factors constraining growth Flashcards
examples of Primary Product Dependency
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.
examples of Volatility of Commodity Prices
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 nose
examples of the savings gap
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.
examples of foreign currency gap
For example, in Venezuela, a shortage of foreign currency has led to a shortage of essential imports and hyperinflation, which has caused significant economic and social problems for the country. Another problem is that a shortage of foreign currency can make it difficult for a country to service its foreign debt.
examples of capital flight
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. Argentina was plunged into a devastating economic crisis in December 2001/January 2002, when a partial deposit freeze, a partial default on public debt, and an abandonment of the fixed exchange rate led to a collapse in output, high levels of unemployment, and political and social turmoil.
examples of demographic factors
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.
debt
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.
around 100.5% of gdp however nothing compared to japans 263% of gdp debt
examples of access to credit and banking
Example: many African countries, where access to credit and banking services is limited, reducing investment and economic growth
examples of infrastructure
Example: 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.
In 2022, 600 million people—half of Africa’s population—still lacked access to electricity and 418 million people had no access to clean drinking water.
examples of education and skills
In Afghanistan, only about 60% of the population is literate, and just 36% of women can read and write
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.
