Difference between Developed and Underdeveloped Economy

On the basis of the level of economic development, economies are classified into the following categories: Developed economy and Underdeveloped economy. The Main Difference between Developed and Underdeveloped Economy

Difference between Developed and Underdeveloped Economy

Developed EconomyUnderdeveloped Economy
A high per capita income leads to a higher standard of living.A low per capita income leads to a low
standard of living.
The incidence of poverty is low.The incidence of poverty is high.
Industrial and service sectors are predominant.Agricultural or the primary sector is
Resources are properly used and highly advanced capital-intensive techniques are used in production. Therefore, productivity is high.Resources are underused and traditional techniques are used in production. Therefore,
productivity is low.
The gap between the rich and the poor is narrow.The gap between the rich and the poor is wide.

What is Developed Economy?

An economy that enjoys a high level of per capita income and a high standard of living is known as a developed economy.

Main features of a developed economy

  • Have a high level of per capita income or output.
  • People enjoy a higher quality standard of living.
  • Contributions of industrial and service sectors are very high.
  • Available resources are fully exploited and used.
  • Have a high degree of technical development.
  • Do not have a severe problem of unemployment.
  • Slow growth rate of population.
  • A higher level of capital formation and gross domestic savings.
  • A high ratio of urban population.
  • Maximum people live above the poverty line

What is an Underdeveloped Economy?

An underdeveloped economy is one in which the per capita income and the standard of living of the people are low. According to the World Development Report 2011, economies having a per capita income of $995 or less are considered underdeveloped economies. They are also known as developing economies as they are passing through a phase of development and growth.

Important characteristics of an underdeveloped economy

The per capita income in an underdeveloped economy is low, and therefore, the majority of the population lives below the poverty line. Consequently, people in this economy live in miserable conditions.

In most underdeveloped economies, the population growth rate is very high as compared to the other economies. Also, because of improved medical facilities, the mortality rate among all the sections of society is reduced. As a result, as the population increases, the consumption of the limited resources also increases, resulting in less saving of resources and a slower growth rate.

For many underdeveloped economies enriched with large and sufficient resources, most of these resources remain underutilized because of a lack of skilled personnel and technology.

Underdeveloped economies suffer from widespread unemployment. Because of various reasons, such as rapid population growth and lack of investment, unemployment prevails in such an economy. It is estimated that underemployment and unemployment together constitute nearly 30% of the workforce of an underdeveloped economy.

Inequality in the distribution of income is prevalent in these economies. As a large part of the national income goes to smaller sections of society, the larger sections of society have to be satisfied with whatever part of income is available to them. According to the Human Development Index, the top 20% of India’s population receives 45.3% of the national income, while the poorest 20% of the population receives 8.1% of the national income.

Also, Read

Discover more from Home of learning

Subscribe now to keep reading and get access to the full archive.

Continue reading

Scroll to Top