4.3.2 Factors Influencing Development

Question 1

4.3.2a
Impact of Primary Product Dependancy

Answer 1

→ Export reliance on a few commodities = ↓diversification
→ Commodity price volatility = ↓predictable revenue
→ Terms of trade worsen + vulnerability to shocks
= ↑poverty + underinvestment in other sectors

Question 2

4.3.2a
Impact of Volatility of Commodity Prices

Answer 2

→ Inelastic D+S = large price swings from small shocks
→ Unstable govt revenue = ↓education + infrastructure spending

Question 3

4.3.2a
Impact of Savings Gap

Answer 3

→ Low income = ↓savings = ↓investment → capital accumulation slows
→ Harrod-Domar: ↑S = ↑I = ↑growth → but assumes capital is productive + efficiently allocated

Question 4

4.3.2a
Impact of Foreign Currency Gap

Answer 4

→ Imports > exports = foreign exchange shortage
→ Can’t buy capital goods = development blocked

Question 5

4.3.2a
Impact of Capital Flight

Answer 5

→ Money leaves country (e.g. to avoid tax/political instability)
→ ↓FDI, ↓investment, ↓confidence → weakens growth prospects

Question 6

4.3.2a
Impact of Demographic Factors

Answer 6

→ ↑population = more dependents + strain on services
→ Young dependents = ↓productivity + ↑govt spending

Question 7

4.3.2a
Impact of Debt

Answer 7

→ High repayments = ↓spending on education/health
→ Unsustainable debt = ↓creditworthiness

Question 8

4.3.2a
Impact of Access to Credit + Banking

Answer 8

→ Without finance, can’t invest/start businesses → limits entrepreneurship
→ Poor access = limits growth of MSMEs

Question 9

4.3.2a
Impact of Infrastrcuture

Answer 9

→ Weak transport, energy, comms = ↑costs, ↓productivity
→ ↓FDI and limits access to services

Question 10

4.3.2a
Impact of Education / Skills

Answer 10

→ ↑education = ↑productivity = ↑income + ↑employment
→ Human capital investment needed for sustained growth

Question 11

4.3.2a
Impact of Absence of Property Rights

Answer 11

→ No legal ownership = no collateral = ↓investment
→ Discourages entrepreneurship + innovation

Question 12

4.3.2b
Impact of Non-Economic Factors

Answer 12

• Corruption → misallocates resources + deters FDI
• Geography → landlocked countries = harder trade
• Conflict → destroys infrastructure + human capital
• Diseases → reduce labour productivity + ↑health costs
• Cultural attitudes → e.g. gender inequality limits labour participation