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4.3.2 Factors influencing growth and dev.
Constraints: Investment policies:
1. Primary product dependency 6. Saving gaps
2. Access to credit and banking 7. Foreign currency gap
3. Education/skills 8. Capital flight
4. Health 9. Debt
5. Infrastructure 10. Absence of property rights
a) Impact of economic factors in different countries:
Primary product dependency
Developing countries like the EU use protectionism policies to protect their
primary industries e.g. CAP able to protect D farmers
Volatile price
SR problem: When price falls = export revenue falls (P to P1 due to inelastic D)
lead to fall in AD lower economic growth
LR 1st problem: decrease export = decrease demand for £ £ depreciates
LR 2nd problem: Prebisch singer Hypothesis:
Income inelastic for primary goods D does not increase as much as
manufactured goods when global Y rises P of primary goods increase slower
worsen ToT
Savings gap: Harrod-Domar model
S=I
Low savings => low investment => low productivity => Low wage
However,
LDCs have low level of savings
Foreign currency gap
LDCs too much import, too few export
Capital flight
Take out money and invest in foreign country
Causes: 1) Political instability 2) High Ir in other coun
, Debt
Repay interest = servicing on the debt less money spent on health &
education
Access to credit and banking
System allow them to save? + Ir + safe to save?
Education/skills
The faster the population growth means lots of children putting pressure on
education such as in Africa (those do not receive education = waste of scarce
resources) low literacy and numeracy rate = low productivity and attract less
FDI
Health
Disease lower productivity if ppl unable to go to work add burden to
healthcare system
Infrastructure
E.g. roads, railways, schools, hospitals, broadband network, energy/electricity
supplies
- Unstable energy supply not able to operate
- Poor transport link hard to move goods in and out (especially landlocked
coun)
- Telephone service need to communicate
∴Hard to attract FDI
Solution:
1. Foreign aid
Absence of property rights
If ppl are unsure whether they will be able to keep they land, they tend to invest
less on improvements for their homes or set up business there
b) Impact of non-economic factors in different countries
Corruption
Civil war (high death rates, absolute poverty, damaged infrastructure)
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