Economic Barriers to Economic Growth and Development Flashcards
(20 cards)
Poverty Cycle/Trap
A cycle where poor communities, lacking savings, cannot invest in capital → poverty across generations without intervention.
Economic Barriers to economic growth and development (10)
- Rising economic inequality
- Lack of access to infrastructure and appropriate technology
- Low levels of human capital - lack of access to healthcare and education
- Dependence on primary sector production
- Lack of access to international markets
- Informal economy
- Capital flight
- Indebtedness
- Geography including landlocked countries
- Tropical climates and endemic diseases
What is Infrastructure?
the facilities essential for economic activity to take place
Lack of Education as a Barrier to Development
- Insufficient funding for education
- Insufficient teachers or untrained teachers
- Insufficient classrooms and basic facilities
- Lack of teaching materials
- Distance of school from home
Lack of Health care as a Barrier to Development
- Insufficient funding & access to health care services
- Costly public health services; Private payments for health care
- Insufficient medical facilities and medical supplies
- Insufficient access to clean water and sanitation
- Lack of immunizations/vaccines
Tariff escalation
Higher tariffs apply to more processed goods
Informal economy
Unregulated economy with poor working conditions, low wages and lack job stability
Capital flight
Large sums of money or assets flow out of a country to seek a ‘safe haven’
Indebtedness
The state of owing money or being in debt
Income inequality
when one group in society owns a larger proportion of the wealth than the rest
Effects of Rising Economic Inequality on Economic Growth & Economic Development
Economic Growth:
- Dampens investment by fueling economic, financial, and political instability
- The rich dominate politics and the economy, leading to capital flight.
- The rich want foreign produced goods, harming domestic economy
Economic Development:
- Limits opportunities of low-income households to climb the social pyramid.
- Low savings by the poor = low investment and growth
- Labor productivity is low
E.g. South Africa
Effects of Lack of access to infrastructure and appropriate technology on Economic Growth & Economic Development
Economic Growth:
- Increases production costs and reduces efficiency, slowing GDP growth.
- Reducing profitability and limiting foreign investment
- Raises transport costs, making exports less competitive.
Economic Development:
- Poor water & electricity access harms health, sanitation, and productivity.
- Poor infrastructure = fewer hospitals, schools, and sanitation facilities.
- Without good transport & electricity, businesses won’t expand to rural areas → higher unemployment & poverty.
E.g. Nigeria – Struggles to attract manufacturing firms because of frequent power outages, limiting industrial growth.
Effects of Low Levels of Human Capital on Economic Growth & Economic Development
Economic Growth:
- Education: Limits innovation, productivity, and global competitiveness.
- Healthcare: High absenteeism and premature deaths slow economic activity.
- Skills: Lack of skilled workers discourages foreign investment.
- Low levels of education and healthcare reduce productivity
Economic Development:
- Poor human capital limits income, trapping many in poverty and hindering living standards.
Haiti - Poor education → low educational attainment and a poorly skilled workforce.
Poor health care → Frequent disease outbreaks, malnutrition, and poor sanitation reduce worker productivity and increase absenteeism
Effects of Dependence on primary sector production on Economic Growth & Economic Development
Economic Growth:
- Raw material price volatility makes economies vulnerable.
- Dependence on raw material exports risks national income drops when demand falls.
- Have little added value
Economic Development:
- Agriculture and mining create few skilled jobs, leading to wage stagnation.
- Resource extraction damages land and water, affecting health and food security.
Venezuela – Oil price collapse in 2014 led to economic crisis and hyperinflation
Effects of Limited access to international markets on Economic Growth & Economic Development
Economic Growth:
- High tariffs hurt exports, cut revenues, and slow growth.
- Hinders growth and investment
Economic Development:
- Lower agricultural exports reduce rural incomes and drive urban migration.
- Limited trade access slows growth, keeping economies reliant on domestic markets.
North Korea – isolated economy, low innovation and technological growth.
Effects of Informal Economy on Economic Growth & Economic Development
Economic Growth:
- Don’t pay taxes = reducing funding for infrastructure & public services.
- Informal businesses lack legal protections, making expansion difficult.
Economic Development:
- Informal workers have no job security, healthcare, or pensions.
- Many women are forced into informal jobs with low wages and no legal protection.
Nigeria (60% Informal Economy) – Government loses billions in unpaid taxes.
Latin America – 50% of workers in informal jobs, earning low wages without social benefits.
Effects of Capital Flight on Economic Growth & Economic Development
Economic Growth:
- Reduces bank funds, limiting investment and industrial growth.
- Weakens the currency, raising import prices and inflation.
- Severe capital flight forces government borrowing, risking debt crises.
Economic Development:
- Capital flight cuts tax revenue, reducing funds for public services.
- The rich move money abroad, leaving the poor with inflation and job losses.
- Repeated capital flight hampers stable development.
Turkey (2021) – Investors lost confidence in the economy → Depreciation of the Lira, causing high inflation
Zimbabwe (2000s) — capital flight led to hyperinflation, destroying wages and savings.
Effects of Indebtedness on Economic Growth & Economic Development
Economic Growth:
- Paying the debt = no money for healthcare and infrastructure.
- Investors don’t want to invest in countries with high debt
Economic Development:
- Force governments to cut spending on healthcare and education
- Governments raise taxes or cut subsidies–hurts the poor the most.
Zambia (2023) – Owed $32 billion in external debt, leading to spending cuts in social programs and a slowdown in infrastructure projects
Argentina (2023) – IMF loan conditions required spending cuts, affecting welfare programs and leading to rising poverty.
Effects of Geography including landlocked countries on Economic Growth & Economic Development
Economic Growth:
- Rely on neighboring countries for port access, increasing trade costs
- High transportation costs reduce competitiveness
- Poor connectivity discourages FDI in manufacturing and trade.
Economic Development:
- Can lead to political and economic instability.
- Isolates rural populations, limiting access to healthcare and education.
Chad – Transporting goods to the nearest port in Cameroon adds 50% to export costs.
Bolivia – Despite rich natural resources, FDI is low due to poor access to global markets.
Effects of Tropical climates and endemic diseases on Economic Growth & Economic Development
Economic Growth:
- Deterioration of capital → constant rebuilding & maintanance → draining national resources.
- Poor technology → lower productivity
Economic Development:
- Poor farming → poor nutrition → poor agricultural productivity → poor health
- Diseases are harder to control → poor health → poor productivity
Japan (2011) Tsunami - Infrastructure was severely damaged, requiring large amounts of public funds to rebuilding efforts.
