Factors Influencing Growth And Development Flashcards
What is primary product dependency?
This is when developing countries rely on primary products for export income
hard commodities : mined or extracted
Soft commodities: agricultural goods
How does primary product dependency hinder growth and development?
- lead to issues such as the Dutch disease, which is when one industry does well, which ends up negatively affecting another industry - decreasing the price competitiveness of exports
- price fluctuations- which depends on the supply and demand
What is the savings gap?
Developing countries have lower incomes = saving less
Harrod - domar model : suggests the benefits of saving which leads to increased investment, therefore leads to an increase in capital stock as a result an increase in economic growth
How does the savings gap hinder development?
If developing counties are savings less it would mean that banks lend less money ( borrowing declines ) which could lead to investment and consumption decreasing
- as a result AD decreases
What is foreign currency gap?
This is when currency outflows outweigh currency inflows
What are the causes of foreign currency gap
Dependency on exports of primary products
Capital flight ( transfer of cash pr assets to another country )
Dependency on imports of oil and manufactured goods
How does a foreign currency gap hinder development?
The country may have insufficient foreign currency to purchase imported capital goods, which are needed to increase its productive capacity
What is capital flight?
Occurs when money or assets rapidly leave a country
This can occur due to the lack of confidence in the countries stability
How does capital flight hinder development?
It reduces the level of valuable recourses since its being taken out of the country therefore reducing the level of new investment
What are the causes of debt?
Primary product dependency
Loans for major investment project or military equipment
Depreciation of currency ( increase the burden of debt )
Developing countries received loans from banks in the developed world
How does high national debt hinder development?
Less money to spend on welfare support or services due to them government having to pay back the debt
how does poor access to banking facilities hinder development?
developing countries have limited access to banking facilities compared to developed countries
this means that developing countries cannot access funds for things such as investment or starting up businesses
how does poor infrastructure hinder development?
low levels of infrastructure make it hard for businesses to trade and set up within the country
it makes it difficult to generate economic activity
makes a country less attractive for inward fdi
how does poor education level hinder development?
there tends to be lower education levels within developing countries which would mean that there would be low skilled workers and low levels of productivity
what are property rights ?
where individuals are allowed to ow and decide what happens to certain resources
