4.3.2 - Factors Influencing Growth & Development

Question 1

What Are The Economic Factors Influencing Growth & Development?
(11 Points)

Answer 1

~ Primary product dependency.

~ Volatility of commodity prices.

~ Savings gap (Harrod-domar model).

~ Foreign currency gap.

~ Capital flight.

~ Demographic factors.

~ Debt.

~ Access to credit and banking.

~ Infrastructure.

~ Education and skills.

~ Absence of property rights.

Question 2

Describe ‘Primary Product Dependency’ As An Economic Factor Influencing Growth & Development
(4 Points)

Answer 2

~ Demand is price inelastic.

~ Supply is price inelastic, as they are hard to store and find.

~ Demand is income inelastic.

~ Price instability affects them, less supply means higher prices, vice versa.

Question 3

Describe ‘Volatility Of Commodity Prices’ As An Economic Factor Influencing Growth & Development
(2 Points)

Answer 3

~ Changes in supply and demand, affects the price of raw materials.

~ Due to inelastic demand and supply.

Question 4

Describe The Impact Of Volatility Of Commodity Prices On Growth & Development
(4 Points)

Answer 4

~ Unstable prices, means harder predictions for investors.

~ Decreasing investment into the primary product industries.

~ Meaning low profits, due to less tax revenues, so less development and growth.

~ Less jobs, means less incomes, which can create poverty.

Question 5

What Is A Savings Gap?

Answer 5

Difference between bank savings and the money firms want to borrow from the bank.

Question 6

Describe ‘Savings Gap & Access To Credit & Banking’ As An Economic Factor Influencing Growth & Development
(5 Points)

Answer 6

~ Developing countries have low incomes, low access to banks, meaning less saving in banks.

~ Less savings in banks, means less loans.

~ Less loans, reduces the level of investment by firms, reducing AD, real GDP, lowering economic development.

~ Lower profits, means lower tax revenues, less spending into development.

~ Explained by the harrod-domar model.

Question 7

What Is The Harrod-Domar Model?

Answer 7

Question 8

Describe ‘Foreign Currency Gaps’ As An Economic Factor Influencing Growth & Development
(5 Points)

Answer 8

~ When the amount of foreign currency in a country falls.

~ Caused by imports > exports.

~ Leads to the currency depreciating, meaning less imports, constraining development.

~ Diversifying exports, can be a solution, as it increases demand for the currency, appreciating the currency.

~ E.g. Lebanon.

Question 9

Describe ‘Capital Flight’ As An Economic Factor Influencing Growth & Development
(2 Points)

Answer 9

~ Occurs when money or assets rapidly leave a country.

~ Reduces the money available for investment.

Question 10

Describe ‘Demographic Factors’ As An Economic Factor Influencing Growth & Development
(3 Points)

Answer 10

~ Developing countries tend to have high population growth.

~ Placing strain on the education system and healthcare system, causing the quality to decrease, meaning less human capital.

~ This leads to lower skills and health, meaning lower incomes and lower tax revenues.

Question 11

Describe ‘Debt’ As An Economic Factor Influencing Growth & Development
(4 Points)

Answer 11

~ Developing countries, often get aid and loans from others to improve development and growth.

~ They then suffer from higher levels of interest repayments.

~ Increasing the cost of servicing the debt.

~ Means less finance available to finance development, therefore growth.

Question 12

Describe ‘Infrastructure’ As An Economic Factor Influencing Growth & Development
(3 Points)

Answer 12

~ Poor infrastructure, raises costs and causes delays, reducing productivity.

~ Higher costs, means higher prices, means less profit, means less tax revenues.

~ E.g. India

Question 13

Describe ‘Education & Skills’ As An Economic Factor Influencing Growth & Development
(4 Points)

Answer 13

~ Workers are low skilled, meaning low levels of productivity.

~ Lower productivity, means less growth.

~ Less growth, means less jobs, means less income tax revenue, reducing development.

~ E.g. Madagascar.

Question 14

Describe ‘Absence Of Property Rights’ As An Economic Factor Influencing Growth & Development
(3 Points)

Answer 14

~ Means individuals and businesses cannot use the law to protect their assets.

~ Leading to reduced investment, as they will be unwilling to purchase things.

~ E.g. Zimbabwe.

Question 15

What Are The Non-Economic Factors Influencing Growth & Development?
(4 Points)

Answer 15

~ Corruption.

~ Geography.

~ Wars.

~ Health.

Question 16

Describe ‘Corruption’ As An Economic Factor Influencing Growth & Development
(3 Points)

Answer 16

~ Government doesn’t spend money in areas which need it, for their own benefits.

~ Leading to poor infrastructure, education and health, due to no investment in those areas.

~ E.g. Venezuela.

Question 17

Describe ‘Geography’ As An Economic Factor Influencing Growth & Development
(3 Points)

Answer 17

~ Landlocked countries, have higher transportation costs, increasing costs of production.

~ Higher costs, means higher prices, reducing competitiveness, development and growth.

~ E.g. Burundi

Question 18

Describe ‘Wars’ As An Economic Factor Influencing Growth & Development
(2 Points)

Answer 18

~ Destroys infrastructure and populations, meaning higher costs and lower productivity.

~ E.g. Syria and Iraq.

Question 19

Describe ‘Health’ As An Economic Factor Influencing Growth & Development
(3 Points)

Answer 19

~ Poor health reduces productivity and low human capital.

~ Reducing output, meaning less profit, meaning less profits, meaning less tax revenue.

~ E.g. Kenya.