4.3.2: Factors influencing Growth and Development

Question 1

What is primary product dependency?

Answer 1

economic situation in which a country heavily relies on the export of primary products or commodities

Question 2

What is economic growth?

Answer 2

An increase in the long run productive capacity of an economy

Question 3

What is economic development?

Answer 3

The process of improving peoples’ economic well-being and quality of life
- it include themes such as higher living standards, improved availability of basic needs

Question 4

How does primary product dependency impact the growth and development of an economy?

Answer 4

• It can lead to a lack of invetment into manufacturing and services and leaves the economy to the mercy of the weather with prices of agricultural products and commodities subject to volatility

Question 5

How does volatility of commodity prices impact growth and development?

Answer 5

• This causes shifts in demand and supply which in turn have a heavy impact on commodities

Question 6

What does the savings gap show?

Answer 6

It shows inadequate capital accumulation

Question 7

How does the savings gap impact economic growth & development?

Answer 7

• Without capital, the entrepreneurial classes will find it difficult to borrow the finance required for investment.
• This imapcts on the entry of new firms into markets and can severely restrict the development of an economy.
• Consumers will buy imported products rather than those produced domestically

Question 8

What does the Harrod- Domar Model state?

Answer 8

• States that economic growth (GDP) is dependet on the level of saving and the capital output ratio

Question 8

What is the capital ratio output?

Answer 8

• The ratio of capital required to achieve a certain output over a period of time

Question 9

What is the calculation for the rate of economic growth?

Answer 9

• y= s/k
• where y is the rate of economic growth
• s is the savings to income ratio
• k is the capital output ratio

Question 10

How does the foreign currency gap impact economic growth and development?

Answer 10

• Many developing countries face a shortage of foreign exchange, finding it difficult to obtain foreign currency
• This occurs as they are forced to use foreign currency to pay the interests on debt

Question 11

How does capital flight impact economic growth & development?

Answer 11

• Many individuals and firms in developing countries will send money abroad to safer havens as instability in the developing country might lead to risk for their financial assets
• Safe havens include the US dollar, gold and potentially the Japanese Yen

Question 12

How does access to credit and banking affect economic growth & development?

Answer 12

• it is difficult to access finance as there is less of a financial infrastructure, such as banking, in developing coluntries.
• It is riskier for lenders to ensure that they can get a return on their money, particularly as there is less collateral available to secure loans

Question 13

How does the abscene of property right impact economic growth & developement?

Answer 13

• Less developed countries often suffer from a lack of clearly defined property right, which as a major obstacle to growth and development.
• Building a strong domestic productive capacity requires the effective operation of property rights in terms of patents, copyrights, trademarks, geographical indications an industrial design.
• Without these, insufficient incentives are given to individuals and firms to trade, innovate and develop

Question 14

What are some non-economic factors with impact a country’s econ growth & development?

Answer 14

• Corruption
• Civil wars/ unrest
• Instituational Factors

Question 15

How do civil wars/ unrest impact the economic development & growth of a country?

Answer 15

• With a less developed political system than developed countries there is a greater likelihood of unrest within a developing country.
• This leads to less confidence and less likelihood of FDI

Question 16

How do institutional factors affect economic development & growth?

Answer 16

• A country’s primary institutions such as governments, financial markets, judiciary and public administration are vital in the efficient daily operation of a country.
• Less developed countries tend to suffer from weak public institutions that are either poorly funded or poorly managed or both.
• They may also suffer from corruptions which exacerbates problems.
• In contrast, the Uk with a fully independent Bank of England guiding monetary policy is far better placed to help the Uk grow and develop.