Difference between the capital market of a developing and

developed country
Introduction:
What exactly is the difference between the developments of different countries?? What makes a
country poor and a country rich. Is it due to mankind existing there or any lack of financial system
or something else? Or by nature.

In a typical developed country there is a multitude of financial services enabling people to make
payments; borrow at reasonable interest rates; save for retirement; and limit economic risks
through insurance. These services are provided by various institutions acting in a complex network
of regulations and relationships that together make up the financial system. From a macroeconomic
perspective, this system allows efficiency through decreased transaction costs, allocation of
resources to productive use in enterprises and infrastructure, and the pooling of risks. (Obstfeld,
2004).

In developing countries, however, the situation is often quite different. The financial system is less
developed and financial services are less widely available or of much poorer quality. An
entrepreneur wanting to grow his business may not be able to raise capital; a worker may not be
able to earn interest on her pensions savings; investors have disincentives to invest capital due to
high transaction costs or high risks. Such an economic environment has negative consequences for
the individual, but also for the country as a whole. (Baronov 2004).

The classification of countries is based on the economic status such as GDP, GNP, per capita
income, industrialization, the standard of living, etc. Developed Countries refers to the
sovereign state, whose economy has highly progressed and possesses great technological
infrastructure, as compared to other nations.

The countries with low industrialization and low human development index are termed as
developing countries. Developed Countries provides free, healthy and secured atmosphere to live
whereas developing countries, lacks these things.

After a thorough research on the two, I have compiled the difference between the capital market
developed countries and developing countries considering various parameters.

1
Capital market evolution
From the capital users point of view the capital market development lifecycle can be characterized
by the sources of capital available. The first capital used to start a business is often personal, or
possibly a micro credit when such is available hence there is no need to use the capital market.
Later, a successful entrepreneur may use bank loans to expand his business. But at some stage of
business development it may be more favorable for the capital user to turn to the capital market in
order to grow the business. In comparison to bank loans, the capital market could provide capital
at lower cost (through bond issues) or in larger volume (through share issues) than would be
possible with bank credit alone. This can be seen as a big step, especially if ownership rights and
company control are a worry to the entrepreneur. It requires familiarity with the capital market,
and a bond issue can be a natural first step to test using the capital market before spreading
ownership through a share issue.

In early stages of development of the capital market the exchange is usually not a profit making
entity simply because there are small revenues from trading, listing or membership fees. In some
developed economies the capital markets developed slowly and naturally. In England for example,
different forms of government bonds were traded in natural meeting places, such as coffeehouses,
for more than a century before the business was organized into the member-owned Stock Exchange
in 1801 (The Economist, 2005). Countries wishing to speed this process up have created similar
institutions from above, with government funds or foreign aid (such as the US Aid project that
assisted the formation of the member-owned, non-profit Georgian Stock Exchange in 1999 (GSE,
2005).

2
Definition of Developed Countries
Developed Countries are the countries which are developed in terms of economy and
industrialization. The Developed countries are also known as advanced countries or the first world
countries, as they are self-sufficient nations.

Human Development Index (HDI) statistics rank the countries on the basis of their development.
The country which is having a high standard of living, high GDP, high child welfare, health care,
excellent medical, transportation, communication and educational facilities, better housing and
living conditions, industrial, infrastructural and technological advancement, higher per capita
income, increase in life expectancy etc. are known as Developed Country. These countries
generate more revenue from the industrial sector as compared to service sector as they are having
a post-industrial economy.

Factors of Developed country:

Better standard of living

Rate of unemployment is low
High Gross Domestic Product (GDP) per capita
Heavy emphasis on health
Heavy emphasis on education
Low Infant Mortality Rate (IMR)
High Per Capita Income

Some developed countries:

Australia Japan
Canada Norway
France Sweden
Germany Switzerland
Italy United States

3
Definition of Developing Countries
The countries who are going through the initial levels of industrial development along with low
per capita income are known as Developing Countries. These countries come under the category
of third world countries. They are also known as lower developed countries.

Developing Countries depend upon the Developed Countries, to support them in establishing
industries across the country. The country has a low Human Development Index (HDI) i.e. the
country does not enjoy healthy and safe environment to live, low Gross Domestic Product, high
illiteracy rate, poor educational, transportation, communication and medical facilities,
unsustainable government debt, unequal distribution of income, high death rate and birth rate,
malnutrition both to mother and infant which case high infant mortality rate, poor
living conditions, high level of unemployment and poverty.

Factors of Developing country:

Rate of employment is low

Low Gross Domestic Product (GDP) per capita
Poor health care
Poor education
High Infant Mortality Rate (IMR)
Low or medium Per Capita Income

Some developing countries:

Bangladesh Sri Lanka
China Kenya
Colombia Thailand
India Turkey
Pakistan U.A.E

Even in developing countries there are cases where one moves at a rapid pace to get Developed
country recognition (China) and the other which moves at a snail pace to get the same (India,
Bangladesh ).

4
 What makes a country developed and developing?

I think it's not very wise to label a country as developing or developed, since development is
something very subjective. It depends on the time instant and criteria used to measure it.

Often the label of developing country is applied to countries which are poor, defining poor country
as country which doesn't have enough economical resources to sustain it selves. But, is it right to
say a country is developing only because this reason? I think not, because a country may be very
rich but it could have a really corrupt government which spends irrationally the money of the
taxpayers, or a political class accustomed to steal fortunes to the state.

Maybe being 'developed' or ' developing ' just depends on having or not a balance between
government corruption and economical income.

Identify one country each from these countries: developed and developing:-
Develop country (Australia)
Developing Country (Bangladesh).
Compare the Two countries in the perspective of compensation and benefits for employees.
Your answers must have at least the following items:

a. Legally required benefits and the respective acts/laws

b. Cost of living (in USD, or in other standard COL index)
c. Per capita income (in USD)
d. Is there a minimum wage legislation set for all jobs? If yes, how much in USD.
e. Personal and corporate income tax rate
f. The biggest industry/sector

A. Legally required benefits and the respective acts/laws

I. Developed Country (Australia)
Retirement age is 65 for men and is increasing to 65 for women from 2014. It is then due to
increase to age 67 in stages between 2017 and 2023. The state pension is means tested. The full
state retirement pension from January 2011 is AUD 701.10 a fortnight for a single person and

5
 AUD 528.50 a fortnight each for a couple. This is reduced by income and assets, based on family
status and home ownership. Death and disability benefits are provided on a means tested basis.
Medicare, the national health scheme, provides permanent residents with free medical treatment
or a rebate of scheduled fees. Respective Law Industrial Relations Act 1999
Developing Country ((Turkey)
Normal retirement age is 60 for men and 58 for women and is planned to increase in stages from
2035 to age 65 for both men and women. From 2008, the state retirement pension is 2.6% of
average revalued earnings multiplied by years of coverage. The accrual rate is reducing to 2.0%
in 2016. The state also provides survivors pensions, disability pensions and limited medical
care. There are plans to introduce universal health insurance. Respective Law Labor Act of
Turkey Law No. 4857
Cost of living (in USD)
Basically indexes calculated are relative to New York City (NYC). Which means that for New
York City, each index should be 100(%). If another city has, for example, rent index of 120, it
means rents in average in that city are 20% more expensive than in New York City. If the city
has rent index of 70, that means in the average in that city rents are 30% less expensive than in
New York City.

Attribute/Country Australia Turkey

Consumer Price Index (Excl.Rent): 107.83 61.95
Rent Index: 51.03 17.08
Groceries Index: 87.43 45.83
Restaurants Index 112.03 47.53
Consumer Price Plus Rent Index: 88.67 42.47
Local Purchasing Power: 117.1 55.89

6
 Per Capita Income (In USD)
I. Developed Country (Australia) = USD 39,407
II. Developing Country (Turkey) = USD 13,577
III. Underdeveloped Country (Sudan) = USD 2,380
Is there a minimum wage legislation set for all jobs? If yes, how much in USD.
I. Yes. Developed Country (Australia) = USD 3083.18
II. Yes. Developing Country (Turkey) = USD 515.00
Personal and corporate income tax rate
Personal Income Tax
I. Developed Country (Australia) = 45%
II. Developing Country (Turkey) = 35%
Corporate Income Tax
I. Developed Country (Australia) = 30%
II. Developing Country (Turkey) = 20%
The biggest industry/sector
a. Developed Country (Australia) = mining, industrial and transportation equipment, food
processing, chemicals, steel

b. Developing Country (Turkey) = textiles, food processing, autos, electronics, mining (coal,
chromate, copper, boron), steel, petroleum, construction, lumber, paper.

How Do Developing Economies Develop?

Economic growth in developing economies has generally been associated with the emergence and
growth of some leading sectors. These leading industries have spurred the economic growth of
countries both directly and through their effects and interdependencies with the rest of the
economy. Moreover, these leading sectors have been changing over time, according to the specific
historical contingencies, the stage of the industry life cycle or the initial specialization of the
country.
The existing literature on growth in emerging countries has focused mainly on the identification
of key variables that are relevant for linking the evolution of specific industries to the economic

7
growth at country level, by highlighting the important role of firm learning, absorptive capabilities,
Foreign Direct Investments, and government intervention. Relatively few empirical studies have
focused instead on the dynamics of the industries that are responsible for the economic growth in
terms of innovation, entry and exit, technological capabilities of firms, presence of spin-offs, role
of venture capital. New empirical evidence across countries and industries on these issues is
needed.

Economic growth in developing economies has generally been associated with the emergence and
growth of some leading sectors. These leading industries have spurred the economic growth of
countries both directly and through their effects and interdependencies with the rest of the
economy. Moreover, these leading sectors have been changing over time, according to the specific
historical contingencies, the stage of the industry life cycle or the initial specialization of the
country.
The existing literature on growth in emerging countries has focused mainly on the identification
of key variables that are relevant for linking the evolution of specific industries to the economic
growth at country level, by highlighting the important role of firm learning, absorptive capabilities,
Foreign Direct Investments, and government intervention. Relatively few empirical studies have
focused instead on the dynamics of the industries that are responsible for the economic growth in
terms of innovation, entry and exit, technological capabilities of firms, presence of spin-offs, role
of venture capital. New empirical evidence across countries and industries on these issues is
needed

8
 Key Differences between Developed and Developing Countries

The following are the major differences between developed countries and developing countries

The countries which are independent and prosperous are known as Developed Countries. The
countries which are facing the beginning of industrialization are called Developing Countries.
Developed Countries have a high per capita income and GDP as compared to Developing
Countries.
In Developed Countries the literacy rate is high, but in Developing Countries illiteracy rate is high.
Developed Countries have good infrastructure and a better environment in terms of health and
safety, which are absent in Developing Countries.
Developed Countries generate revenue from the industrial sector. Conversely, Developing
Countries generate revenue from the service sector.
In developed countries, the standard of living of people is high, which is moderate in developing
countries.
Resources are effectively and efficiently utilized in developed countries. On the other hand, proper
utilization of resources is not done in developing countries.
In developed countries, the birth rate and death rate are low, whereas in developing countries both
the rates are high.

Role in World Politics:

The Bandung conference, in 1955, was the beginning of the political emergence of the third world.
Two nations whose social and economic systems were sharply opposed-China and India-played a
major role in promoting that conference and in changing the relation between the third world and
the industrial countries, capitalist and Communist. As a result of de-colonialization, the United
Nations, at first numerically dominated by European countries and countries of European origin,
was gradually transformed into something of a third world forum. With increasing urgency, the
problem of underdevelopment then became the focus of a permanent, although essentially
academic, debate. Despite that debate, the unity of the third world remains hypothetical, expressed
mainly from the platforms of international conferences.

9
Conclusion:
There is a big difference between Developed Countries and Developing Countries as the developed
Countries are self-contained flourished while the developing countries are emerging as a
developed country. Developing Countries are the one who experience the phase of development
for the first time. If we talk about developed countries, they are post-industrial economies and due
to this reason, the maximum part of their revenue comes from the service sector.

Developed Countries have a high Human Development Index as compared to Developing

Countries. The former has established itself in all fronts and made itself sovereign by its efforts
while the latter is still struggling to achieve the same.

Under developing countries focus on the developing techniques to improve living standard, huge
employment rate. And development is common problem of developing countries.

While, in case of developed countries growth is their common problem and they focus on to control
growth and to allocate more resources and to stable their developed state and also try to maintain
and increase their GDP.

10