4.3.2 Factors influencing growth and development Flashcards
What is Primary Product Dependency?
A situation where an economy relies heavily on the export of primary goods (also known as raw materials or commodities) as a major source of income.
What is the Prebisch - Singer hypothesis?
It states that countries that specialise in primary products face decling terms of trade over time. This can be for the following reasons:
- Productivity increases over time if they specialise in one industry - this increases supply and pushes prices down.
- As countries get richer they demand more secondary and tertiary products whereas demand for primary products rises only a little. (Low income elasticity of Demand). (This depends on type of commodity!!!)
- Commodity prices are variable and can be heavily impacted by weather, black swan events etc.
How does volatility in commodity prices influence growth and development?
The price inelasticity of demand and supply for commodities will often result in price instability. (I.e Oil price drops but demand doesnt increase proportionally so oil countries are affected).
In turn, this will cause the revenue of producers and foreign currency earnings of the country to fluctuate.
This uncertainty may deter investment.
How do levels of savings and investment influence growth and development?
Inadequate savings = low investment = capital accumulation is low = slow economic growth.
However, this model depends on the physical enviroment and ignores other sources of investment.
How does a foreign currency gap influence growth and development?
Some developing and emerging economies face a shortage of foreign currency.
This means they have Limited Capacity to Import Essential Goods and makes them less desirable to join trade blocs due to a poor BoP.
How does Capital Flight influence growth and development?
The owners of any extra income that could be saved and therefore used for investment often withdraw their money from the country in search of higher returns abroads.
(Impact of hot money flows on the source country).
How do Demographic Factors influence growth and development?
Many developing and emerging countries are characterised by high birth rates and death rates which increases the dependency ratio (% of population under 14 and over 65 who rely on the working population).
Some countries also face ageing populations.
How does access to credit and banking influence growth and development?
If individuals cannot access credit and banking services then they may not be able to secure loans to start businesses, therefore limiting the scope for growth and development.
How does infrastructure influence growth and development?
If infrastructure is inadequate then businesses will find it difficult and costly to trade.
Also, poor infrastructure will act as a deterrent to domestic investment and to FDI/TNCs.
How does level of education / skills influence growth and development?
Countries with higher education and skills attract FDI like TNC’s in India due to the higher % of english speakers among the population.
This improves human capital.
How does absence of property rights influence growth and development?
If property rights are not established then it may be difficult for individuals to secure loans because they will have no collateral.
Weak property rights discourages business investment.
How does foreign debt influence growth and development?
Many developing countries have borrowed heavily on international money markets.
High debt repayments are an obstacle to growth.
Makes it difficult to further borrow money.
What are the non economic factors that influence growth and development?
- Corruption
- Poor Governance
- Wars / Conflict
- Physical Geography - Tourism, Landlocked, proximity to developed world etc.
- Political Instability
