ECON 4.9-4.10: Economic Growth/Development Barriers and Strategies Flashcards
Which domestic factors contribute to economic development?
1) Better education (more productive workforce)
2) better healthcare (improves life expectancy)
3) use/advancement of appropriate technology (higher employment levels in people)
4) access to credit and micro credit (small loans encourage entrepreneurship, increasing income and business productivity)
5) female empowerment (higher employment rate of women/more educated women contributing to development)
6) more equitable income distribution (less conflict, rebellion, and wars - good for growth and stability)
Which international trade factors contribute to economic development?
1) Import substitution
2) Export promotion
3) Trade liberalisation
4) Help of the WTO
5) Bilateral and regional preferential trade
6) Diversification
How can import substitution contribute to economic development?
By producing goods domestically rather than importing foreign ones:
+ protects jobs
+ protects local culture
+ less dependence on foreign nations (national security)
- no benefit from comparative advantage
- higher prices
- danger of retaliation
e.g. developing countries after WW2, Trump administration
How can export promotion contribute to economic development?
By focusing on exporting goods and using their revenue to boost AD:
+ more efficiency
+ increased variety/quality of goods
+ quick growth
- strategy used for growth, not for development
- inequality
- may not be possible in developing countries
e.g. aggressive tactic used by China
How can trade liberalisation contribute to economic development?
By increasing the amount of free trade:
+ lower prices
+ increased variety/quality of goods
+ increased efficiency
- may cut jobs in some sectors
- increases dependence (bad for national security)
e.g. Singapore (one of the countries with the greatest amount of trade freedom, 2022 Index of Economic Freedom)
How can the WTO help with economic development?
It acts as an international organisation regulating international trade:
+ can help set up trade deals
+ all free trade arguments
- gives MNCs a chance to exploit cheap labour in developing countries
How can bilateral and regional preferential trade agreements help with economic development?
They encourage agreements between countries in a certain region:
+ lower prices
+ increased variety/quality of goods
+ increased efficiency
- may cut jobs in some sectors
- increases dependence
How can diversification help with economic development?
It involves moving from the production and export of primary commoditires and to replace these with production and export of manufactrued goods:
+ protection from volatile changes in primary product
- developing countries often don’t have the sophisticated workforce for this
How is rising economic inequality a barrier to development?
The high level of wealth and income inequality can lead to the wealthy in developing countries accumulation a disproportionate amount of power - they may not opt for “pro-poor growth”. The wealthy may save or invest overseas (capital flight) and spend more on imports than domestic products. Those in poverty have low saving, resulting in low investment and therefore low growth.
e.g. Zimbabwe (Gini coefficient: 0.69)
How is capital flight a barrier to development?
Capital flight refers to large sums of money moving out of the country as a result of the uncertainty and risk in holding domestic assets.
Developing countries are especially vulnerable to political and economic instability.
Domestic capital leaves the country through investment in foreign countries (e.g. Malaysia).
Less capital is used for growth - decreased development and currency depreciation (increased supply of currency)
How are low levels of human capital a barrier to development?
Lack of access to healthcare and education (less efficient and educated workforce - less social change)
Healthcare and education are relatively expensive - difficult for developing countries.
How is gender inequality a barrier to development?
Smaller workforce (less labour), lower human capital, lower potential output
Lack of access to education for one gender leads to a lower quality of workforce and life.
How are geographical factors a barrier to development?
Landlocked countries - isolation from world markets (goods, services, and knowledge), maritime trade depends on ports of other countries
Tropical climates - lower productivity for major crops (i.e. rice, corn, wheat), sanitation becomes incredibly important (may not be up to par), difficulty moblizing energy resources
Higher level of endemic diseases - workers cannot work (decreased labour productivity and human capital), lower life expectancy
How is indebtedness a barrer to development?
Tension/compromise btwn short-run relief and long-run development.
Opportunity cost of govt revenue used to pay interest (e.g. less spending on essential services, less flexibility with expansionary fiscal policy)
Failure to repay may deter lenders (less future loans to support welfare) and itnl trading partners (fewer importsn and less potential to export)
e.g. Argentina, rising external debt from 2015-2020
How is the dependence of primary sector production a barrier to development?
Primary commodities are significant shares of their export revenues.
If the prices for these commodities fall - detrimental since:
- severely decreases export revenue (and AD, and economic growth) [PED and PES of commodities: relatively inelastic, great price volatility - corporations and the govt invests less bc difficult to plan ahead]
- increases current account deficits (difficult to finance current expenditures and necessary imports)
VULNERABILITY
e.g. countries reliant on manufacturing goods req. low skills (e.g. Bangladesh) were hit hard when China increased textile supply - driving down world price
