27. Economic development

Question 1

Definition of economic growth vs economic development

Answer 1

Economic growth - increase in the real output of an economy overtime

Economic development - raising the standard of living and well-being of people in an economy.

Question 2

What are the sources of economic growth?

Answer 2

• natural factors: increasing quantity / quality of land (fertilisation, better planning, agricultural methods)
• human capital factors: increasing quantity / quality of human capital (quantity long-term - quality easier: improving healthcare, education, re-training)
• physical capital (buildings, machinery, shops) and technological factors: quantity in the economy depends on savings and investment, quality improvedby reasearch, development

Capital widening - when extra capital used with increased amount of labour, but the ratio of capital per worker does not change - production rises - productivity unchanged

Capital deepening - when there is an increase in the amount of capital for each worker - production rises - improvement in productivity

• institutional factors: for growth adequate banking, legal, education systems, infrastructure, political stability are needed

Question 3

How higher economic growth affects economic development?

Answer 3

• higher incomes: higher GDP - higher incomes - better standards of living
• improved indicators of welfare: increased GDP to some xtent leads to higher HDI
• higher gov revenues: higher GDP - higher taxes paid
• creation of inequality: rich get richer poor get poorer
• negative externalities / lack of sustainability: economic growth - higher production / more travel / higher demand for E - higher pollution (negative externality) -> resource depletion => uneconomic growth

Question 4

What are the common characteristics of developing countries?

Answer 4

• low standards of living: low incomes / inequalty / poor health / low education
• low levels of productivity: low human capital
• high rates of population growth -> high cild dependency ratios (percentage of those who are not productive, under the age of 15, expressed as a percentage of those of working age - analogical old age dependency ratio ( high in develoepd countries)
• high unemployment and underemployment: additionally those who are not seeking work also dont contribute to the labour force, but also hidden unemployment (work part-time)
• dependence on the primary sector of production: over-dependence causes uncertainty
• imperfect markets: lack necessary factors that make markets efficient - banking, legal systems, infrastructure, misallocation of resources
• dominance, dependence and vulnerability in international relations: developing countries dominated by developed (econ, political power), dependent on trade, aid, investment, technology

Question 5

Diverse characteristics in developing countries

Answer 5

• resoursce endowment: may be rich in physical resources - Angola in diamonds, oil
• historical background: majority - former colonies but the effect - different (ex: did they have to fight for freedom)
• geographic / demographic factors: some huge, others little
• ethnic / religious backgrounds: different backgrounds cause political unrest within developing countries, other - more ethnially / religiously homogenous
• industry structure: not all depend on primary sector - Bangladesh / Combodia on manufactured goods (fast fashion), Seychelles / Maldives on service (tourism)
• per capita income levels: GDP per capita can be varied
• political structure: democracies / monarchies / military rule / single party states / transitional political states (in transition in war)

Question 6

What are the sustainable development goals?

Answer 6