4.3.2. Factors influencing growth and development Flashcards
(20 cards)
What can have a positive impact on economic development?
economic growth
What is the difference between economic growth and economic development?
Economic Growth- An increase in national output measured by real GDP
Economic Development- Sustainable increase in living standards for a country, typically characterised by increases in life span, education levels and income
What are some economic factors that influence growth and development?
- Primary Product dependency
- Volatility of commodity prices-
- Savings-gap: Harrod-Domar model
- Foreign currency gaps
- Capital flight
- Demographic factors
- Access to credit and banking
- Infrastructure
- Education and skills
- Absence of Property rights
How does Primary product dependency influence growth and development?
It’s when a country relies heavily on selling a few raw materials to make money. In Zambia 2022, their copper exports accounted for 70% of their total exports and primary products 90%. Exporting manufactured products raises the added value, income and profits
How does Volatility of commodity prices influence growth and development?
Refers to the prices of raw materials (commodities) going up and down a lot and hard to predict. If prices of these commodities a country depends on exporting then the government earns less money for schools, hospitals etc.. More diversified range of exports prevents this
How does Savings-gap: Harrod-Domar model influence growth and development?
In 1950’s two economists identified the savings gap (country doesn’t save enough money to fund the investment it needs for economic growth such as in developing countries) as a major constraint on growth. Increase savings- increased investment- higher capital stock-higher economic growth-increased savings. With low savings this means low growth opportunities and reliance on foreign aids or loans
How do foreign currency gaps influence growth and development?
Foreign currency gaps (country doesn’t earn enough foreign money (like US dollars or euros) to pay for the things it needs to import). If a country cant’ afford to import machines, tools or tech its hard to grow industries which slows down industrial growth and modernisation. It also affects education and healthcare with not having enough equipment
How does capital flight influence growth and development?
Occurs when money or assets rapidly leave a country. This could happen due to political upheaval, economic sanctions, war or changes in govt policies. This reduces the money available for investment reducing growth and development
How do demographic factors influence growth and development?
If dependency ratio (ratio of dependents (children +Pensioners) to total working age population) is high there is less money available for savings and investment. Many developing countries have high dependency ratios
How does access to credit and banking influence growth and development?
Financial institutions enable individuals and firms to borrow money which can be used for investment or to generate growth. Lack of financial institutions prevents this from happening
How does infrastructure influence growth and development?
Good infrastructure reduces business costs and attracts FDI. Some developing countries have poor infrastructure that makes it difficult to generate economic activity
How does education and skills influence growth and development?
Investing in supply-side policies= increases potential output of country. Higher education/ skill levels= higher human capital= increased productivity= higher output= higher income
How does absence of property rights influence growth and development?
In many countries property is main household asset which can be used to secure loans or generate income. Lack of property tights in some developing countries prevents this from happening.
What non-economic factors can have significant influences on economic growth and development?
- Corruption
- Poor Governance
- Wars
- Political instability
- Geography
- Diseases
How can corruption have significant influences on economic growth and development?
Major problem in many countries as money is often intended for investment but is siphoned off by corrupt politicians resulting in lower levels of investment.
How can poor governance have significant influences on economic growth and development?
Leads to inefficient use of resources and poor decision-making. Laws could also be made that directly inhibit growth and development.
How can Wars have significant influences on economic growth and development?
Conflict destroys infrastructure, disrupts supply chains and often reduces the post war supply of labour. Conflict shift PPF curve inwards
How can political instability have significant influences on economic growth and development?
If govts keep changing results in constantly changing policies and priorities. Reduces confidence in economy and international investors are slower to invest as fearful of losing investment
How can Geography have significant influences on economic growth and development?
It’s harder for landlocked countries to generate economic growth. Transportation and admin costs are higher than those with access to ports (cheaper transport than planes or rail/truck) which increases costs of production. Natural terrain can also be a limiting factor like mountainous terrain of Pakistan.
How can diseases have significant influences on economic growth and development?
Diseases such as HIV/AIDS and malaria have a negative impact on the economic growth as it can reduce the workforce due to being sick, can harm education and put a strain on healthcare systems and also increases poverty
