4.3.2 factors of influencing growth and development

Question 1

Summary of Primary Product Dependency?

Answer 1

Many developing economies are relying on growing/extracting and exporting low value-added primary commodities.
- Natural disasters and conflicts can wipe out harvests or extraction/mining capabilities
- Primary products are often low value as they’re unprocessed

Question 2

Summary of volatility of commodity prices?

Answer 2

• Primary goods often have volatile prices i.e. fluctuate up and down frequently
• Uncertainty makes it difficult for businesses to make informed investment decisions
• Alternative angle - volatile prices means they can fall substantially and lead to lower revenues

Question 3

Summary of savings gap?

Answer 3

Low levels of savings make it harder for firms to find funds for investment

Question 4

Summary of the Foreign currency gap?

Answer 4

Developing countries can face shortages of foreign currency
- Possible causes: Dependency on exports of primary products
- This can help lead to a lack of foreign currency with which to buy imported capital goods

Question 5

Summary of capital flight?

Answer 5

Its the uncertain and rapid movement of large sums of money out of a country. If money was left in domestic banks then credit could be created by banks for consumers and businesses to spend.

Question 6

Summary of Demographic factors?

Answer 6

Main problem is High population growth.
- Rapidly growing populations need rapidly growth GDP just to stand still
- If total population rises faster than total real GDP then real GDP per capita will fall

Question 7

Summary of Debt?

Answer 7

Historical lending can leave developing economies burdened with significant level of debt
- High levels of debt means significant spending on debt interest payments
- Annual spending on interest removes spending on domestic infrastructure, health, education

Question 8

Summary of the Access to credit and banking?

Answer 8

Developing countries often have less developed financial systems than developed countries. Lack of an established banking sector may limit the access to credit for businesses and individuals
- less availability of finance means less investment