Why do developing countries usually have less variety in their economic activities?

• A. High levels of foreign direct investment lead to a wide range of industries.
• B. They have more advanced financial markets that encourage specialization.
• C. They often rely heavily on a few primary sectors due to limited capital, technology, and infrastructure.
• D. Government policies in developing countries typically promote diversification over specialization.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the economic structure of developing countries, which often depends heavily on a few primary sectors such as agriculture, mining, or raw material extraction.
2. Step 2: Recognize that limited capital, technology, and infrastructure restrict the ability of these countries to diversify into a wide range of industries or advanced manufacturing and services.
3. Step 3: Analyze how these constraints lead to specialization in a narrow set of economic activities rather than a broad variety, as diversification requires investment and resources that may not be readily available.
4. Step 4: Consider the role of financial markets and foreign direct investment (FDI); in developing countries, these are often less developed or concentrated in specific sectors, which limits the spread of economic activities.
5. Step 5: Note that government policies in developing countries may not always effectively promote diversification, and sometimes focus on stabilizing or supporting existing primary sectors rather than encouraging a wide range of industries.