LS14 - Factors Influencing Growth and Development

Question 1

Primary Products

Answer 1

Products that dont undergo manufacturing processes, used/sold as found in nature
Agriculture, fish, commodities such as oil, coal

Question 2

Primary Product Dependency

Answer 2

• Price of primary products tend to fall over time, as incomes rise, demand for manufactured products rise
• PPDs are income elastic, and with price volatility, income is not insured, meaning dependents cannot invest in capital goods
• This means they cannot move towards manufacturing industry
• Long term income doesnt rise, hindering economic growth

Question 3

Savings Gap

Answer 3

Harrod-Domar model:
Low savings –> low investment –> low capital –> low output –> low income –> low savings…

Question 4

Foreign Currency Gap

Answer 4

Where a countrys foreign currency expenditure for imports or servicing debt exceed its foreign currency earnings from exports or FDI.
A high foreign currency gap (so low reserves of FC) can hinder economic growth as country is unable to import capital goods or raw materials to boost manufacturing and increase output

Question 5

Capital Flight

Answer 5

Large amount of financial assets leaving country due to events such as political or economic instability - causes investors to lose confidence
Econ development constrained as extra income that could be saved, and invested is lost.

Question 6

Dependency ratio and working age population

Answer 6

Number of dependents in population divided by number of working age people - larger working age pop. smaller dependency ratio
The larger the size of working age pop., the greater the productive capacity will be
The larger the size of non working age pop., the greater the burden on working population and state - as they have to support them with health, social care, education

Question 7

Debt

Answer 7

Servicing a debt means paying the principal as well as the interest
High debt servicing hinders econ growth
High debt burden –> large amount of govt spending on servicing debt –> less funding for public goods, education –> infrastrcture, labour force weaker –> lower econ growth

Question 8

Access to Credit and Banking

Answer 8

For firms, borrowing from banks is used to finance business operations and investments
For individuals, access to banks improves financial security and encourages saving, also being able to borrow to consume
Access to credit/banks limited in LEDCs, as:
* Lack of financial institutions limited or poor quality
* Low income population might not quality for credit, seen as risk and not creditworthy
* Low savings ratio

Question 9

Infrastructure

Answer 9

Quality of infrastructure can determine efficiency and quantity firms produce at –> limits economic growth if infrastructure is of poor quality - common in LEDCs
Examples:
* Transport network - transporting goods/services will be inefficient; geographical immobility
* Power network - blackouts that can stop/delay production; people cannot access internet/technology
* Education - poor qualifications, low employability of population so poor quality of workforce - low productive capacity
* Healthcare - workers spend more time receiving treatment - less income, low productivity; longer wait times and poor treatment; less beds, doctors, equipment

Question 10

Education and Skills

Answer 10

1. Access to education is limited in LEDCs - quality of education is also low: large classes, teacher shortages/underqualified, poor teaching materials
2. Less years spent in education
3. Quality of workforce is low
4. Productivity is limited
5. Econ growth is hindered - labourforce is not productive enough, leading to less output and so lower income, and low investments

Question 11

Absence of Property Rights

Answer 11

Individuals and entrepreneurs cannot use their land or property as collateral for loans - so lack funds to finance investment and expansion - lower efficiency and output - limits profit, and entrepreneurship - innovation and competition is constrained

Question 12

Political Factors - Corruption

Answer 12

1. Corruption - abuse of entrusted power for personal gain
2. If corruption is high in a country, then officials are likely to pursue their own interests rather than meeting needs of the public
3. Leads to poor quality and delays in projects such as infrastructure - Romania A3 motorway is still not completed after a decade, due to high corruption in country
4. Results in poor economic development
   But countries like China have experiences huge development even with high levels of corruption

Question 13

Political Instability

Answer 13

Can lead to fall in FDI, with political unrest causing uncertainty in an economy, harming long term prospects of development
Can also cause people to migrate to other countries deemed safer, can especially hinder econ growth if people leaving country are highly skilled