Impact of economic factors in different countries:
primary product dependency
volatility of commodity prices
savings gap: Harrod-Domar model
foreign currency gap
capital flight
demographic factors
debt access to credit and banking
infrastructure
education/skills
absence of property rights
Primary Product Dependency:
Some countries heavily rely on the export of primary products (e.g., minerals, agricultural goods).
Vulnerable to price fluctuations, as demand and prices for primary products can be volatile.
Volatility of Commodity Prices:
Commodity-dependent economies face instability due to price swings.
Price fluctuations can impact government revenues, economic stability, and development plans.
Savings Gap (Harrod-Domar Model):
The Harrod-Domar model explains the relationship between savings, investment, and economic growth.
A savings gap occurs when domestic savings are insufficient to support desired investment levels, hindering growth.
Foreign Currency Gap:
A foreign currency gap arises when a country's imports exceed its foreign exchange reserves.
It can lead to trade deficits, currency depreciation, and economic instability.
Capital Flight:
Capital flight occurs when investors move assets out of a country due to economic instability or unfavorable conditions.
It depletes a country's resources and can lead to financial crises.
Demographic Factors:
Population growth, age distribution, and workforce skills impact economic development.
A youthful population can be a demographic dividend if properly harnessed for economic growth.
Debt:
High levels of public or external debt can lead to debt servicing burdens, reducing resources for development.
Access to Credit and Banking:
Limited access to credit and banking services can hinder investment, entrepreneurship, and economic growth.
Infrastructure:
Infrastructure development (transport, energy, telecommunications) is vital for economic growth and competitiveness.
Low levels of infrastructure make it hard for businesses to trade and set up within the country, for example if there are a lack of roads. It makes their services and production less reliable. However, the development of infrastructure can be expensive and tends to conflict with environmental goals.