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Development Economics

Obstacles to Economic Development in Developing Countries

Anything that adversely affects the process of economic development may be considered a barrier or obstacle. It is an analysis that these obstacles are represented by the lack, inadequacy, the inefficiency of human and non-human factors, which are regarded as essential for the process of economic growth and development of a country.

The various obstacles are sub-divided as economic, political, social, cultural and administrative in LDCs. A brief discussion of these obstacles is given below:

A) Economic Obstacles:

The major economic obstacles are the following:

1) Lack of Capital:

LDCS are basically agrarian countries whose income mainly depends on agriculture. But due to the backward agriculture sector, per acre yield is low, therefore, per capita income is low. Level of saving is low due to low level of income and therefore, level of investment is low. The ratio of savings to gross national product is low. Development programs cannot be completed, and we have to depend on foreign aid and loans which becomes a burden on the economy.

2) Lack of Technology:

Another obstacle to economic development is the lack of technology. In LDCS literacy rate low and the ratio of higher education is negligible. Mostly LDCS are countries but agriculture is backward due to obsolete techniques of production. Each and every sector of the economy is underdeveloped. In the industrial sector modem technology is not being used. Means of transport and communication are underdeveloped. Hence, a low level of economic development is due to lack of technology.

3) Lack of Foreign Exchange:

LDCS are facing problem of shortage of foreign exchange because their export and export prices are not increasing as against imports and import prices. Balance of payments position remains unfavorable and to correct balance of payments they have to take foreign debts worth millions of dollars every year.

4) Lack of Entrepreneur:

There is a shortage of hardworking, experienced and efficient entrepreneurs. Entrepreneurs play a vital role in economic development of a country. These are the people who organize business and use national resources properly. In LDCS entrepreneurs only invest in that business where risk is minimum, and rate of profit is high.

They avoid innovation and modernization that is why production of goods and services is less than the country’s demand. In some sectors there is over production while in other sectors it is negligible. There are no proper training institutions for entrepreneurs.

5) Underdeveloped Natural and Human Resources:

In LDCS natural resources such as fertile soil, favorable climate, water resources, minerals and human resources such as; doctors, engineers, artisans etc., are underdeveloped, There should be forests on 25% of the total area which is very low in LDCS.

Human resources are backward. Literacy rate stood at very low level about 50 to 60 percent. People are not well trained and have less knowledge of modern technology. They prefer outdated techniques of production. Religious factor is dominating, and majority of women is not included in the working force, therefore, rate of economic development remains low.

6) Imbalanced Growth:

The imbalanced growth could be identified in number of sectors. Over the years LDCS have progressed in the agricultural sector while they lagged behind in the human resource development. Financial constraints are another major impediment in the national development. This is further compounded by the improper allocation of resources.

7) Market Imperfections:

It is another important obstacle to the economic development of the less developed countries. Market imperfections appear in the form of immobility of the four factors of production, price rigidity, ignorance of market conditions, rigid social structure, lack of specialization etc.

In the less developed countries, labour and capital are less mobile in search of higher returns. All these and other market imperfections act as hinderance in the achievement of an optimum allocation of scarce resources.

8)  International Forces:

The rate of economic growth in the third word has also been adversely affected by economic forces operating in the world economy. The developing countries are mainly the exports of primary products raw materials and semi-manufactured items and export prices of these products in the international market are either stagnant or fluctuating against them.

The advanced world, on the basis of superior technology, has made rapid progress in economic growth and the prices of industrial exports, machinery, technology are rising. This has adversely affected the balance of trade and balance of payments of less developed countries which in tum affected the level of national income per capita income, living standard.

9) Non-Availability and Under Utilization of Resources:

The main problem is the mis-utilizations of resources. The Natural resources comprise of Coal, Gas, Oil, Forests etc., play important role in the economic development. But these resources are not still handsomely discovered in LDCS due to lack of research and survey. Moreover, the known resources are not being fully utilized. Resultantly production level remains low.

10) Vicious Circle of Poverty:

A common feature of developing economies is vicious circle of poverty. We are also in a circle of poverty. Economic backwardness in LDCS operates both as cause and as an effect. That is why they are poor.

Income levels are low in LDCS people hardly meet their basic needs within their small income. So nothing remains as savings, which is an essential need for development. Savings remain low percentage of GDP. LDCS cannot save money, as their propensity to consume is high consequently investment level remains low. Capital flight is another reason of low capital formation.

11) Inefficient Trade and Commerce:

Trade and commerce activities which promote the economic development of a country are also poor in LDCS.

12) Backward Industry/Industrial Weakness:

LDCS have a poor industrial set up. Industrialization is must for development. LDCS industrial growth is not accelerating. Marketing for industrial goods is also not proper. Growth rate for industry posted is very low.

14) Backward Agriculture:

Overall, the agriculture sector of LDCS is backward. Productivity level is low. Agriculture performed very poor.

15) Capital Market:

It plays an important role in the growth of the economy. Stock exchange is one of the components of capital market. General volume index stock has been continuously fluctuating. Performance of other capital market institutions is also not satisfactory.

16) Weak Infrastructure and Economic Structure:

LDCS have inadequate infrastructure which actually give push to the economic development of a country. Their economic structure is backward we have not been able to develop a sound economic structure. Imposition of sale tax change of policy, improper economic plans etc. disturb the economic structure.

17) Transport and Communication:

Transport and communication network in LDCS consist of Roads, Railways, Ports, Shipping, Telecommunication, services etc. which are not enough for economic development. We have traffic jam problems our roads are congested, and communication network is weak

18) Energy:

The state of commercial energy like Oil, Electricity, Gas are inadequate for the development. All kinds of industries and agriculture need these power resources. Dams can be constructed in LDCS through which supply of electricity can be made adequate. Unfortunately, due to political disputes work on such projects cannot yet be started.

19) Lack of Skill and Research:

Literacy rate in LDCS remains low. There is lack of skill and entrepreneurial qualities. Most production techniques are outdated. We are not familiar with research and specialization.

20) Inconsistent Economic Policies:

Our economic policies are not clear. There is a frequent change in economic policies. We started our economy with privatization then practiced nationalization and again we are trying to operate our economy on the principles of liberalization. Local and foreign investors have lost their confidence.

21) Tax Structure:

Tax evasion is common in LDCS and tax is mostly paid by the salaried class. There is a burden of indirect taxed. Mostly people are not satisfied with the tax structure. Day by day increasing number of strikes by the traders, transporters destroys the peace. Due to all these factors government cannot start development projects in the country.

22) Unfavorable Foreign Economic Affairs:

External sector can strengthen the economy, but our foreign affairs are not favorable for us.

23) Unfavorable International Trade:

Our international trade is not favorable. We export raw material and primary goods while import costly machines, medicines etc. This makes international trade adverse.

24) Burden of Debt Foreign:

We get foreign aid and loan from different countries and international agencies. Our outstanding debt has been growing annually. So we are depending on international relation. We have to follow the terms and conditions imposed by the donor countries.

25) Capital Flight:

Every month millions of LDCs capital of flies to other countries due to lack of infrastructure and political instability. Capital flight problem creates deficiency of capital. Capital formation rate is lowering in LDCs. Investors for safe side send their money abroad.

B) Political Obstacles:

Political stability is necessary for economic development. Political instability reduces the rate of economic development.

LDCs remained under political disturbance. There were rapid changes in government. These rapid changes discouraged rate of investment in the country. Each government discarded the previous government economic policies.

C) Social and Cultural Obstacles:

Important social and cultural obstacles in the way of economic development are as follows.

1) Illiteracy:

Due to higher illiteracy rate people cannot the productive resources and do not understand the importance of economic development and do not understand modern techniques of production, therefore, our agricultural, industrial, minerals sectors are underdeveloped.

2) Lack of Effective Population:

Economic development depends on share of effective population. In LDCs population growth rate is high but there are very low rate of effective population which are taking part in economic activity.

3) Lack of Determination:

The society is divided into two classes one is rich and other is poor. Rich class little concern for economic development and on the other side the efficiency of poor class is low enough that they cannot utilize national resources properly. There is a shortage of determination among the people.

4) Customs and Traditions:

Because of illiteracy the people are busy in frivolous customs and traditions. People are spending money on marriages, births, deaths and birthdays etc. In Rural sector most of the villagers are involved in litigation, therefore, they waste a lot of money which reduces saving capital.

5) Unfavorable Environment:

The environmental conditions in LDCs are not favorable. Majority of the people is not provided with residential accommodation. Due to low level of income labour cannot maintain equitable standard of living which decreases the efficiency of the labour and, therefore, production level remains low.

6) Joint Family and Caste Systems:

Joint family and caste systems are also obstacles to economic development. Few members or family heads are working while other members are dependent and remain idle. They are proud of caste and Colour.

Caste system has shut down the development process. Especially people belonging to superior caste (as they think) do not work but only pass time in leisure. Thus, family system and caste system are obstacles in the way of economic development.

7) Urbanization:

Urban areas are limited in size and when people blindly migrate from rural to urban areas, many problems takes place urbanization can lead to low and order situation and high crime rate.

D) Administrative Obstacles:

Administrative obstacles may arise when:

1) Corruption:

Corruption and dishonest personals may be the main cause of poor administration that turns into an obstacle. Corruption may be due to absence of checks and balances in the exercise of power, lenient treatment, illiteracy, ignorance of higher-ups ctc.

2) Red-Tapism:

Red-tapism or delays in making decisions and their implementation is also another form of administrative obstacle. Irrationally organized administrative system left various inbuilt elements in overall system, which obstructs it from performing its function and duties effectively.

3) Incorruption:

In LDCS mostly departments are interrupted by politicians that creates various problems like recruitment without merit, wrong persons on different authorities etc. interrupt their decisions. Due to these factors majority of the heads of different departments have no relevant experience, therefore, their technical decisions are sometime become incorrect.

4) Inefficient Staff:

There is lack of interrelationship among various departments. The staff of administrative department is not efficient. There is also a shortage of those persons who can make effective plans and made them in practice, which is essential for effectiveness of development planning.

5) High Administrative Expenditures:

The administrative expenditures are greater than their output in various department, due to that reason the condition of public sector is not satisfactory. In most cases departments of public sector are suffering from losses and their services are of low quality.

See also:

Remedial Measures for Economic Development

Characteristics of Developing Countries

Vicious Circle of Poverty and Measures to Break V.C.P.

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