerge, which are also the drivers of economic growth. Furthermore, companies that have higher trade barriers also need to lower them so that economic growth can be attained through the FDI inflows.
3. Trade needs to be increased by creating various free trade agreements and inviting foreign capital to the domestic economy's development segment (Rodrik, 2018).
4. Corruption decreasing measures need to be undertaken to improve the socio-economic lifestyle.
5. Adopting measures related to privatisation and deregulation. This particular policy measure drove the recent robust growth in China. However, this measure can increase inequality. Hence, measures to decrease inequality and legislations to secure employment rights must first be created before privatisation.
6. The tax structure and collected tax must effectively attain economic growth. For instance, the tax rate varies within 15% of the GDP in the Sub-Saharan African country, whereas the same for a developed country is calculated to be nearly 40%. This decreases the revenue earning of the government and needs policy implications.
7. Higher investment in education, healthcare and transport and more capital formation in the manufacturing industry rather than solely focusing on agriculture.
8. Decreased welfare spending of the government without getting a return.


In conclusion, it is to be stated that currently, the developing countries face critical issues in their economies which can be problematic in attaining economic and social development. After the covid-19 pandemic, the situation worsened and people started to lose their jobs. Along with it, the economic operation decreased, and the countries faced a downward spiralling of economic growth, which can be improved through foreign aid and domestic economic improvements. Most importantly, if the developing economies wish to improve their economic growth higher level of international integration will become necessary.


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