Second-World countries supported communism and the Soviet Union. Most of these countries were formerly controlled by the Soviet Union. Many countries of East Asia also fit into the Second-World category. Now, in part because the Soviet Union no longer exists, the definition of Third World is outdated and considered offensive. Alfred Sauvy, a French demographer, anthropologist, and historian, is credited with coining the term Third World during the Cold War.
Sauvy observed a group of countries, many former colonies, that did not share the ideological views of Western capitalism or Soviet socialism. In the modern-day, most countries on Earth fall into one of three general categories that some refer to as developed, emerging, and frontier. The world segmentations have somewhat migrated to fit within these categories overall.
The developed countries are the most industrialized with the strongest economic characteristics. The emerging countries are classified as such because they demonstrate significant strides in various economic growth areas though their metrics are not as stable. The frontier markets often closely mirror the old Third-World classification and often show the lowest economical indicators.
The evolutions of the worldly segmentations have become historic and obsolete. This index includes the following countries:. The WTO divides countries into two classes: developing and least developed. There are no criteria for these classifications so countries self-nominate, though statuses can be contested by other nations.
The WTO segregation comes with certain rights for developing country status. For example, the WTO grants developing countries longer transition periods before implementing agreements that aim to increase trading opportunities and infrastructure support related to WTO work.
The HDI measures and then ranks a country based on schooling, life expectancy, and gross national income per capita. This list is reassessed every few years. These indicators are a combination of gross national income, human assets nutrition, life expectancy, secondary school education, adult literacy , and economic vulnerability population size, remoteness, merchandise export concentration, agriculture, exports, and natural disaster preparedness.
Finally, "Third World" countries were countries that remained neutral and allied with neither side. However, that meaning changed after the fall of the Soviet Union and the end of the Cold War in the early s.
Under this modernized definition, Third World countries are those that display economic, social, political, and environmental issues such as high poverty rates, economic instability, and lack of essential human resources compared to the rest of the world.
This shifting definition has led to significant confusion as to which countries could correctly be called Third World today. A numerical example may be helpful here.
Suppose that Northern labor is ten times as productive as Southern labor in high-tech, five times as productive in medium-tech, but only twice as productive in low-tech. If both countries produce medium-tech goods, the Northern wage must be five times higher than the Southern. Given this wage ratio, labor costs in the South for low-tech goods will be only two-fifths of labor costs in the North for this sector, even though Northern labor is more productive.
In high-tech goods, by contrast, labor costs will be twice as high in the South. Notice that in this example, Southern low-tech workers receive only one-fifth the Northern wage, even though they are half as productive as Northern workers in the same industry.
Now suppose that there is an increase in Southern productivity. What effect will it have? It depends on which sector experiences the productivity gain. If the productivity increase occurs in low-tech output, a sector that does not compete with Northern labor, there is no reason to expect the ratio of Northern to Southern wages to change.
Southern labor will produce low-tech goods more cheaply, and the fall in the price of those goods will raise real wages in the North. But if Southern productivity rises in the competitive medium-tech sector, relative Southern wages will rise.
Since productivity has not risen in low-tech production, low-tech prices will rise and reduce real wages in the North. What happens if Southern productivity rises at equal rates in low- and medium-tech? The relative wage rate will rise but will be offset by the productivity increase. The prices of low-tech goods in terms of Northern labor will not change, and thus the real wages of Northern workers will not change either. In other words, an across-the-board productivity increase in the South in this multigood model has the same effect on Northern living standards as productivity growth had in the one-good model: none at all.
It seems, then, that the effect of Third World growth on the First World, which was negligible in our simplest model, becomes unpredictable once we make the model more realistic.
There are, however, two points worth noting. First, the way in which growth in the Third World can hurt the First World is very different from the way it is described in the Schwab letter or the Delors White Paper.
Third World growth does not hurt the First World because wages in the Third World stay low but because they rise and therefore push up the prices of exports to advanced countries. That is, the United States may be threatened when South Korea gets better at producing automobiles, not because the United States loses the automobile market but because higher South Korean wages mean that U. Second, this potential adverse effect should show up in a readily measured economic statistic: the terms of trade, or the ratio of export to import prices.
For example, if U. The potential damage to advanced economies from Third World growth rests on the possibility of a decline in advanced-country terms of trade. In sum, a multigood model offers more possibilities than the simple one-good model with which we began, but it leads to the same conclusion: productivity growth in the Third World leads to higher wages in the Third World. What changes if we now imagine a world in which production requires both capital and labor?
From a global point of view, there is one big difference between labor and capital: the degree of international mobility. Although large-scale international migration was a major force in the world economy before , since then all advanced countries have erected high legal barriers to economically motivated immigration.
But most labor does not move internationally. In contrast, international investment is a highly visible and growing influence on the world economy. During the late s, many banks in advanced countries lent large sums of money to Third World countries. This flow dried up in the s, the decade of the debt crisis, but considerable capital flows resumed with the emerging-markets boom that began after Many of the fears about Third World growth seem to focus on capital flows rather than trade.
Even Labor Secretary Robert Reich, at the March job summit in Detroit, attributed the employment problems of Western economies to the mobility of capital. In effect, he seemed to be asserting that First World capital now creates only Third World jobs. Are those fears justified? The short answer is yes in principle but no in practice. As a matter of standard textbook theory, international flows of capital from North to South could lower Northern wages. The actual flows that have taken place since , however, are far too small to have the devastating impacts that many people envision.
To understand how international investment flows could pose problems for advanced-country labor, we must first realize that the productivity of labor depends in part on how much capital it has to work with. As an empirical matter, the share of labor in domestic output is very stable. But if labor has less capital at its disposal, productivity and thus real wage rates will fall.
This might be because a change in political conditions makes such investments seem safer or because technology transfer raises the potential productivity of Third World workers once they are equipped with adequate capital. Does this hurt First World workers? Of course. Capital exported to the Third World is capital not invested at home, so such North-South investment means that Northern productivity and wages will fall. Northern investors presumably earn a higher return on these investments than they could have earned at home, but that may offer little comfort to workers.
What is the definition of a third world country? In recent years, the term has come to define countries that have high poverty rates, economic instability and lack basic human necessities like access to water, shelter or food for its citizens. These countries are often underdeveloped, and in addition to widespread poverty, they also have high mortality rates. The first world refers to the countries that are more developed and industrialized societies; in other words, capitalist societies that aligned with the U.
Second world countries refer to the countries that lean more toward a socialist society, and generally were allied with the Soviet Union during the Cold War.
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