4.2.6.5 Economic growth and development

Question 1

Difference between growth and development

Answer 1

• Growth - national income over time (measured in actual or potential terms
• Development - multidimensional concept - believed to depend on several criteria being achieve:
• Income - comes from growth
• Availability of basic goods and services for survival (food, shelter, warmth and so on)
• Freedom of individuals to make choices on a social and an economic level

Question 2

Characteristics of less-developed economies

Answer 2

• Low GDP per capita levels
• Dependence on primary products for export revenue
• Fast population growth and a low median age for the population as a whole
• A high proportion of the population based in rural areas and likely to be employed in agriculture
• Higher than average size for the informal economy
• Poor levels of infrastructure
• Poorly developed financial markets

Question 3

Human Development Index

Answer 3

Most common measure of development

Issued by the UN each year - assigns each country a score based on 3 dimensions of development:

• RNI per capita - based on PPP exchange rates
• Health of the population - based on life expectancy at birth
• Education of the population - based on mean years of schooling and expected years of schooling

Question 4

Limitations of HDI

Answer 4

• Fails to include other characteristics of development, such as the level of freedom enjoyed by the population, but it remains the most widely used statistic the measuring development

Question 5

Other measures of growth, apart from HDI?

Answer 5

• Human Poverty Index - measures life expectancy, poverty rates and literacy rates
• Gender-related Development Index (GDI) - and Gender Empowerment Measure (GEM) - similar to the HDI but also considers gender gaps in development
• Social indicators - statistics looking a levels of social development (e.g. education levels, access to health and education, literacy rates, etc)

Question 6

Factors affecting growth and development

Answer 6

• Long-run growth comes from outward PPF shifts - but for development, growth needs to be achieved in ways that allow sustained further growth:
• Investment: adds to both SR and LR growth within an economy
• Investment in infrastructure - transport links, sewerage systems, public services, etc. - is more useful for development than, say, increased military investment
• Education and training add to SR growth - should also move economy closer to development
• Adds to economy’s intellectual capacity - e.g., booming literacy rates helps development
• Training - increases workers’ employability, either boosting productivity or increased the range of jobs they can perform

Question 7

Potential barriers to economic growth and development

Answer 7

• Poor infrastructure - e.g. lack of transport links to telecommunications networks
• Corruption - especially in public office (less attractive FDI location)
• Inadequate human capital - lack of investment in educational and training - population not adequately equipped for development of business; will be unattractive to MNCs looking for appropriate workforce
• Lack of property rights - difficult to attract FDI
  Primary product dependency - may have seen their price fall in the last 50 years in real terms - these are generally income inelastic products
• Volatile earnings from commodities - over-reliance on 1 or 2 commodity exports
• Undeveloped financial system
• Institutional factors

Question 8

Market-based strategies to promote economic growth and development

Answer 8

• Trade liberalisation - removing or decreasing trade barriers
• Removal of subsidies - often found on import substitutes
• Policies to attract inward investment - removing legal barriers to foreign ownership
• Allowing the price mechanism to work more freely (e.g. cancelling min and max prices)

Question 9

Interventionist strategies to promote economic growth and development

Answer 9

• Infrastructure investment - e.g., in transport, tech and basic facilities (e.g. sanitation and health)
• Education and training investment
• Investment in tourism and other services
• Overseas aid
• Debt cancellation
• State investment in the welfare system

Question 10

Why may trade be the best way to promote development and generate foreign currency for development?

Answer 10

• Allowing free trade - helps development - countries benefit from specialisation in industries where they have comparative advantage