Third World

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Last Updated:December 26, 2023

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What Is the Third World?

The term "Third world" is an outworn and belittling expression still used to describe a category of economically and socially challenged nations.

In the wake of the Second World War, an ideological split occurred around the globe as every nation frantically began joining either the capitalist camp led by The United States of America or the communist camp led by The Soviet Union.

Those who allied with the former became called "First World" nations, and those who joined themselves with the latter became known as "Second World" countries.

However, during the 45-year-long staring contest that was The Cold War, some countries opted for neutrality, which earned them the title of "Third World" nations. While this explanation is sufficient to understand the issue, there is more than meets the naked eye.

The term refers to nations in Africa, Asia, the Americas, and the Pacific Ocean that were beyond the privileges of the OECD countries and, at the time, the Soviet Union. Unfortunately, it is now a phrase overused to the benefit of developing nations.

Key Takeaways

The "Third World" concept arose from the Cold War's stark ideological divisions. It included many nations, each with its own set of circumstances. Nevertheless, it served some purpose during the Cold War between the United States and the Soviet Union, as do all generalizations.
A Third World country is an antiquated and insulting word for a developing country with a population with low and middle incomes and other socioeconomic indicators.
Certain perks and contractual term provisions are available to countries that meet certain economic status categorizations and are granted by the International Monetary Fund, World Bank, and World Trade Organization.
The main aspects that set Third World countries apart are high poverty levels, economic and political uncertainty, and unprecedented mortality rates.
The third world is now a phrase overused to the benefit of developing nations. Indeed, the development stages and typologies of developing countries are pretty varied.
One can tell the difference between developing nations like Brazil or the Four Asian Tigers and impoverished nations with weaker growth drivers.

Understanding Third World nations

Apart from their diplomatic situation and intercontinental relations, states are defined by their financial position, not to mention critical economic indicators such as GDP, GDP per capita, employment and unemployment rates, etc.

In the case of developing countries, their low production rates and floundering labor market are typically associated with their low levels of education, poor infrastructure, poor sanitation, limited access to health care, and lower living costs.

As a result, said nations find themselves carefully monitored by international organizations like the International Monetary Fund and the World Bank, which seek to rebuild the infrastructure and economic systems by allocating monetary aid.

Unsurprisingly, in the spirit of diplomacy, the IMF and The World Bank refrain from using the term and refer to them as lower-middle or low-income countries.

Besides international funds, investors seize potential growth opportunities in developing nations. As a result, they are willing to take on the risk of poor economic performance associated with such an investment to gain a higher return.

These funds are then used to finance technological and industrial breakthroughs that can lead to much-needed improvements, albeit valid for a short period only.

Developing Nations: A Past of Categorization

As established earlier, the classification of nations as the first world, second world, and third world traces its origins to the decades of and after The Cold War.

First-world countries generally have stable currencies and robust financial markets, making them appealing to investors worldwide.

While not purely capitalist, the economies of first-world countries are characterized by free markets, private enterprise, and private ownership of property.

The most obscure term is "Second World," which refers to the countries that built their economies around communist and socialist models.

It can also refer to the nations operating under the blessing of The Soviet Union, such as Poland, East Germany, Hungary, etc. However, as quickly as it appeared, this phrase disappeared into the shadows following the collapse of the USSR in 1991.

Third World countries, on the other hand, included primarily African and Asian nations that did not join any of the above-mentioned factions. That was the case until the 1990s and the dissolution of the Soviet Union when this term and its usage began to stir controversy.

But before looking into modern times, one should look at the past, specifically the historical figure who took the initiative and came up with such a derogatory concept.

Alfred Sauvy: Father of The Third World

Alfred Sauvy (born on the 31st of October 1898 and died on the 31st of October 1990) was a French economist, demographer, anthropologist, and historian. In 1952, he introduced the phrase "Third World" in an article for the French magazine L'Observateur.

He quoted him directly here:"... at the end, this ignored, exploited, scorned Third World, like the Third Estate, also wants to become something."

For context, the "Third Estate" were the commoners of France who opposed the first and second estates, priests, and nobles during the French Revolution.

The original piece from Sauvy had several issues and was more political than economic. First, some European nations, like Switzerland and Austria, were formally neutral and, thus, technically belonged to the Third World throughout the Cold War.

They had market economies, democratically elected governments, and strong linkages to Western Europe meant that they resembled first-world nations.

The phrase "Second World" was never widely used. Instead, the Soviet Union and its allies were dubbed the "Communist Bloc" by the Majority of commentators.

When the People's Republic of China broke away from the Soviet Union in the early 1950s, it pursued its brand of communism.

The term "Third World" has developed as well. Political insecurity and a lack of economic development were emphasized more. It came to mean both "backward" and "unaligned."

Nonetheless, the term proved helpful. Because nuclear deterrence prevented a confrontation between NATO and the Warsaw Pact forces, Third World countries became the site of many Cold War proxy battles.

Some countries shifted their affiliations and, in some cases, their position among the three tiers.

The Korean War that was declared in 1950 resulted in the formation of two states, with South Korea rapidly developing. South Korea's economic growth caused per capita income to rise to the level of the First World.

The United States had influenced Cuba until the communist revolution in 1959. Then, however, the government struggled to match the Soviet Union's or its Warsaw Pact satellites' economic development.

Cuba became a borderline case, classified as a Communist Bloc or Third World country, depending on whether ideology or economic development was prioritized.

Vietnam was another Cold War point of conflict. Vietnam became communist in 1975 after prolonged wars against French colonizers and American troops.

However, it remained impoverished and was as likely to be classified as part of the Third World as it was of the Communist Bloc.

Frontier Market List

While there is no precise definition, a Frontier Market can be defined as a country that is more developed than a Least Developed Country (LDC) but has a less liquid and advanced capital market than an Emerging Market. It is, in essence, an "Emerging" Market.

The three major index providers - MSCI, FTSE, and S&P - all produce country classifications for various countries, typically classified as Developed Markets, Emerging Markets, and Frontier Markets.

A group of stocks known as the MSCI Emerging Markets Index is used to monitor the financial performance of significant corporations in rapidly emerging economies.

MSCI Inc., formerly known as Morgan Stanley Capital International, produced this index and several others.

Investors have a thorough way to assess the performance of the most liquid large- and mid-cap firms in developing economies thanks to the FTSE Emerging Index.

The index is based on the FTSE Global Equity Index Series (GEIS), which accounts for 99% of the investable market capitalization of the whole world.

The Majority, if not all, of the former "Third World" countries, are classified as Frontier Markets with some exceptions ( Kuwait is classified as an emerging market by MSCI and Secondary Emerging by FTSE)

Other Interpretations of Developing Nations

Another frame of view is the World Trade Organization (WTO). The World Trade Organization divides countries into developing and least developed.

Because there are no criteria for these classifications, countries self-nominate, though other countries can challenge their status.

The WTO segregation includes specific rights for developing countries.

For example, the World Trade Organization gives developing countries longer transition periods before implementing agreements to increase trading opportunities and infrastructure support related to WTO work.

The Human Development Index (HDI), an offshoot of the WTO, is another economic status metric developed by the United Nations to assess countries' social and economic development levels.

The HDI assesses and ranks countries based on education, life expectancy, and gross national income per capita.
Least Developed Countries (LDC) is a term used by the World Health Organization and the United Nations to describe a group of 48 countries with low socioeconomic development indicators. Every few years, this list is updated.
These indicators include GDP, human assets like nutrition, life expectancy, secondary school education, and adult literacy, and economic vulnerability like population size, remoteness, merchandise export concentration, agriculture, exports, and natural disaster preparedness.

We will now examine two third-world nations thriving in their economy and growth.

South Korea: an economic miracle

South Korea's economic health over the last quarter-century has been compared to a "miracle." Recently, there has been much interest in the forces driving Korea's economic transformations.

Christiansen and Cummings revealed that technology, as measured by TFP, accounts for approximately 43 percent of Korean economic growth between 1960 and 1973.

This figure is significantly higher than recent Japanese and Singaporean economic growth studies.

A report by Ky-Hyang Yun and Jene K. Kwon revealed that the value-added framework is insufficient for describing the structure of the Korean economy, so they used the gross-output framework to reexamine the sources of Korean economic progress.

Astonishingly, it has been found that only 7 percent of real output growth in the manufacturing sector between 1962 and 1981 can be attributed to technological progress.

After beginning as a country of artisans, the Korean peninsula turned to heavy industry, as seen by the significance of its navy, construction, and car industries.

As a result, the electronic industry, represented by globally significant companies like LG and Samsung, has taken the lead as the main driver of economic growth in the Korean economy.

These findings are consistent with those for both the Japanese and Singaporean economies.

The Economic Openness of Morocco

A 2020 study conducted by The Legatum Institute found that Morocco is placed 72nd in the Global Index of Economic Openness and 9th in the Middle East and North Africa region.

Morocco ranks 64th in Market Access and Infrastructure, having risen four in the last decade.

The country's infrastructure has significantly improved, particularly its competitive mobile phone market, which has increased high-quality internet access and the capacity and quality of its seaports.

However, challenges remain, as Morocco faces threats from environmental factors on its water resources, exacerbated by increased demand.

According to the report, Morocco is listed 68th for its Investment Environment, having risen 13 in the last decade.

Significant reforms have been implemented to strengthen intellectual property rights and investor protections, and Morocco's financing ecosystem is a particular strength.

There are still certain limitations on foreign investment in the nation, though, which could hamper growth in this sector.

As a result, the country would benefit from easing some capital controls and restrictions on foreign ownership of companies and making work visas easier to obtain.

Morocco has made the most progress in its Enterprise Conditions over the last decade, rising 23 places to rank 70th globally.

This is primarily due to its success in reducing the regulatory burden through a series of reforms that have reduced businesses' time complying with regulatory and tax obligations.

Over the last decade, Morocco has made the most progress in its Enterprise Conditions, rising 23 places to rank 70th globally.

This is primarily because of its success in reducing regulatory burdens through a series of reforms that have reduced businesses' time complying with regulatory and tax obligations.

According to the report, Morocco ranks 98th for Governance, having dropped 16 places since 2010. Recent reforms to combat corruption show encouraging signs, including a new law to protect whistleblowers and reforms to make public procurement fairer and safer.

However, there is still a widespread belief that executive constraints are not strong enough in practice.

The efficiency of the government is also restricted by a lack of accountability and a fragmented Parliamentary system, as well as issues with the court system, which can be inefficient and corrupt.

According to the report, the judiciary should be improved, independent regulators should be put in place, and the National Commission for Integrity and Anti-Corruption should continue to play a more significant role in enhancing Governance by maintaining its independence and access to resources.