LS14 - Factors Influencing Growth & Development (Part 3)

Question 1

Collateral meaning

Answer 1

• asset put down against a loan been taken out
• if you default on a loan have to use collateral to pay it back

Question 2

what is a home equity loan?

Answer 2

• a loan using a home as collateral

Question 3

governance meaning

Answer 3

• refers to how well a country is run and whether authorities manage scarce resources well
• good governance improves economic outcomes and quality of life for a country’s people

Question 4

corruption meaning

Answer 4

the abuse of entrusted power for private gain
e.g. PPE scandal

Question 5

why may corruption lead to government failure?

Answer 5

• leads to a misallocation of resources as tax revenue is used elsewhere for personal gain
• the free market is hindered due to private gain

Question 6

why is corruption likely to lead to higher costs for gov projects and day to day spending

Answer 6

• will lead to higher costs as revenue is used for private gain so other sources of money have to be found
• also have to pay a chain of officials for a project to get through (corruption)

Question 7

why do education systems in LEDCs hinder economic growth?

Answer 7

• access to education is limited - the quality is also relatively low e.g. teacher shortages & big class sizes
• consequently, the number of years spent in education is relatively low
• as a result the quality of the workforce is relatively low
• productivity is thereby limited
• this hinders economic growth as labour is a factor of production and is likely to be extremely important in capital-light countries e.g. Malawi

Question 8

an absence of property rights hinders economic growth for two reasons:

Answer 8

• land-owning farmers are unable to use their land as collateral, so they struggle to obtain loans to finance investment which can increase production & efficiency, this limits the profit that can be earned
• entrepreneurs/business owners are unable to use their property as collateral so obtaining loans to finance investment and expansion is harder, reduces the likelihood of talented entrepreneurs creating successful businesses so innovation and competition within an economy is restrained

Question 9

how does corruption hinder economic development in LEDCs

Answer 9

• corruption is the abuse of entrusted power for private gain
• if it rises in a country, gov officials are more likely to pursue their own interests rather than that of the public
• this decreases the likelihood that infrastructure projects will be completed in a timely & efficient manner e.g. Romania, very corrupt, has a motorway project to connect north and south (A3) which remains incomplete despite starting a decade ago partly due to corruption
• consequently infrastructure is likely to remain inadequate thereby limiting econ growth
• but it’s still possible for countries with relatively high corruption to experience successful econ development e.g. China has strongly developed over past few decades despite preforming poorly on the Corruption Perceptions Index

Question 10

what happened in turkey July 2016?

Answer 10

• failed coup d’état - then president purged military, private sector and civil service
• made son-in-law treasury and finance minister - FDI fell by $5trn
• due to corruption, control/dictatorship - gave 2 roles, lead to fall in confidence/capital flight/ recession

Question 11

what does the fall in FDI in Turkey show?

Answer 11

• political instability can reduce econ growth and harm long-term prospects of an economy
• can also cause people to leave for more stable countries
• esp. problematic if workers are highly skilled i.e. there is a brain drain - Russia has experienced one

Question 12

how does wars affect LEDC’s

Answer 12

• wars cause death and destruction
• this leads to a deterioration in a country’s infrastructure and factors of production
• people are injured and killed which reduces qual & quant of workforce, additionally power networks and other vital infrastructure is damaged which makes producing goods and services more difficult
• the overall effect is likely to be -ve econ growth, as a result econ development is likely to be reversed causing the quality of life to fall
• Syria is an example of a country that has suffered from this due to the civil war which began in 2011