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## Have the Least Developed Countries Stepped on a Path of Fast and Inclusive Growth?

PIIS032150750000091-2-1
DOI10.31857/S032150750000091-2
Publication type Article
Status Published
Authors
Affiliation:
Professor, Chair, International Economic Relations of Asian and African Countries, Institute of Asian and African Studies, M.V. Lomonosov Moscow State University
member, Editorial Board, “Aziya i Afrika segodnya” journal
Journal nameAsia and Africa today
EditionIssue 7
Pages2-9
Abstract

This paper, which is based on a series of author’s calculations and models, analyzes major trends, proportions and economic and social determinants and consequences of Least Developed Countries’ (LDCs’) economic growth during the last three to four decades. It is argued that despite gargantuan problems that LDCs are facing, a few dozens of them have recently started to progress on the path of rather fast and more or less sustained economic growth. Although LDCs are still grappling with severe forms of multidimensional poverty, substantial dearth of human capital and modern infrastructure, adequate economic, social, political and legal institutions, and encounter considerable foreign economic and climatic shocks, they on average during the last decade and a half managed to have markedly increased their rates of growth of per capita GDP and human development index. It should be underscored that LDCs having benefitted from significant improvement of barter terms of foreign trade, some upgrade in government effectiveness and implementation of a series of pragmatic economic reforms, have succeeded in expanding rates of growth of agricultural and manufacturing production and exports. The level of their gross capital formation has by and large considerably risen due to significant enlargement of the share of domestic savings related to GDP, FDI inflows and workers’ remittances. The author’s calculations show that much faster growth of GDP was achieved in LDCs with moderate level of income inequality and the rising level of the indicator of the rule of law. It would be incorrect to overemphasize the progress made by approximately three dozen LDCs (as the basis of their growth remains shaky), but, nevertheless, they have demonstrated noticeable improvement in dynamics of their investment efficiency and productivity growth.

Keywordsleast developed countries, inclusive growth, models, total factor productivity, augmented human development index, Gini coefficient, quality of institutions.
Publication date27.08.2018
Number of characters17727

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During the last two to three decades a number of developing countries (DCs), including such large ones as the People’s Republic of China and the Republic of India, have succeeded in increasing markedly their rates of economic growth. As a result, by (minimal) criterion, applied by the World Bank and the United Nations1, the share of people living in extreme poverty in the world has contracted more than three times to approximately 1/10. But in the least developed countries (LDCs) this relative indicator has on average declined only by 1/3 to more than 2/5. As for the absolute number of extremely poor in the LDCs, it, on the contrary, grew by 1/5.

1. Per capita consumption a day not exceeding $1.9 at 2011 PPPs. 2 If one applies a little bit more rigid criterion of poverty by raising its level by a little over one dollar from 1,9 to$3,2 at 2011 PPPs it is possible to reveal that the level of severe poverty is higher in DCs 2,6 times (nearly 1/3 of the population is afflicted with poverty) and in LDCs - 1,6 times (the respective figure amounts to 3/4 of their population) [1].

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Is everything hopeless in the group of LDCs or the waves of positive changes, manifesting much more harmonious and inclusive growth/development, have uplifted them as a number of other DCs (ODCs)?

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### DYNAMICS OF GROWTH

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LDCs is not a tiny group of countries. They represent 1/3 of the total number of DCs (3/5 of African and 1/5 of Asian DCs) and nearly one billion people (13% of the world population). However, their shares in the value of global GDP and exports do not exceed 2 and 1% respectively.

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Relative and deep backwardness of many LDCs was brought about by a number of factors, among them - negative consequences of colonialism (which are still having a hefty detrimental impact on many poor countries), substantial dearth of physical and human capital and modern infrastructure, lack of adequate institutions, rational reforms, sound and persistent economic policies, as well as prevalence of rent-seeking activities, pursued primarily by elite groups in many LDCs and frequent waves of political instability.

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The lagging of LDCs not only behind the advanced economies (AEs), but also behind the ODCs was steadily increasing during a long period of time. In the last three decades of the previous century dynamics of growth of their per capita GDP was substantially lower than on average in ODCs and AEs (see figure 1).

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LDCs, ODCs and AEs denote respectively least developed countries, other developing countries and advanced economies. However, in 2000-2017 the average annual growth rate (AAGR) of per capita GDP in LDCs has shot up. The share of LDCs with negative AAGR of the above-mentioned indicator halved from approximately 1/2 in 1970-2000 to 1/4 in 2000-2017. It stemmed from a series of factors, among them - notable amelioration of governance and investment climate in a number of poor countries, an improvement of barter terms of foreign trade (first of all in African LDCs / AFLDCs), as well as a significant rise (primarily in Asian LDCs / ASLDCs) of AAGR of agricultural production and exports of manufactured goods.

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At the same time the per capita GDP in LDCs related to the average level of ODCs has fallen from 55% in 1970 to 21% in 2017. It means that despite certain successes achieved by LDCs, the gap between ODCs and them has enlarged in relative dimensions 2,6 times, and in absolute dimensions - 7,7 times (from $1,360 to$10,500 at 2011 PPPs)2.

2. Unless otherwise stated, all calculations are made on the data from sources indicated in figure 1.
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Since dynamically growing group of ODCs managed to have curtailed its relative gap in per capita GDP with AEs nearly twice - from 5.8 in 1970 to 3.1 times in 2017 (although the absolute gap between them has nearly doubled), it turned out that the relative gap between LDCs and ODCs, measured by GDP per capita, became larger than on the whole between the ODCs and AEs. It means that the character of the processes of divergence and convergence which are underway in the world is rather contradictory, and dangerously explosive potential of disproportions is currently increasing in it, which can result in serious economic, social and political consequences.

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### MODELS, INGREDIENTS AND FACTORS OF ECONOMIC GROWTH

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It is not easy to pin down the exact factors that have recently caused some acceleration in economic growth in nearly three dozen LDCs. However, one may start off with a simple pilot model 1 (see below). Tentative conclusions are as follows. According to our calculations, made on the data of 28 LDCs (which account for more than 90% of their population), comparatively faster per capita GDP growth achieved during 2000-2015 in such countries as Ethiopia, Tanzania, Mozambique, Bangladesh, Lao, Cambodia was due respectively by 1/3 and 1/5 to more rapid growth of agricultural value added and exports, and approximately by ј - to improvement in government effectiveness3.

3. 1/5 of the effect can be attributed to other (non-identified) factors.
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GDPPERCAPGRi,  AGRGRi,  EXPGRi, ДGOVEFFi - denote respectively average annual compound growth rates of per capita GDP, agricultural value added, exports of goods and services and improvement in government effectiveness calculated for 28 LDCs with population exceeding 5 million people for which necessary and relatively reliable data was available for 2000-2015. 28 countries are as follows: Afghanistan, Angola, Bangladesh, Benin, Burkina Faso, Burundi, Cambodia, Central African Republic, DR Congo, Eritrea, Ethiopia, Guinea, Laos, Madagascar, Malawi, Mali, Mozambique, Myanmar, Nepal, Rwanda, Senegal, Sierra Leone, Sudan, Togo, Uganda, Tanzania, Yemen, Zambia.

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1.  Derived  or  calculated  on  the  data  from  Poverty  Headcount  Ratio  at  $1,9 and$3,2  a  day  (2011  PPP)  -http://databank.worldbank.org (accessed 04.03.2018); UNCTAD. The Least Developed Countries, 2016. New York, 2016.P. 19. 2. Calculated on the data from: UNCTAD. The Least Developed Countries, 2015. N.Y. Pp. 50, 55, 72-75; World DataBank- http://databank.worldbank.org (accessed 04.03.2018)3. Although the simple average for 6 LDCs (22 days to register a business) is comparable to the average for India, the PRCand Indonesia (25 days), the figure for LDCs is more than three times higher than for the AEs. Data derived from The WorldBank. Doing Business, 2018. Washington, D.C., 2018. Pp. 146, 160, 175, 180, 198, 201; The World Bank. World DevelopmentIndictors, 2003. Washington, D.C., 2003. Pp. 266-268; The Heritage Foundation. 2018 Index of Economic Freedom. N.Y., 2018.Pp. 446-452; Fraser Institute. Economic Freedom of the World, 2017. Vancouver, B.C., 2017. Pp. 40, 63, 76, 131, 171. 4. Estimates are based on the following figures. According to data from the 2011 International Comparison Program, thesimple average of gross fixed capital formation, related to GDP, in PPPs (in ‘real terms’) and in nominal terms for the three mostpopulous LDCs made up 19,9 and 25,9% respectively (in Bangladesh - 24 and 28,3%, in Congo D.R. - 18,2 and 23,6%, inEthiopia - 17,5 and 25,9%). For the three most populous ODCs the corresponding figures were equal to 32,9 and 36,2% (in 2011this indicator amounted to 42,4 and 45,6% of GDP - for the PRC, 24,7 and 30,9% - for India and 31,6 and 32% - for Indonesia).See: The World Bank. Purchasing Power Parities and the Real Size of World Economies. A Comprehensive Report of the 2011International Comparison Program. Washington, D.C., 2015. Pp. 42-73. 5. Calculated on the sources from figure 1 and UNDP. Human Development Report, 2016. N.Y., 2016. P. 269. 6. Calculated on the data from Fragile States Index 2017 - http://fundforpeace.org/fsi/data/ (accessed 12.04.2018; WorldGovernance Indicators - http://info.worldbank.org/governance (accessed 12.04.2018)