4.3 The Role Of Domestic Factors

Question 1

What are the five domestic facts the contribute to the economic development of LEDCs?

Answer 1

Education and health 
Use of appropriate technology 
Access to credit and micro credit
Empowerment of women 
Income distribution 

All of these ave positive externalities of production and consumption for LEDCs.

Question 2

Why is provision education and health important for LEDCs?

Answer 2

Can help to increase favour productivity, the quality of labour is clearly dependent on its level of education attainment, skills, training and health. It will also depend on the use of appropriate technology such as the capital used. Individuals who have greater access to healthcare have better nutrition and so are more productive and enjoy a better quality of life.

Question 3

What will happen to the LRAS when education and health care are invested in?

Answer 3

Shift the LRAS to the right, or it will increase the economy’s PPC.

Question 4

How can technology be classified?

Answer 4

Capital intensive technologies - rely on the use of capital in the production process such as oil refining, telecommunications and motor manufacturing.
Labour intensive technologies - rely o the use of labour such as basic tools ad equipment.

Question 5

What technology do LEDCs depend on?

Answer 5

Economic development relies more eon labor intensive technologies to create jobs and income for the population of the country to escape from extreme poverty.

Question 6

what will happen to the LRAS when appropriate technologies are invested in?

Answer 6

Shifts the LRAS to the right.

Question 7

How can technologies cause a hindrance to economic development?

Answer 7

It can be interrupted if foreign currencies are required to purchase spare parts or manning the technologies. Many LEDCs suffer form a lacking infrastructure which hinders their chance of economic growth and development.

Question 8

What are credit schemes and why is it important to development?

Answer 8

Offer access to borrowed money, the provision of credit is important to economic development because individuals and firms that cannot borrow simply cannot invest in any physical, human or natural capital which are all essential for ioncmic development, but with he credit schemes they can.

Question 9

What are micro credit schemes?

Answer 9

Loans of small amounts to individuals on low incomes in LEDCs for self employment projects that generate income so they can care for themselves and their families. They promote an entrepreneurial culture and so help stimulate growth and development.

Question 10

How are the providers of micro loans?

Answer 10

Commercial banks and non government organisation NGOs.

Question 11

How do the different providers charge different interest rates?

Answer 11

Most banks will charge relatively high interest rates due to the high risk of lending money to the poor, NGOs tend to charge lower interest rtes striving instead to stimulate development.

Question 12

What are the criteria to qualify for the micro credit scheme?

Answer 12

The borrowers credit rating
The value of the borrowers assets
How much debt the borrower can afford.

Question 13

What do those who qualify for the micro credit scheme have to do?

Answer 13

Attend classes on financial management thus such schemes have educational and social benefits to the economy.

Question 14

What are the advantages of micro credit schemes?

Answer 14

They can enable gender equality and income distribution. The world bank and the UN are supporters of micro credit schemes as a form of economy and human development especially as they can be used to empower women.

Question 15

What are the disadvantages of micro credit schemes?

Answer 15

The lack of proper rights in LEDCs is a major source of poverty because individual have little if any collateral (financial security on their assets) to borrow money to and development projects.

Question 16

What are the arguments against the use of micro credit schemes?

Answer 16

They do not create job opportunities on a large enough scale to increase the LEDCs productive capacity.
High interest rates are charged by commercial banks because those on low incomes are usually not credit worthy.
Micro entrepreneurs in LEDCs are extremely vulnerable to external shocks in the economy these firms may not be maintainable so micro credit does little for sustainable economic development.
Micro entrepreneurs tend to have limited qualifications, skills, training and experiences as they lack opportunities and access coeducation. Hence there is a high change of the funds being misused or ineffectively used thus eating to business failures.
The self employed in LEDCs often have stable incomes yet endure a high degree of risk so many people who qualify for micro credit choose to take jobs at factories instead as there is greater financial stability. This clearly defeats the purpose of micro credit schemes.

Question 17

Why is gender inequality a barrier to economic and human development?

Answer 17

It limits the quantity and quality of labour resources in the production process. Therefore empowering women is a vital development strategy in reducing purvey in LEDCs. Ignoring gender disparities is detrimental to peoples wellbeing and to the economic and human development of all countries but LEDCs in particular.

Question 18

Why is empowerment of women a good thing?

Answer 18

Helps to end social and cultural discrimination against female, can have a huge impact on their self esteem and productivity. In the long term this has positive effects on maternal health and reducing child mortality.

Question 19

What happens to countries who fail to empower women and promote gender equality?

Answer 19

They face the problem of lower productivity and slower economic and human development, as approximately half of their population are deprived opportunities to improve their standard of living.

Question 20

What are the four recommended priorities to promote gender equality and to empower women?

Answer 20

Reducing excess female mortality and closing education gaps where they reman. Improving healthcare providing for women and educating female are two of the most significant investments for fostering human development in LEDCs.
Improving access to economic opportunities for women eg. increasing opportunities for women to participate in the labour force and improving women’s access to credit and other productive resources.
Increasing omens voice and agent in the household and society ie. improving the ability of female to make effective choices and to transform their choices into desired outcomes, including decision making over family formation and freedom from the risk of violence.
Limiting the reproduction of gender inequality across generations.

Question 21

What is income distribution?

Answer 21

Refers to how the national income of a country is spread among its population. Unequal distribution of national income exists when the relatively rich minority account for the majority of the country national income.

Question 22

Why is income distribution needed for economic development?

Answer 22

Income inequalities hinder economic development as the poor do not have access to education, healthcare or credit. A high and rising degree of income inequality in many LEDCs is seen as a major barrier to economic development.

Question 23

Why is greater income equality and equal distribution desired?

Answer 23

Those is extreme poverty are more likely to be able to access education and healthcare. This helps to improve human development and rise the level of productivity in the economy. Greater income equality also reduced the likelihood of corruption which is a major obstacle to human development in many LEDCs. Corruption and civil unrest distort market forces and create disincentives for individuals and firms to the entrepreneurial risks.

Question 24

What is the main way to redistribute income form rich to poor?

Answer 24

To implement an effective progressive tax system ie. increasing marginal bans as income levels rise.

Question 25

What are the three reasons why it is difficult for LEDCs to raise tax revenues?

Answer 25

Only a small proportion of the population pay income taxes as so many people are poor and because LEDCs tend to have a large unofficial market.
As the level of official economic activity is low the revenue collected form the corporate tax tends to be low. This is especially the case is LEDCs offer financial assistance to domestic firms and/or the tax centimes to encourage FDI.
Low incomes and the lack of international trade in many LEDCs mean that there is minimal tax revenue earned form tariffs.

Question 26

How have ineffective tax systems been a problems in LEDCs?

Answer 26

Ineffective tax systems in LEDCs have hindered income redistribution and hence economic growth and human development.