Factors Influencing Growth and Development
Factor + Definition Theory Example(s) Evaluation points
Volatility of Volatile prices mean US crude oil price When prices are
commodity prices profits fluctuate. range of 7.3% in high, governments
Less likely for firms 2022. can tax these profits,
in invest. Less Crude oil prices fell so tax revenue rises.
confidence (don’t from $145 per barrel
know what will in 2008 to $40 in Government could
happen). 2009. introduce a buffer
I falls, so AD falls stop, a min/max
and LRAS falls. price after which the
Demand for labour government buys all
may also fall so LS the surplus.
fall.
Foreign currency Lack of FDI means Greece faced Incentivises
gap no foreign currency sovereign debt crisis domestic firms to
to fund the current after 2008 due to improve production
Currency outflows > account deficit. lack of FDI. as there is increased
currency inflows If consumers can’t demand for their
import LS falls as Happens during goods.
lack of choice for recession, 2008 GFC
goods. and 1929 Great IMF can lend
May have to buy Depression. foreign currency to
more expensive countries (but high
domestic interest rates).
alternatives.
Also, harder to pay Government can
back loans and invest in supply side
harder to import. policy to improve
FDI flows.
Capital flight When confidence is Capital flight in Good for the global
low (recession or China between 2020 economy, ability to
When firms/people political turmoil), and 2022. specialise in
move to other firms leave their comparative
countries with better country. Apple shifting advantage.
circumstances. Reduces remand for production to India
labour, leading to in 2022. Also, firms leaving
unemployment so promotes innovation
incomes fall and LS Argentina, very high as there is a gap in
fall. inflation rates, the market.
Loss of FoP, 102% in 2023 saw
increases spare capital flight. Firms may return
capacity in the larger than they
economy, I falls, AD were before.
falls, LS falls.
Demographic factors High birth rates or Average age in Youthful population
death rates leads to Japan in 43. will lead to more
Changing structure higher dependency Average age in labour in the future.
of ratios (age- Angola is 17.
population/growth population ratio of Relaxation of
of population. those in labour and 25% of the immigration laws.
those not in labour). population in Japan
Aging population is above 65.
may mean more
, government
spending on
pensions.
There is an
opportunity cost, so
less spending on
supply side
policies/welfare.
Long run growth
falls and future
incomes fall so LS
falls.
FM: Aging
population means
more burden on the
economy (not in
work). Decreasing
productivity.
Debt (government Government debt: UK government Firms may make
and personal) Increased interest deficit is 5.4% of more than they
payments. GDP. borrowed if
Less money can be Venezuela investments pay off.
spent on supply side government deficit
policies. is 46% of GDP. Debt forgiveness
Tax may increase to could occur,
pay off debts, so IR in the UK is at benefitting
people have less 3.5% in 2023. developing
money to spend. Ukraine at 22% IR countries.
Firms also have less in 2023.
money to spend.
I falls and C falls, so
AD falls and LS
falls.
FM: Firms spend
less on labour so
unemployment falls,
LS falls.
Personal debt:
Increased stress and
opportunity cost of
interest payments.
Access to credit and Lack of access to Only 16.2% of If a banking system
banking credit means: people have access is unregulated, it is
Firms borrow less to a bank account in very dangerous as
and I falls. Pakistan. there may be over
Less able to grow so 97% in the UK. lending.
demand for labour This is what led to
falls, unemployment Credit to GDP ratio: the 2008 global
rises. In UK is 147%. crisis.
Easier for tax In Pakistan is 14%.
avoidance and Little borrowing in Downsides of debt.
savings can’t be Pakistan. May need to educate
reinvested, tax population about
revenue falls. debt and borrowing.
