Factors Influencing Growth And Development

Question 1

Volatility of commodity prices

Answer 1

• Primary products tend to have inelastic demand and suply curves which mean relatively small changes in demand or supply leads to huge fluctuation in prices
• These large changes in price mean producers income and country’s earnings are rapidly varying, making it difficult to plan and carry out long term investment as well as meaning that producers can see their income fall very rapidly, causing poverty
• When prices of commodity rise for a number of years - there tends to be over investment in the prod of that commodity - causing long term risk for when that price eventually falls

Question 2

Foreign currency gap

Answer 2

• When exports from a developing country are too low compared to imports to finance the purchase of investment or other goods from overseas required for faster economic growth

Question 3

Capital flight

Answer 3

• Large amounts of money are taken out the country, rather than being left there for people to borrow and invest. If money was placed in banks within the country, then credit could be created by banks for consumers and businesses to spend
• This can occur due to low confidence in the country’s stability, to hide out from gov authorities or simply for profit repatriation

Question 4

Absence of property rights

Answer 4

• Property rights are where individuals are allowed to own and decide what happens to certain resources. A lack of rights mean that individuals and businesses can not use the law to protect their assets = less I = less buying of machinery, factories or establish brands.

Question 5

Significance of property rights in Zimbabwe

Answer 5

The loss of property rights in Zimbabwe was a significant factor leading to its economic collapse

Question 6

Assumptions in Lewis model

Answer 6

Assumed that developing countries had dual economies with agri and modern industrial, believed that modern industrial would attract workers from rural with higher wages . …., then in the end those who moved to urban have higher incomes and more savings for investment. Believed growth could be achieved through rural to urban migration