Theme 4: Factors influencing Growth and Development Flashcards
Name as many as you can of the factors influencing growth and development?
- Education
- Political factors
- Infrastructure
- Technology
- Absolute poverty
- Income distribution
- Access to credit and banking (inc microfinance)
- Demographic
- Trade
- Commodities
- Savings Gap
- Debt
- FDI
- Remittances
- Gender issues
Why does a poor education constraint growth?
Poor education means they have low levels of human capital which makes them less productive. Low productivity will shift the long run aggregate supply curve to the left which will limit economic growth.
What are the two impacts of a poor education?
- Low productivity
- Low incomes for workers
What are the effects of higher productivity?
- Shift to the right LRAS
- increasing economic growth
- increase tax revenue
- Increase government spending
Why might increasing years of education not cause economic growth?
They wont work for their families decreasing income. Reducing consumption which will decrease AD.
Those in higher education might not be able to get a higher education job.
Human capital?
When workers don’t have the necessary knowledge, skill or assets to be productive.
Why does corruption contribute to low level of development?
As there will be lower levels of investment and so lower output. If widespread better to seek a position where you can take bribes than one where there is genuine output of goods and services.
What is rent seeking?
Behaviour that attempts to gain a share of an existing pot of income or wealth rather than creating higher income or wealth.
Why can improvements in infrastructure contribute to economic growth?
It means more goods and services can be produced increasing output.
Why might the effects of improving infrastructure not be entirely positive?
It conflicts with environmental goals.
Building infrastructure eg building a new motorway, will leave less land available for agriculture or other uses.
What are the 2 ways technology impacts level of development?
It can improve many aspects
eg flushable toilets, so improves health and living standards
eg machinery, so improve productivity.
Why might improvements in technology not always lead to improved development?
Individuals need sufficient human capital to use the machinery.
Why is absolute poverty a hindering factor to development?
Malnutrition can lead to early death and therefore loss of any potential output and a waste of any skill or education.
Malnutrition can also inhibit brain development which would likely lead to loss of human potential.
Easily preventable deaths can also lead to more complex issues eg HIV/AIDs can have a severe effect on the economy.
Why does income inequality often lead to low levels of development?
Fewer children will go to school so they will have lower human capital.
Reduced incentive to work as those at the bottom of the income range will receive less.
Why could it be argued that lower incomes will encourage saving and therefore investment?
As the marginal propensity to save increases as their incomes rise, as more at top end more savings.
Why is access to credit and banking finance important to developing countries?
As without a banking systems they may be reliant on loan sharks which with their high interest rates. Leading to people being permanently in debt.
How has the growth of microfinance lead to development?
Very small loans are given to individuals who would otherwise not have access. In the situation of a group so peer pressure encourages them to use the loan responsibly. Allowing them to start up businesses or invest in ones they already own.
How can a high birth rate lead do low levels of development?
As the large number of young people puts a pressure on the education system often leading to under skilled workers.
How has international trade influence growth and development?
Developing countries have been able to produce and trade goods they have a comparative advantage in due to their lower cost of labour.
What is the resource curse?
When there is an abundance of natural resources in a country and they are exploited, but where there is consequently little increase in economic development.
Why can reliance on commodities cause constricted economic growth?
- Fluctuating commodity prices- difficult for firms and governments to predict their revenues in the short and long term. Which can discourage investment.
- As world incomes rise, demand for manufactured goods and services will rise faster than for commodities.
- The Dutch Disease- When demand for one export in a country increases significantly leading to the currency to appreciate however, this means that other goods become less internationally price competitive.
What are the key variables in economic growth according to the Harrod-Domar growth model?
Investment, saving and technological change.
What are the 2 policy implications of the Harold-Domar model?
- Increase the savings ratio which will increase the rate of economic growth.
- Increase technological progress that allows more output to be produced from a single unit of that capital.
What is the savings gap?
The difference between the actual levels of saving in an economy and the level of savings needed to finance the investment required for a higher rate of economic growth.
