Factors influencing G and D Flashcards
How does primary product dependency impact G and D
They are low value added products so don’t generate large profits and can be susceptible to natural disasters so aren’t reliable, refer to Prebisch singer hypothesis
primary products
commodities like minerals plants or raw materials
How does volatility in commodity prices impact G and D
Producers incomes are very unstable as demand and supply are inelastic so slight changes cause big price changes
Prebisch Singer Hypothesis step by step
- Demand for primary products is income inelastic as they are cheaper
- Demand for manufactured goods is income elastic as with more income demand for these goods rises
- This leads to large rises in price for manufactured goods, so primary product exporters can’t import as many manufactured goods so will have lower standard of living
Prebisch singer hypothesis conclusion
Primary product dependency for exports isn’t an effective development technique as they will become steadily worse off over time
Capital stock
sum of private and government fixed assets like buildings or equipment
Explain the Harrod domar model
Increased savings –> Increased investment –> Higher level of capital stock –> higher long term economic growth
How does the savings gap impact G and D
With reference to harrod domar model lower level of domestic savings means less investment into capital stock so lower growth and lower incomes
How does capital flight impact G and D
When people hold savings abroad due to political instability or high taxes which creates a lack of domestic investment
How does the foreign exchange gap impact G and D
Capital outflows are greater than inflows due to dependence on primary product exports or manufacturing imports or servicing the debt
–> less money in circular flow lower multiplier and growth rate
How does an absence of property rights impact G and D
If people aren’t secure or confident in the ownership of their land then they won’t invest in improving their home or area they live which harms development
How can large debt impact G and D
A lot must be spent on servicing the debt which leaves less money for capital improvements so G and D don’t increase
How can access to credit and banking impact G and D
Worser access to credit and banking systems can make taking out loans for business startups harder and less profitable so entrepenership and thus growth is lower
How can demographic factors impact G and D
- If population grows faster than the economy size then GNI per capita will fall and development worsen
- Fast growing population means lots of children so stress on education system
How can education impact G and D
If children don’t go to school or quality of schooling is bad then this will create a lower skilled and less productive workforce, difficult to access professional training so jobs with higher wages and attract FDI so G and D won’t increase
