Eli5: How do countries get out of bad economic situations? Like if a country has no resources, money, etc. how can they get out of that situation?

Question

Eli5: How do countries get out of bad economic situations? Like if a country has no resources, money, etc. how can they get out of that situation?

In: Economics

Answer 1

There’s no simple answer to this – there’s an entire field of economics looking at how less developed countries develop, with plenty of disagreements on the subject.

There’s no one policy that works for all countries at all times. You have to look at the specific circumstances of the country and the wider regional or world economy. And economic development is difficult.

Ultimately you need to get money from *somewhere* to develop, whether that’s loans, aid, natural resources, some part of the economy that’s competitive, money coming from people working abroad, or squeezing it out of agriculture (a traditional, but not necessarily effective method). This money then needs to be directed to the right places by the private sector or the state, which is not an easy thing to do. And usually growing industries need protection from international competition, but alongside pressure to improve efficiency – such as pressure to sell internationally.

These policies usually need to be combined with good governance, improvements to infrastructure and ‘human development’, an income distribution that’s not too unequal, and no disastrous events – natural disasters, wars, being forced to change economic policies.

Here’s an example I wrote about on here yesterday: South Korea. After the Korean war, South Korea was very poor, with a mostly agricultural economy, poorly educated population and considerable war damage. However its economy grew rapidly in the 60s and even faster in the 70s.

There are five main factors behind that:

* Large scale and consistent aid from the US (and later Japan).

* Protectionist trade policies allowing domestic industries to grow.

* Policies funnelling money into industrial development, as well as education and infrastructure. (And not losing too much to military spending or corruption.)

* Pressure on companies to export rather than relying on the domestic market.

* A world economy that was growing in the 60s and globalising in the 70s, well able to buy exports from Asian countries.