While it would be very difficult to locate a representative under-developed country, it is much easier to bring out some fundamental characteristics common to under-developed countries, which are considered below:
(i) Low Per Capita Income:
The per capita income in under-developed countries is extremely low.
The average annual income in under-developed countries like India, Sri Lanka and Pakistan is between $260 and 350 per head as compared with $12,820 in the U.S.A. Low per capita income is an outstanding feature of an under-developed economy and is a significant measure of a country’s development.
(ii) Deficiency of Capital Equipment:
The insufficient amount of physical capital in existence is so characteristic a feature in all under-developed economies that they are often called simply ‘capital-poor’ economies. One indication of the capital deficiency is the low amount of capital per head of population.
Not only is the capital stock extremely small, but the current rate of capital formation is also very low. In most under-developed countries, investment is only 5% to 10% of the national income, whereas in the United States, Canada, and Western Europe it is generally from 15 per cent to 20 per cent.
The low level of capital formation in an under-developed country is due both to the weakness of the inducement to invest and to the low propensity and capacity to save. In such an economy, the low level of per capita income limits the size of the market for manufacturing output, which weakens the inducement to invest. The low level of investment also arises from the lack of dynamic entrepreneurship, which was regarded by Schumpeter as the focal point in the process of economic development.
At the root of capital deficiency is the shortage of savings. The level of per capita income being quite low, most of it is spent in satisfying the bare necessaries of life, leaving a very low margin of income for capital accumulation. Even with an increase in the level of individual incomes there does not usually follow a higher rate of saving because of the tendency to emulate the higher levels of consumption prevailing in the advanced countries. Nurkse has called this tendency “demonstration effect”.
(iii) Excessive Dependence on Agriculture:
Most under-developed countries are predominantly agricultural. A great majority of their population, usually between 70 and 80 per cent, are engaged in agriculture and allied occupations. This excessive dependence on agriculture is due to the fact that non-agricultural occupations have not grown at a rate commensurate with the increase in population for lack of sufficient investment outside agriculture. The labour-land ratio being high, agricultural holdings have become sub-divided into small fragments, which do not permit the use of modern mechanical methods of cultivation.
(iv) Rapid Population Growth:
Although there is diversity among under-developed economies in respect of their population, there appears to be a common feature, namely, a rapid rate of population increase. This rate has been rising still more in recent years, thanks to the advances in medical sciences, which have greatly reduced mortality rate due to epidemics and diseases.
While the death-rate has thus fallen phenomenally, birthrate does not yet show any significant decline, so that the natural survival rate has become much larger. In countries like India, Pakistan, Burma, a veritable population-explosion is feared. The great relevance of this important trend consists in this that it sets at nought all attempts at development inasmuch as the increased output is swallowed up by the increased population.
(v) Unemployment and Under-employment:
An important consequence of rapid rate of population growth, without a corresponding increase in the level of economic development, is that there is a large-scale unemployment in urban areas and disguised unemployment in rural areas. More and more people are thrown on land, since alternative, occupations do not develop simultaneously to absorb surplus population.
It means that there are more persons engaged in agriculture than are actually needed, so that the addition of such persons does not add to land’s productivity. Even if some of the persons are withdrawn from land, no fall in production will follow from such a withdrawal. Their marginal productivity is zero.
(vi) Under-utilisation of Natural Resources:
The natural resources, in an under-developed economy, are either unutilized or under-utilized. Generally speaking, under-developed countries are not deficient in land, water, mineral, forest or power resources, though they may be untapped. In other words, they constitute only potential resources. The main problem in their case is that such resources have not been fully and properly utilized due to various difficulties, such as the deficiency of capital equipment, the inaccessibility of natural resources, primitive techniques and the small extent of the market.
(vii) Foreign Trade-Orientation:
An under-developed economy is generally foreign trade-oriented. Such countries export raw materials instead of utilising them at home and import manufactures instead of making them at home. Since in some cases, like Sri Lanka, Burma and Thailand, they export a significant portion of their national output, they may be termed a “export economies.’ Excessive dependence on export makes these economics precarious and (instable and affects” adversely their terms of trade. The marginal propensity to import top is high in such countries.
(viii) Low-Levels of Technology and Skills:
The under-developed countries employ primitive methods of production and inferior and less productive techniques. There is also a terrible dearth of skilled personnel. Poor technique and lower skills result in inefficient and insufficient production, which causes general poverty.
(ix) Economic Backwardness:
The people of under-developed countries are economically backward. This economic backwardness manifests itself in low efficiency, illiteracy, poverty, factor-immobility, lack of entrepreneurship and ignorance in economic matters. Their value structure and social structure reduce incentives for economic change.