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Question

Difficulty: MediumObstacles to Economic Development in Developing Nations

Match each development obstacle commonly faced by developing nations on the left with its corresponding economic manifestation or structural mechanism on the right.

  • Vicious Circle of PovertyLow per capita income leading to low domestic savings, meager capital accumulation, and persistently low productivity.
  • Economic DualismCoexistence of a technologically advanced export sector alongside a traditional subsistence sector.
  • Debt OverhangExcessive external financial obligations that swallow foreign exchange reserves and crowd out domestic public investments.
  • Human Capital Flight (Brain Drain)Emigration of highly skilled professionals to foreign countries, reducing domestic technical and manager capacity.

Answer

Vicious Circle of Poverty matches with low income causing low savings, low investment, and low productivity; Economic Dualism matches with the coexistence of a modern sector alongside a traditional subsistence sector; Debt Overhang matches with foreign debt servicing obligations crowding out public investment; Human Capital Flight matches with the emigration of skilled professionals reducing domestic capacity.
Each obstacle is matched directly to its economic mechanism: the Vicious Circle of Poverty is driven by low savings and capital accumulation; Economic Dualism is marked by modern and traditional sectors existing together; Debt Overhang diverts revenues to external debt servicing; and Human Capital Flight represents the loss of vital skilled labor overseas.

Step-by-Step Solution

1
Analyze the structural mechanism of the Vicious Circle of Poverty.
Identify that low per capita income suppresses domestic savings, which restricts capital accumulation and perpetuates low productivity.
This is the classic economic cycle formulated by Ragnar Nurkse regarding capital deficiency.
2
Examine the definition and features of Economic Dualism.
Recognize the structural asymmetry between an enclave modern market sector and an illiterate or primitive traditional sector.
Dualism characterizes developing economies where technical and socio-economic gaps persist between sectors.
3
Evaluate the macroeconomic effect of Debt Overhang.
Connect high debt ratios to foreign exchange drain and diminished public investment spending.
Heavy debt servicing diverts government budget allocations away from crucial infrastructure and human development.
4
Define Human Capital Flight (Brain Drain).
Match it with the migration of trained professionals seeking better opportunities abroad.
The outflow of skilled labor degrades the host country's institutions and technological adoption capacity.

Key Concept

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