Constraints To Development

Question 1

Primary Product Dependency

Answer 1

The reliance on exports of a few primary products, such as minerals or agricultural goods, for a country’s income and employment.

Question 2

Primary Product Dependency as a constraint to development

Answer 2

Zambia is a landlocked country in Southern Africa with a population of about 18 million. Its economy is heavily reliant on copper, which accounts for over 70% of its export earnings.
Challenges faced due to copper dependency:
• Volatile global copper prices: Fluctuations in the global copper market can have a significant impact on Zambia’s economy. For example, the price of copper dropped sharply in 2015, leading to a recession in Zambia.
• Dutch Disease: The influx of revenue from copper exports has led to an appreciation of the Zambian Kwacha, making other exports less competitive and hindering diversification of the economy.
• Limited job creation: While the copper industry generates revenue, it does not create a large number of jobs for the Zambian population. This contributes to high unemployment and poverty levels.

Question 3

Primary Product Dependency constraint evaluation

Answer 3

Ghana: In 2007, Ghana discovered oil in its offshore waters, which has since led to sustained economic growth. The country has implemented a transparent and responsible management of its oil resources, including the establishment of a petroleum fund to invest in non-oil sectors. As a result, Ghana has been able to diversify its economy and improve its infrastructure, while avoiding the “resource curse” faced by other oil-rich countries. The country’s GDP has grown consistently since the discovery of oil, and its economy is expected to continue to expand in the coming years.

Question 4

Volatility of Commodity Prices

Answer 4

Fluctuations in the prices of primary commodities that a country exports, which can have a large impact on the country’s economy, hitting incomes and investment, which can then limit future growth.

Question 5

Volatility of Commodity Prices constraint

Answer 5

Copper Price fluctuations: Global demand and supply dynamics cause significant price swings, like the 2022-2023 rollercoaster ride. In 2022, copper prices soared to record highs due to pandemic disruptions and the Ukraine war, but then nosedived in 2023 with economic slowdown fears.

Question 6

Volatility of Commodity Prices constraint evaluate

Answer 6

Countries like Saudi Arabia have so much oil, that is cheap to produce that they are well able to cope with price fluctuations. Through OPEC they also have a degree of influence on the price, limiting fluctuations.
Diversification: Botswana:
- Background: Formerly heavily reliant on diamonds, accounting for almost 80% of export earnings in the 1980s, Botswana recognized the dangers of single-resource dependence.
- Diversification strategy:
Investing in tourism: Botswana capitalized on its stunning wildlife and landscapes, developing a thriving ecotourism industry, now a major revenue earner.
- Promoting other industries: It fostered diversification in sectors like banking, manufacturing, and agriculture, reducing reliance on diamonds to around 30% of exports.

Focusing on education and human capital: The government heavily invested in education and healthcare, creating a skilled workforce and improving living standards.
Data:
GDP growth: While volatile, Botswana’s GDP growth has averaged over 4% for the past two decades, demonstrating relative stability compared to many resource-dependent countries.

Question 7

Savings Gap: Harrod-Domar model

Answer 7

A model that suggests that a country’s rate of investment is limited by the rate of savings and its growth potential.

Question 8

Saving Gap: Harrod-Domar model constraint

Answer 8

A country that has suffered from a savings gap is Ethiopia. Ethiopia has a low savings rate which has limited its ability to invest in productive activities and promote economic growth. As a result, Ethiopia has had to rely on foreign aid and loans to finance its development projects, leading to a large external debt burden and increased vulnerability to external economic shocks.
Additionally, the lack of domestic savings has also hindered the development of a vibrant domestic banking sector, limiting access to credit for the private sector and constraining business growth and job creation. These factors have contributed to Ethiopia’s slow and uneven economic growth, despite its rich natural resources and large workforce.

Question 9

Savings Gap: Harrod-Domar model constraint evaluation

Answer 9

Vietnam

Background: Historically, Vietnam struggled with low domestic savings, hindering investment and economic growth.
Strategies:
Financial inclusion: Vietnam significantly expanded access to formal financial services like bank accounts and mobile money, particularly in rural areas. This allowed previously unbanked individuals to save and participate in the formal financial system.
Macroeconomic stability: The government maintained prudent fiscal and monetary policies, promoting inflation control and confidence in the economy, encouraging increased savings.
Investment in education and social safety nets: Improved education levels and social security programs fostered financial security and a longer-term perspective, leading to higher savings rates.
Results:
Domestic savings rate: Savings as a percentage of GDP have more than doubled in Vietnam over the past 20 years, from around 20% in 2000 to over 40% in 2023.
Investment growth: Increased domestic savings enabled Vietnam to boost investment in infrastructure, manufacturing, and other productive sectors, contributing to sustained economic growth.
Poverty reduction: Improved financial inclusion and higher savings rates contributed to poverty reduction in Vietnam, with the national poverty rate falling significantly.

Question 10

Foreign Currency Gap

Answer 10

The gap between the amount of foreign currency a country has available and the amount it needs to finance imports, pay debts, and support its currency.

Question 11

Foreign Currency Gap constraint

Answer 11

• Zimbabwe, which has faced a shortage of foreign currency, leading to restrictions on imports and economic difficulties.
• In 2021, oil accounted for more than 95% of Venezuela’s total export earnings.

Question 12

Foreign Currency Gap constraints evaluation

Question 13

Capital Flight

Answer 13

The movement of capital out of a country, taking away resources and weakening the economy

Question 14

Capital Flight constraint

Answer 14

Capital flight refers to the movement of capital, either through legal or illegal means, from one country to another. In the case of Argentina, the country has experienced significant capital flight over the years, particularly in the 2000s. This has been due to several factors, including high inflation, political and economic instability, and lack of trust in the country’s financial system. The capital flight has resulted in a decline in investment, which has hindered the country’s economic growth and development. In addition, the loss of capital has put pressure on the country’s currency, leading to devaluation and exacerbating inflation. The impact of capital flight on Argentina’s economy has been significant and has contributed to the country’s repeated cycles of boom and bust over the years.

Question 15

Capital Flight constraint evaluation

Answer 15

India:
Background: Historically plagued by capital flight due to bureaucratic hurdles, corruption, and limited investment opportunities, India initiated reforms to improve the investment climate.
Measures taken:
- Ease of doing business reforms: India simplified regulations and streamlined administrative processes to attract domestic and foreign investments.
- Financial sector liberalization: India opened up its financial sector, allowing greater access to capital and providing diverse investment options.
- Infrastructure development: Investing in critical infrastructure like roads, ports, and energy improved the investment environment and boosted confidence.
- Social safety nets: Strengthening social safety nets like healthcare and education reduced uncertainty and encouraged individuals to invest for the future within the country.
Results:
- Reduced capital flight: Capital flight from India has decreased significantly in recent years, from over 6% of GDP in the 1990s to around 1% in recent years.
- Increased domestic investment: India’s domestic investment has seen a substantial rise, contributing to its economic growth and job creation.
- Emerging investment destination: India’s improved investment climate has attracted increased foreign direct investment and positioned it as a promising investment destination

Question 16

Demographic Factors

Answer 16

The characteristics of a country’s population, such as age structure, fertility rates, and migration patterns, which can impact economic growth and development.

Question 17

Demographic factors constraint

Answer 17

Japan is facing a demographic problem in its aging population and declining birth rate. The population of Japan is aging rapidly, with more people reaching retirement age and fewer people entering the workforce. This is causing a decline in the labor force, which has reduced the country’s economic growth potential.
- Additionally, the aging population is putting a strain on the country’s healthcare and pension systems, which are becoming increasingly expensive to maintain. These factors have led to a decline in consumer spending, investment, and economic growth in Japan, as the country struggles to cope with its aging demographic and declining birth rate.
Nigeria is the most populous country in Africa, has a growing population, but faces a number of economic challenges related to its demographic factors. One issue is that the population is growing faster than the economy, leading to a large youth population with limited employment opportunities and high poverty rates. This has led to a large informal sector, which is often unstable and low-paying, and to an increasing number of people living in urban slums.
- Additionally, the population growth has put pressure on the country’s infrastructure, including healthcare, education, and housing. All of these factors have a negative impact on economic development, as they reduce the available labor force and limit productivity. Furthermore, the government has limited resources to invest in these areas, which makes it difficult to address these problems.

Question 18

Demographic factors constraints evaluation

Answer 18

One example of a country that successfully overcame problems created by a rapidly growing population is China. In the late 1970s, China implemented the “One Child Policy” which aimed to control its rapidly growing population.
This policy, along with other reforms, led to a significant decrease in fertility rates and population growth. Additionally, investments in education and healthcare helped to improve the quality of the labor force, contributing to China’s economic development and growth. As a result, China has transformed from a low-income to a middle-income country, becoming the second largest economy in the world.
With a shrinking and ageing population, immigration can provide a solution, although politically this can sometimes be difficult, as the UK situation demonstrates.

Question 19

Debt

Answer 19

The amount a country owes to its creditors, which can impact its ability to finance investment and support its currency.

Question 20

Debt constraints

Answer 20

One example of a developing country whose growth has been constrained by high levels of government debt is Zimbabwe. In the late 1990s and early 2000s, Zimbabwe’s government debt rose significantly due to various factors such as economic mismanagement and an unsustainable land reform program.
- The high levels of government debt resulted in a decrease in government spending on important areas such as education, healthcare and infrastructure. This in turn hindered the country’s overall economic growth and development. Additionally, the high levels of debt made it difficult for Zimbabwe to secure further financing from international institutions and investors, further limiting its economic growth potential.

Question 21

Debt constraints evaluation

Answer 21

The debt relief program for Honduras was part of the Highly Indebted Poor Countries (HIPC) Initiative, which was launched by the International Monetary Fund (IMF) and World Bank in 1996. Under the HIPC Initiative, Honduras was able to reduce its debt-to-GDP ratio from 130% in 2003 to an estimated 70% by 2006. The relief provided through the HIPC Initiative allowed Honduras to allocate more resources towards development spending, including education, healthcare, and infrastructure.
For example, after the HIPC Initiative, Honduras was able to increase its education spending from 2.6% of its GDP in 2002 to 3.2% in 2006. Similarly, the government was able to increase healthcare spending from 2.7% of its GDP in 2002 to 3.5% in 2006. These increases in spending helped to improve access to education and healthcare for the country’s citizens, which in turn supported its long-term economic growth and development. he country also saw an increase in foreign direct investment and an improvement in its credit rating, which allowed it to access capital markets at lower costs.
Overall, the debt relief program helped to boost Honduras’s economic growth and reduce poverty levels, contributing to the country’s overall development.

Question 22

Access to Credit and Banking

Answer 22

The availability of credit and banking services, which can impact a country’s ability to finance investment and support economic growth.

Question 23

Access to Credit and Banking constraint to development

Answer 23

Example: many African countries, where access to credit and banking services is limited, reducing investment and economic growth.

Question 24

Access to Credit and Banking constraint evaluation

Answer 24

Microfinance schemes, FDI, and foreign aid are all examples of ways of accessing capital when there is limited access to credit and banking. Improvements to property rights can also improve access to credit.

Question 25

Infrastructure

Answer 25

The physical and institutional structures that support economic activity, such as transportation networks, power generation, and communications systems.

Question 26

Infrastructure as a constraint to development

Answer 26

Many African countries, where inadequate infrastructure has limited economic activity and growth, because it makes movement of goods and people more difficult, times consuming and expensive. This makes business less efficient, with higher costs. The lack of infrastructure, such as transport, energy grids, internet connection also mean it is harder to attract FDI.

Question 27

Infrastructure as a constraint: evaluation

Answer 27

China has made significant investments in Africa in recent years as part of its efforts to boost development and expand its global influence. One example of this is the China-Africa Development Fund (CADFund), which was established in 2007.
For example, in Kenya, China has invested in the construction of the Mombasa-Nairobi Standard Gauge Railway, which is now one of the largest infrastructure projects in the country.

Question 28

Education/Skills

Answer 28

The level of education and skills of a country’s population, which can impact its ability to participate in and benefit from the global economy.

Question 29

Education/Skills as a constraint to development

Answer 29

One example of a developing country where low levels of literacy has hurt development is Afghanistan. Despite being rich in natural resources, the country has struggled with poverty, conflict, and political instability for decades. A significant contributor to these problems is low levels of literacy, particularly among women. In Afghanistan, only about 60% of the population is literate, and just 36% of women can read and write. This has resulted in limited access to education and job opportunities, which in turn perpetuates the cycle of poverty and hinders the country’s overall development.

Question 30

Education/Skills as a constraint: evaluation

Answer 30

An example of a developing country where literacy levels have significantly improved recently is India. Over the past few decades, India has made significant progress in increasing its literacy rate, especially since the implementation of the Right to Education Act in 2009, which made education a fundamental right for children aged 6 to 14. As a result of these efforts, the literacy rate in India has risen from around 65% in 2001 to over 75% in 2021. This improvement in literacy has led to increased access to education and job opportunities, particularly for women and marginalized communities, and has been a crucial factor in the country’s overall development.

Question 31

Landlocked + bad neighbours as a constraint to development

Answer 31

One example of a country whose development is constrained by being landlocked with bad neighbors is landlocked Burkina Faso in West Africa. Burkina Faso is surrounded by several countries with poor governance, conflict, and instability, making it difficult for the country to develop trade and commerce with its neighbors. Additionally, its location in the Sahel region makes it susceptible to drought and food insecurity, further hindering its development. Despite these challenges, Burkina Faso has made progress in recent years in improving governance, investing in education and healthcare, and promoting economic growth. However, the ongoing security challenges and lack of good neighbors continues to pose a significant constraint to the country’s development.

Question 32

Landlocked + bad neighbours as a constraint: evaluation

Answer 32

It is not possible for a country to stop being landlocked, but it is possible for neighbouring countries to improve, so that it can gain access to the sea via their transport systems.
Uganda is a good example of a landlocked developing country that benefits from its good transport links from its neighbors. The country is located in East Africa and is surrounded by Kenya, South Sudan, the Democratic Republic of Congo, Rwanda, and Tanzania. Uganda has well- established road, rail, and water transport systems that connect it to the neighboring countries, providing access to the Indian Ocean ports and other important markets in the region.
Most of Uganda’s exports go through the port of Mombasa in Kenya. The port is located on the coast of the Indian Ocean and is a major hub for trade and commerce in East Africa. The Mombasa-Nairobi-Kampala- Jinja highway, which runs through Kenya, Uganda, and Tanzania, provides an efficient transport link between Uganda and the port of Mombasa.
Another evaluation point is that some goods are so valuable, and relatively light, they may be worth transporting by air. Fresh food often travels by air because any other transport takes to long.

Question 33

Conflict trap

Question 34

Conflict trap constraint to development

Answer 34

Sudan is an example of a developing country that has been hit by a longstanding civil war. The country has a history of internal conflict, dating back to its independence from Britain in 1956. The most recent and prolonged civil war lasted from 1983 to 2005, when the government of the North fought against rebels in the South. The conflict resulted in the death of over two million people and displacement of millions more. The war officially ended in 2005 with the signing of the Comprehensive Peace Agreement, but violence and conflict have continued in different parts of the country, particularly in Darfur, South Kordofan, and Blue Nile states. The ongoing violence and instability have had a significant impact on Sudan’s development, hindering its ability to attract foreign investment, improve infrastructure, and promote economic growth.

Question 35

Conflict trap as a constraint: evaluation

Answer 35

Sri Lanka is a good example of a country where a long civil war has ended and peace has led to development. The country was plagued by a 26-year-long civil war between the government and the separatist group, the Liberation Tigers of Tamil Eelam (LTTE), which ended in 2009. Since the end of the conflict, the Sri Lankan government has been focused on rebuilding and developing the country, with a particular emphasis on infrastructure, tourism, and economic growth.

Question 36

Corruption

Question 37

Corruption as a constraint to development

Answer 37

Corruption can have a significant impact on a country’s development, hindering its ability to attract investment, promote economic growth, and improve living standards for its citizens. One example of a country where corruption has stunted development is Nigeria. Despite its vast natural resources, including oil and gas reserves, Nigeria is one of the poorest countries in the world, with a large percentage of its population living in poverty. Corruption has been a major issue in Nigeria for decades, affecting virtually every aspect of public life. The misappropriation of public funds, bribery, and other corrupt practices have hindered the country’s ability to invest in infrastructure, provide basic services, and create opportunities for its citizens. Corruption has also deterred foreign investment, making it more difficult for Nigeria to create jobs, spur economic growth, and improve its standard of living.

Question 38

Corruption as a constraint: evaluation

Answer 38

Rwanda is an example of a country where corruption has been reduced, leading to better economic performance. In the past, Rwanda was known for its high levels of corruption, but since the end of the civil war in the 1990s, the government has taken a strong stance against corruption and implemented a number of reforms to tackle the issue. These efforts have resulted in a significant reduction in corruption and an improvement in the business environment, which has helped to spur economic growth and development. Rwanda has made significant investments in infrastructure, including roads, bridges, and airports, which have improved connectivity and access to markets. Additionally, the government has implemented policies to encourage investment and promote entrepreneurship, helping to create new jobs and spur economic growth. As a result of these efforts, Rwanda has become one of the fastest-growing economies in Africa, with a growing middle class, a dynamic private sector, and improved living standards for its citizens.