Factors Influencing Growth and Development Flashcards
Reasons for poor health
- Poor healthcare
- Poor sex education
Why does poor health constrain development?
- Reduces workers productivity -> less corporation tax -> less government tax revenue
- Keeps children out of school -> low human capital -> less productivity -> less corporation tax -> less government tax revenue
Aid Evaluation
- Corruption
- In Kenya aid from the US goes to corruption
How does population growth constrain development?
- More children so parents stay at home to look after the kids -> can’t develop their careers -> low incomes
- Schools and hospitals overrun -> quality of healthcare decreases -> unproductive -> low incomes -> less income tax -> less government spending
How does education effect development?
- improvement of standard of education -> improved human capital -> increase in productivity -> increase in incomes
- sex education -> less population
- However religious barriers e.g. Catholic Church against contraception, cultures of women staying at home
Primary product dependency
- The country will be vulnerable to price fluctuations, as demand and prices for primary products can be volatile -> therefore hard to plan for the future
- not sustainable as can be over-extracted and run out
- effects government revenues and terms of trade - Prebicsh-Singer model
Capital flight
When investors move assets out of a country due to economic instability or unfavourable conditions. Depletes the countries resources
Effects:
- reduces investment within the country as reduces the amount of money a country can invest
- currency depreciation: as capital leaves the country there is an increased demand for foreign currency - inflation
- increased interest rates: country may increase interest rates
Savings gap (Harrod Domar model)
Harrod Domar Model = savings ratio/ capital output ratio = an economy’s growth rate depends on:
- the level of national savings
- the productivity of capital investment (Capital output ratio)
The model states that investment, saving nd technological change are required in an economy for economic growth -> this leads to increased investment and technological progress.
A savings gap occurs when domestic savings are insufficient to support desired investment levels
- Africas saving rate is 17% whereas middle income countries is 31%
-_However, in countries where there is a low marginal propensity to save, or have a poor financial system, funds may not lead to investment or borrowing
Demographic factors
Population growth, age distribution, and workforce skills impact economic development. A younger population can help development
Foreign currency gap
When imports exceed its foreign exchange reserves. It can lead to trade deficits
Access to Credit and Banking
Limited access to credit and banking services can hinder investment, entrepreneurship, and economic growth.
Infrastructure
Infrastructure development (transport, energy, telecommunications) is vital for economic growth and competitiveness.
Debt
High levels of public or external debt can lead to debt servicing burdens, reducing resources for development.
Property rights
Weak property rights can deter investment, as individuals and businesses lack security over their assets.
Political Stability
Political stability and the rule of law are essential for attracting investment and fostering economic growth.
