Economic Barriers to Economic Growth and Development Flashcards
(26 cards)
Poverty Cycle/Trap
A poverty trap is a cycle where poor communities, lacking savings, cannot invest in capital → poverty across generations without intervention.
Economic Barriers to economic growth and development
- Rising economic inequality
- Lack of access to infrastructure and appropriate technology
- Low levels of human capital - lack of access to healthcare and education
- Dependence on primary sector production
- Lack of access to international markets
- Informal economy
- Capital flight
- Indebtedness
- Geography including landlocked countries
- Tropical climates and endemic diseases
What is Infrastructure?
the facilities essential for economic activity to take place
Low levels of human capital - lack of access to healthcare and education
- Education provides external benefits and improves both the educated themselves and society as a whole.
- Life expectancy, while influenced by many factors, strongly correlates with healthcare.
Lack of Education as a Barrier to Development
- Insufficient funding for education
- Insufficient teachers or untrained teachers
- Insufficient classrooms and basic facilities
- Lack of teaching materials
- Children with disabilities are excluded
- Gender discrimination
- Distance of school from home
- Low priority secondary education
Lack of Health care as a Barrier to Development
- Insufficient funding & access to health care services
- Costly public health services; Private payments for health care
- Geographical access
- Insufficient numbers of trained medical practitioners; poor training of doctors and nurses
- Insufficient medical facilities and medical supplies
- Acceptability of modern medical practices
- Insufficient access to clean water and sanitation
- Lack of immunizations/vaccines
- Poor maternal health care
Dependence on primary sector production - Barriers to Development
- Over-specialization in few products
- Price volatility of primary goods
- Worsening terms of trade
- Market uncertainty and vulnerability
- Protectionism by developed producers
Appropriate Technology
Appropriate, sustainable and small scale technology
Decentralised, labour intensive, energy-efficient, environmentally sound, locally autonomous, off-the-grid
Lack of access to international markets
- LDCs are unable to use comparative advantage
- Inability to access international markets (Protectionism in International Trade)
- Tariff escalation
Tariff escalation
Higher tariffs apply to more processed goods
Informal economy
- Lower productivity
- No tax revenue
- Poor pay/benefits for workers
- No protection for workers
- No job security or social care
Capital flight
Large sums of money or assets flow out of a country to seek a ‘safe haven’
Because:
- Lack of safety of domestic financial institutions
- Corruption
- Currency instability
- Danger of hyperinflation
- Threat of government compulsory purchase of assets/confiscation of assets
Indebtedness
the state of owing money or being in debt
Geography including landlocked countries
- Insufficient resources
- High mountain ranges
- Lack navigable rivers, long coastlines
- Environmental instability (tsunamis, earthquake, typhoon)
- Agriculture productivity
- Access to water
Tropical climates and endemic diseases
- productivity of major crops in temperate zone > tropical zone
- poor nutrition from poor producitvity of major crops
- burden of disease in tropics > temperate
- lagged behind technology
- deterioration of capital in the tropics > temperate
Income inequality
when one group in society owns a larger proportion of the wealth than the rest
Effects of Rising Economic Inequality on Economic Growth & Economic Development
Economic Growth:
- Dampens investment by fueling economic, financial, and political instability
- The rich dominate politics and the economy, leading to capital flight.
- The rich want foreign produced goods, harming domestic economy
Economic Development:
- Limits opportunities of low-income households to climb the social pyramid.
- Low savings by the poor = low investment and growth
- Labor productivity is low
E.g. South Africa
Effects of Lack of access to infrastructure and appropriate technology on Economic Growth & Economic Development
Economic Growth:
- Increases production costs and reduces efficiency, slowing GDP growth.
- Reducing profitability and limiting foreign investment
- Raises transport costs, making exports less competitive.
Economic Development:
- Poor water & electricity access harms health, sanitation, and productivity.
- Poor infrastructure = fewer hospitals, schools, and sanitation facilities.
- Without good transport & electricity, businesses won’t expand to rural areas → higher unemployment & poverty.
E.g. Nigeria – Struggles to attract manufacturing firms because of frequent power outages, limiting industrial growth.
Effects of Low Levels of Human Capital on Economic Growth & Economic Development
Economic Growth:
- Education: Limits innovation, productivity, and global competitiveness.
- Healthcare: High absenteeism and premature deaths slow economic activity.
- Skills: Lack of skilled workers discourages foreign investment.
Economic Development:
- Poor human capital limits income, trapping many in poverty and hindering living standards.
Haiti - Poor education → low educational attainment and a poorly skilled workforce.
Poor health care → Frequent disease outbreaks, malnutrition, and poor sanitation reduce worker productivity and increase absenteeism
Effects of Dependence on primary sector production on Economic Growth & Economic Development
Economic Growth:
- Raw material price volatility makes economies vulnerable.
- Dependence on raw material exports risks national income drops when demand falls.
Economic Development:
- Agriculture and mining create few skilled jobs, leading to wage stagnation.
- Resource extraction damages land and water, affecting health and food security.
Venezuela – Oil price collapse in 2014 led to economic crisis and hyperinflation
Effects of Limited access to international markets on Economic Growth & Economic Development
Economic Growth:
- High tariffs hurt exports, cut revenues, and slow growth.
- Hinders growth and investment
Economic Development:
- Lower agricultural exports reduce rural incomes and drive urban migration.
- Limited trade access slows growth, keeping economies reliant on domestic markets.
North Korea – isolated economy, low innovation and technological growth.
Effects of Informal Economy on Economic Growth & Economic Development
Economic Growth:
- Don’t pay taxes = reducing funding for infrastructure & public services.
- Informal businesses lack legal protections, making expansion difficult.
Economic Development:
- Informal workers have no job security, healthcare, or pensions.
- Many women are forced into informal jobs with low wages and no legal protection.
Nigeria (60% Informal Economy) – Government loses billions in unpaid taxes.
Latin America – 50% of workers in informal jobs, earning low wages without social benefits.
Effects of Capital Flight on Economic Growth & Economic Development
Economic Growth:
- Reduces bank funds, limiting investment and industrial growth.
- Weakens the currency, raising import prices and inflation.
- Severe capital flight forces government borrowing, risking debt crises.
Economic Development:
- Capital flight cuts tax revenue, reducing funds for public services.
- The rich move money abroad, leaving the poor with inflation and job losses.
- Repeated capital flight hampers stable development.
Turkey (2021) – Investors lost confidence in the economy → Depreciation of the Lira, causing high inflation
Zimbabwe (2000s) — capital flight led to hyperinflation, destroying wages and savings.
Effects of Indebtedness on Economic Growth & Economic Development
Economic Growth:
- Paying the debt = no money for healthcare and infrastructure.
- Investors don’t want to invest in countries with high debt
Economic Development:
- Force governments to cut spending on healthcare and education
- Governments raise taxes or cut subsidies–hurts the poor the most.
Zambia (2023) – Owed $32 billion in external debt, leading to spending cuts in social programs and a slowdown in infrastructure projects
Argentina (2023) – IMF loan conditions required spending cuts, affecting welfare programs and leading to rising poverty.
