Factors Influencing Growth and Development

Question 1

Capital Flight

Answer 1

When savings are sent abroad by citizens and the firms of a country to another country which is either seen as being more secure or where the money can be hidden from government authorities.

Question 2

Dutch Disease

Answer 2

In economics, where exploitation of natural resources leads to a rise in the exchange rate and the loss of international competitiveness of the country in the production of non-resource goods and services.

Question 3

Foreign exchange gap

Answer 3

The difference between the actual level of exports and the level of exports needed to create higher economic growth for an economy.

Question 4

Harrod-Domar Growth Model

Answer 4

A model which suggests that economic growth is dependent on the saving ratio and technological progress.
This theory states that investment, saving and technological change are the key variables in determining economic growth. Increased investment in the economy pushes out the production possibility frontier.

Question 5

Rent Seeking

Answer 5

Behaviour which attempts to gain a share of an existing pot of income or wealth rather than creating higher income or wealth.

Question 6

Resource curse

Answer 6

Exists where an abundance of natural resources in a country is exploited, but where there is consequently little increase in economic development.

Question 7

Savings Gap

Answer 7

In development economics, the difference between the actual level of savings in an economy and the level of savings needed to finance the investment required for a higher rate of economic growth.

Question 8

Various Factors Influencing Growth and Development

Answer 8

Political and institutional factors
- Growth and development are fostered by good governance and the rule of law. Where the rule of the law is weak, there is often an effective lack of property rights. Individuals and businesses are unable to use the law to defend their ownership of assets. The result of lower investment and lower output. Individuals are less willing to buy machinery, build factories or establish brands if powerful individuals or organisations within the state can effectively steal those assets. This is linked to corruption.

Education and skills
Education and skills have long been recognised as an important factor in economic development. Countries like China and South Korea have heavily invested in education whilst they were still poor, which has benefited them in the long term.

Infrastructure - in a developed country like the UK, there is a complex network of buildings, roads, railways, airports, ports, utilities like water and gas pipes, telephone and electricity cables, and industrial plants.

Technology - technological advancements allow for more production of goods and services.

Absolute Poverty - Strain on economic development - malnutrition may lead to death of potentially productive people with whatever education and training they have gained.

Income Distribution - high levels of inequality are likely to result in absolute poverty for some in society.

Access to Credit and Banking including Micro finance - in developed countries, individuals, firms and governments have access to sophisticated financial systems that allow them to save money with interest and to borrow money. Equally, there are systems for taking equity stakes in companies. There are banks, stock markets, and insurance companies, for example. The poorer the developing country, the less likely it is that individuals and businesses will have access to such financial institutions and markets.

Demographic factors - The changing structure of the population and its rate of growth can be important for development. In many developing countries, such as Italy and Japan, the population is ageing. This means the proportion of workers to dependents is falling. If the size of the population is static, output will fall, all other things being equal, because there are fewer workers. Ageing population also place pressure on parts of the economy that serve the needs of the elderly such as health systems. Development tends to be linked to demography. The lower the level of development, the higher tends to be the birth rate. Young populations ca be dynamic. However, there is a large burden on the education system to provide education and training for such a large number of young people. There also tends to be large amounts of unemployment and underemployment because economies cannot provide enough jobs for the large cohorts of young people joining the working population.

Debt

The Savings Gap, foreigh aid and the