Discuss the main characteristics of an underdeveloped countries or how would you differentiate between a developed and an underdeveloped economy?

Developing Economy :-
According to Prof. Nurkse, "Under developed countries are those which when compared with the advanced countries are under equipped with capital in relation to their population and national resources."

According to United Nations experts. "A developing economy is that in which per capita income is low when compared with the per capita incomes of U.S.A. Canada, Australia and Western Europe."

There are various definitions which have been offered by the different writers but these are not satisfactory. Any how we describe here the basic features of developing economy which are commonly found in the developing countries.
These are following :

1. Poverty :-
In the less developed countries the standard of living is very poor. Basic needs like food, clothing, housing, education and medical facilities are not available. People are leading miserable life.

2. Dependence on Agriculture :-
Most of the less developed countries like India and Pakistan depend upon agriculture sector. The majority of population is engaged in agriculture. But unfortunately agriculture is hopelessly in a backward stage in the developing countries, the average land holding and per acre yield is low.

3. Shortage of Natural Resources :-
There is a shortage of natural resources like land, forests, rivers, and minerals in the poor countries, on the other hand, these are not utilized properly to achieve prosperity. So national product remains very low in these countries.

4. Population Pressure :-
In the under developed countries the size of population is greater than the size of natural resources. The rate of population growth is very high while the rate of economic development is very low. So high birth rate is the main obstacle in the way of economic development.

5. Lack of Capital :-
It is the main cause of poverty in the under developed countries. These countries can not establish the industries and can not utilize their resources due to the non availability of capital.

6. Unemployment :-
In the less developed countries rate of unemployment is very high. Disguised unemployment is also found in these countries. It is an obstacle in the way of economic development and in India and Pakistan it is increasing with urbanization and spread of education.

7. Lack of Technology :-
In the developing countries like India and Pakistan there is a use of low level technology in various sectors. So the cost of production is very high and rate of production is very low.

8. Unequal Distribution of Wealth :-
It is an important feature of under developed economy. In these countries society is divided into two classes rich and poor. The rich class enjoys all the facilities of life while poor class suffers poverty and hunger.

9. Political Instability :-
In the under developed countries political condition is also not favorable. For example in Pakistan the rate of development remained low due to political crises. Uncertain conditions creates many problems for the investors.

10. Deficit Balance of Payment :-
The less developed countries are producing and exporting the primary commodities while these are importing the finished and capital goods. In the international market the prices of raw material are very low while the prices of capital goods are high. So balance of payment remains unfavorable , due to this reason.

11. Limited Home Market :-
In the less developed countries like Pakistan, the purchasing power of the people is low. Producer is unable to increase the supply of various goods due to low demand. So limited market is also an obstacle in the way of economic development.

12. Burden of Debt :-
It is an important characteristic of the under developed countries. All these countries receive foreign aid of their development program. For example Pakistan spends a huge amount of foreign exchange for the repayment of debt interest every year. It is an obstacle in the way of economic development.

13. International Forces :-
The rate of economic growth in the third world has also been adversely affected by the advanced countries economic policies. The advanced countries are not ready to transfer technology in these countries.

14. Inflation :-
The rate of inflation is high in all the less developing countries which affects the economic performance. In these countries level of prices is rising which is creating the problems for producer and consumer.

15. Imperfection of Market :-
In the under developed countries prices of commodities vary from shop to shop and place to place. Labour and capital are less mobile in search of higher returns. So imperfection of market is an obstacle in the way of development.

16. Poor Performance of Industrial Sector :-
In the under developed countries there is hold of few families on the industrial sector. The small scale industry has also been ignored. There is also a shortage of entrepreneur.

17. Low Per Capita Income :-
In the under developed countries the size of national income is low but the size of population is very high. So per capita income remains low which is the main obstacle in the way of economic development.

18. Vicious Circle of Poverty :-
A poor country is trapped in its own poverty. In the less developed countries production, per capita income, saving and investment is low. So low investment leads to low production.

19. Frequent Changes in Fiscal Policy :-
The frequent changes are made many times in the same year in these countries which affect the rate of investment adversely.

20. Unproductive Expenditure :-
In the under developed countries a huge capital is used for unproductive purpose which increases the rate of inflation and affects the rate of economic development, adversely.