Factors Influencing Growth And Development

Question 1

Primary product to dependency (3+)

Answer 1

Raw materials in industries such as agriculture
Issue = volatility of commodity prices that can make it hard for workers to plan for the future
Fall in the price leads to a fall in export incomes = hard to fund their infrastructure and education

Question 2

Examples of primary product dependency (2+)

Answer 2

Mining accounts for just over 60% of South Africa’s exports = ability to pay foreign debts and for imports relies on this
Saudi Arabia = re-centered economy to tourism

Question 3

Savings gap (3)

Answer 3

In developing countries = limited wealth = no savings
Consumers have to focus on their immediate needs
Without sufficient savings = inadequate capital accumulation

Question 4

Savings gap example (3)

Answer 4

Africa’s saving rate is around 17% whilst the average for middle income countries is around 31%
This makes it more expensive for the African public and private sectors to get funds since they have higher borrowing costs
This impedes capital investment

Question 5

What harrod Domar model - savings gap (3)

Answer 5

States that investment, saving and technological change are required in an economy for economic growth
The rate of growth increases if the savings ratio increases
This leads to increased investment and technological progress = higher productivity

Question 6

Harrod Domar model - how to use it (2)

Answer 6

Rate of growth is calculated by the savings ratio / capital output ratio in the Harrod-Domar model
Growth increases with more saving or a small capital output ratio

Question 7

Harrod Domar model limits (4+)

Answer 7

There is a low marginal propensity to save in some countries
Funds might not lead to borrowing and investment
There could be inefficiency in the workforce
The paradox of thrift could be considered = an increase in savings could lead to increased investment however increased savings means reduced demand so AD falls

Question 8

Foreign currency gap what (3)

Answer 8

Exists when the country is not attracting sufficient capital flows (FDI) to make up for a deficit in the capital account on the balance of payments
The value of the current account deficit is larger than the value of capital inflows
Nigeria or developing countries = exmaple

Question 9

Capital flight (3)

Answer 9

This is when capital and money leave the economy through investment in foreign economies
Triggered by an economic threat = hyperinflation or rising tax rates
It can worsen an economic crisis and cause a currency to depreciate

Question 10

Example of capital flight (3)

Answer 10

When Russia went to war with Ukraine
EU and britain talked on restricting money from Russia = embargo
So Russians took money out

Question 11

Demographic factors (2)

Answer 11

The population can impact the growth and development of a country
Link between keeping birth rates down and fighting hunger, poverty and environmental damage

Question 12

Example of demographic factors (2+)

Answer 12

Rapid population growth has complicated efforts to reduce poverty and eliminate hunger in South Africa
20/30 years they’ve had this problem

Question 13

Debt

Answer 13

The debt crisis emerging in the developing world threatens the fight against poverty and inequality

Question 14

Uks debt (3)

Answer 14

1.7 trillion
UK had a triple credit rating of AAA (best) = easier to get a loan
Liz truss mini budget = AAB = increased IR = harder

Question 15

Vulnerable to external shocks

Answer 15

E.G = earthquake prone country is likely to find it hard to develop their infrastructure, and people might be pushed into poverty

Question 16

Example external shock

Answer 16

Nepal was already one of the poorest countries in the world + the Nepal earthquake in 2015 pushed more people into poverty

Question 17

Access to credit and banking (3)

Answer 17

Without a safe, secure and stable banking system = unlikely to be a lot of saving in a country
No investment = no growth
Example = Kenya = app system which is external to country

Question 18

Infrastructure (2+)

Answer 18

Poor infrastructure discourages MNCs from setting up premises in the country
This is because production costs increase where basic infrastructure (electricity) is not available

Question 19

Education/skills (3)

Answer 19

Important for developing human capital
Adequate human capital = economy can be productive and produce G/S of a high quality
Helps generate employment and raises standards of living

Question 20

Absence of property rights (3)

Answer 20

Means entrepreneurs cannot protect their ideas
So there’s no not incentive to innovate
China

Question 21

Corruption (3)

Answer 21

Generates GDP
In sub-Saharan Africa = money lost from corruption could pay for the education of 10 million children per year in developing countries
Creates jobs = China

Question 22

Poor governance / civil war (4)

Answer 22

Could hold back infrastructure development
Constraint on future economic development
Could destroy current infrastructure and force people into poverty
Afghanistan and Nepal