Underdeveloped Economy: Meaning & Key Features

You can learn about the concept of an underdeveloped economy and how it is an integral part of industrialization in this article. Furthermore, explore the causes of an underdeveloped economy and how solutions can be integrated to solve the issues of an underdeveloped economy.

What is an Underdeveloped Economy?

An underdeveloped economy refers to the conditions and the states of a country, both natural and human. It includes the parts of the simple economy that are not effectively used or wasted, leading to low productivity, insufficient generation of funds, and profit. It is a key indicator of a country’s financial status and potential growth of a country and its industries.

Causes of an Underdeveloped Economy

There are several causes for a country to have an underdeveloped economy. When you learn about the basic problems of an economy, you integrate the way industries of a country work. Let us discuss them in detail to understand the reasons due to which a country suffers in its technological, education, industrial, and healthcare growth.

Insufficient Investment

When a country is trapped inside a cycle of poverty with insufficient investment into professional practices, it leads to low income for professionals and limited resources. The profit or losses of a business are limited, which often leads to an underdeveloped state in a capitalist economy. The outcome is poor economic growth and minimal investments.

Colonial History

There are social factors like reduced quality of life, inequality among individuals, and social unrest due to exploitation by colonial countries. It leads to indiscipline and discrimination. This impacts the development of a country, leading to an underdeveloped status of the country.

Political Instability

With the severe and unsustainable political practices, there is a lack of opportunities in the market. The industries are suffering, leading to restricted growth and development of individuals and groups. It also impacts the overall healthcare and quality of education in the country.

Key Concepts of an Underdeveloped Economy

There are significant concepts related to an underdeveloped economy that a Commerce student must develop to qualify for finance jobs. It also helps students understand various concepts, which might be very helpful in the long run.

Dependency Theory - at times, developed nations influence and exploit the resources available on a global scale

Low Capital Formation - low savings lead to insufficient investment in productive assets

Structural Bottlenecks - lack of technology, weak institutions, which negatively impact the growth, and poor infrastructure, like power and roads

Economic Practices Contributing to an Underdeveloped Economy

The reasons why economic growth is stalled are now known. What we need to evaluate is how we can resolve the issues of a country suffering from an underdeveloped economy. Here are the factors that are necessary to overcome underdevelopment.

Investment in Infrastructure

For a country to grow, it is important to develop an effective infrastructure with skilled personnel and technologically advanced resources. With a significant communication network across industries, countries can improve energy, economic status, and transportation. It helps in the growth of the business economy.

Promotion of Education and Skills Development

A workforce is intellectually smart and skilled; education must be promoted. The educated and qualified professionals will lead to an enhanced level of innovation and productivity. Skills development among the workforce will lead to developed nations.

Diversification and Industrialization

With a skilled workforce and educational integration across the country, diversification will lead to stability. It helps create more job opportunities with a business strategy, along with the government making foreign investments. It also helps decrease over-dependencies on agriculture, leading to the creation of high-income jobs.

Wrapping Up!

In conclusion, the underdeveloped countries suffer on many levels, like finance, operational growth, and coordination. Companies of the country suffer from loss, while humans go through unequal practices and a low level of living.

Read More

• Indian Economy on the Eve of Independence
• Mixed Economy
• Impact of Trade Deficit on the Economy
• Sectors of the Indian economy
• Business Correspondence

Frequently Asked Questions on an Underdeveloped Economy

Which country is most underdeveloped?

South Sudan is often identified as one of the most underdeveloped countries on the global level. It reflects on the severe challenges it faces economically with poverty, conflict, and climate change.

What are the four types of economic development?

The 4 types of economic development, which are categorized based on economic practices that are sustainable and innovative along with investment, are market, command, mixed, and traditional. 

What are the 5 levels of economic development?

The 5 levels of economic development that are identified by W.W. Rostow, reflecting the modern industrial power and agrarian society, are as follows:

• Traditional society
• Preconditions for take-off
• Take off
• Drive to maturity
• Age of high mass consumption

What are the three theories of underdevelopment?

The three theories of underdevelopment that help in explaining the functions of the economy in a country are modernization theory, geographical explanations, and dependency theory.

What are the 4 stages of economic development?

The 4 stages of economic development in a business or an economic cycle are peak, trough, expansion, and peak.