Topic 9-Limits to economic growth and development

Question 1

Limits to growth and development (10 factors )

Answer 1

-Historical Factors
-Geography
-Primary produce dependancy
-foreign currency gap
-Debt
corruption
-Poor governance
-population issues
-human capital problems

Question 2

Limits to growth and development:

1. Geographical factors
2. Historical factors

Answer 2

1. Some countries are land-locked (no access to sea)> no direct access to markets abroad especially if road infrastructure is poor
   - producers won’t be able to sell products easily if they are not close to a large market
2. -colonialism encouraged culture of dependency& exploitation of resources by rich countries> poor legacy& weak growth when the colonies became independent
   - others argue that colonialism contributed to growth as the ruling country invested in infrastructure and education
   - impact of colonialism different for different countries

Question 3

Limits to growth and development:

3. Primary product dependency

Answer 3

3.Occurs where production of primary products accounts for a larger proportion of a countries GDP
-Two types of primary product:
-Hard commodities: mined or extracted e.g copper (Ghana 39% of exports=gold)
-Soft commodities: agricultural goods e.g wheat
Disadvantages of primary product:
-Extreme price fluctuations: Elasticity of supply&demand is inelastic> any demand or supply side shock will cause a large change in price >cause fluctuations in producers income. Fall in price> fall in revenue
-Protectionism by developed countries: difficult for poorer countries to grow and develop
-finite supplies of hard commodities

Question 4

Limits to growth and development:

4. Foreign currency gap
5. Debt

Answer 4

4. Shortages of foreign currency caused by:
   - Capital flights
   - Dependency on the export of primary products
   - Intrest payments on debt to foreign countries
5. Reasons why developing countries go into debt:
   - Dependency on primary product dependency
   - depending countries may have borrowed money at times of low interest rates&then struggled to pay interest on it once interest increased
   - when oil prices increased>borrow to import
   - Depreciation in the value of the currencies of developing countries

Question 5

Limits to growth and development:

6. Corruption
7. Poor governance

Answer 5

6. Corruption can cause:
   - Inefficient allocation of resources
   - An increase in costs of doing business in the country
   - capital flights
   - A decrease in FDI
7. -Unlikely that resources will be allocated efficiently
   - Gov failure: intervention by gov>net welfare loss

Question 6

Limits to growth and development:

8. Population issues
9. Human capital inadequacies

Answer 6

8. -Ageing population> theres a smaller working population &they will have to support much larger proportions of elderly people
   - If population is growing at a faster rate than GDP>GDP per head will fall
9. If school enrolment ratios low>levels of literacy and numeracy are likely to be low. Therefore:
   - Productivity of workforce likely to be low
   - Deterrent to FDI