An underdeveloped economy is a low-income economy characterized by low per capita income levels and a high rate of poverty.

It is an economy characterized by a low rate of economic productivity and reduced technological advancement.


Underdeveloped economies generally have widespread poverty, a high prevalence of illiteracy, a low level of real per capita income and a high rate of population growth.

Citizens of countries with underdeveloped economies usually experience poor standards of living as exemplified by a high level of absolute poverty in the country.

Features Of An Underdeveloped Economy Or Country

1. Low per Capita Income: An underdeveloped economy usually has a low level of national income compared to a developed country.

As a result, the per Capital income of an underdeveloped country is usually very low.

2. Poor quality of life: Many people in underdeveloped countries are malnourished and live in poverty.

Necessities of life such as food, shelter, cloth and are not easily accessible to the populace.  

All of these can be attributed to a low level of per capita income, which results in a low standard of living and poor quality of life among the poor masses

3. High Population growth rate: Population growth, by itself, is certainly not a bad thing.

However, population growth usually exceeds economic growth in underdeveloped, thereby reducing the benefit of economic growth and reducing the real per capita income.

This scenario has largely played out in countries like Nigeria, India and others where rapid population growth has resulted in large economic resources being spent on consumption rather than investment, leading to underdevelopment

4. Overdependence on subsistence agriculture: An undeveloped economy also has an economy that is overly dependent on agriculture for survival.

Most underdeveloped countries have an undeveloped agricultural sector, which serves as the main occupation for over 60% of their population.

For example, over 60% of west Africans are employed in the agricultural sector.

However, the agricultural sector in the vast majority of underdeveloped countries is largely unproductive, as it is mostly done with obsolete agricultural techniques and implements.

Moreso, these nations usually do not have enough storage space to properly store their agricultural output, which results in wastage.

5. Low capital formation: Capital formation can be defined as an increase in the capital stocks of an economy.

A low rate of capital formation is typical of underdeveloped countries since more money is spent on consumption than on investment and savings.

The result is slower economic growth and development, less money being invested in productive activities, and less agriculture sector modernization.

Indeed, one of the barriers to economic development in underdeveloped nations is a lack of capital formation.

6. Unemployment: Poor quality of life and high rate of poverty rate, all of which are common features of undeveloped economies have their root in unemployment.

Unemployment occurs when people actively looking for jobs cannot find one.

Due to large population growth in undeveloped countries such as Nigeria, and India, the supply of labour has greatly exceeded the demand for labour such that it is very difficult to find employment.

The effect of unemployment is that people slide into poverty and are not able to slide into fend for their needs and that of their families.

7. Underutilization of labour: in underdeveloped countries, there is usually under-utilization of labour as people are underemployed.

When we say someone is underemployed, we mean they are not employed in a way they would have preferred.

Underemployment may be caused by a lack of employment opportunities, leading job seekers to accept any position they can, regardless of whether they enjoy it or meet the requirements.

Underemployment results in under-utilization of labour as people will naturally not give their best in jobs they don't enjoy.

For instance, a financial analyst who is unable to find employment in his field of study can accept a cleaner position and not give it his all.

Furthermore, a low level of literacy may lead to the under-utilization of labour since people who are willing to work are only offered lower-paying positions because they fall short of the required educational requirements.

For instance, due to his lack of formal education, a person who is eager to work full time might only be offered a part-time job, such as that of a cleaner.

8. Uneven distribution of wealth and income: Income inequality between the rich and the poor is very high in underdeveloped economies

This is largely due to private ownership of the means of production which has made it very easy for income to be concentrated in the hands of a few rich.

For context, a survey from Economictimes shows that the top 10% richest of the Indian population earn one-third of all incomes earned in India.

9. Technological backwardness: One of the key drivers of economic growth and development is technological advancement.

However, the state of technology in most underdeveloped economies is poor due to a high level of poverty, and poor savings culture.

In most cases, obsolete technologies which have left been discarded by developed economies are still used in underdeveloped economies.

Technological backwardness in underdeveloped countries may also be attributed to a lack of enough capital and machinery, which can make work faster and easier.

The effect of technology backwardness is that the level of productivity of citizens in underdeveloped countries is greatly reduced.


10. Lack of infrastructure development: This is very common in underdeveloped economies.

The quality and quantity of infrastructure are one of the major determinants of economic development.

As we have seen in underdeveloped economies such as Nigeria, the infrastructural facilities needed to facilitate economic growth and development are either insufficient or lacking.

In most underdeveloped economies, there is usually a deficiency in infrastructural facilities.

Such deficit may be in the form of a poor road network, poor electricity supply, lack of drinkable water, poor irrigation networks and poor communication networks.

Additionally, basic social amenities like educational facilities and healthcare facilities are usually insufficient in underdeveloped countries.

For instance, Nigeria's doctor-to-patient ratio of 1:6000 is much higher than the recommended ratio of 1:600 set by the WHO.

And, How will a country develop economically if it lacks the infrastructure facilities necessary for economic growth and development?.

11. Net importer: Developing nations are typically net importers, meaning that they import more than they export.

For instance, Nigeria's total imports in 2021 were N20.84 trillion while its total exports were N18.91 trillion, meaning that imports are N1.93 trillion higher than exports.

The reason why underdeveloped countries are net importers is not far-fetched: Underdeveloped countries are generally consumers as they consumed more than they produced.

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