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Difficulty: MediumObstacles to Economic Development in Developing Nations

Match each obstacle to economic development in developing nations listed on the left with its corresponding economic characteristics or manifestations on the right.

  • Vicious Circle of PovertyA self-reinforcing scenario where low income leads to low savings, low investment, low capital accumulation, and back to low income.
  • Economic DualismThe structural co-existence of a modern, market-oriented sector alongside a traditional, subsistence-based sector.
  • High Dependency RatioA demographic imbalance where a large non-working population relies on a relatively small productive labor force.
  • Low Capital FormationInadequate accumulation of physical stock and productive assets due to negligible domestic savings and limited foreign investment.

Answer

The correct matches pair each obstacle with its precise economic definition: Vicious Circle of Poverty pairs with self-reinforcing low income and savings; Economic Dualism pairs with co-existence of modern and traditional sectors; High Dependency Ratio pairs with a large non-working population relative to workers; and Low Capital Formation pairs with inadequate accumulation of physical productive assets.
Each term corresponds to its established macroeconomic definition: the Vicious Circle of Poverty reflects the circular relationship between low income and low savings; Economic Dualism reflects the split between modern and traditional sectors; High Dependency Ratio reflects demographic strain on workers; and Low Capital Formation reflects insufficient accumulation of capital equipment.

Step-by-Step Solution

1
Analyze the structural and demographic obstacles to development in developing economies.
Identified four distinct obstacles: income/savings cycle, structural dualism, demographic pressure, and capital accumulation constraints.
Each obstacle targets a specific mechanism that restricts economic growth and structural transformation.
2
Evaluate the Vicious Circle of Poverty.
Matches the self-reinforcing chain connecting low per capita income, low savings, low investment, low productivity, and back to low income.
Ragnar Nurkse's theory posits that a country is poor because it is poor, operating on both supply and demand sides of capital.
3
Evaluate Economic Dualism.
Matches the co-existence of a modern urban/industrial sector with a traditional rural/agricultural sector.
Structural dualism creates unequal development, income inequality, and market fragmentation within the same economy.
4
Evaluate High Dependency Ratio and Low Capital Formation.
High Dependency Ratio matches demographic pressure from non-working dependents; Low Capital Formation matches low savings resulting in insufficient physical assets.
High dependency redirects resources from saving to current consumption, which directly fuels low capital formation.

Key Concept

Obstacles to Economic Development in Developing Nations
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Obstacles to Economic Development in Developing Nations