economic development

• Economic growth

  Increase in a country's real national output caused by increases in the quality or quantity of factors of production, which cause an outward shift in the PPF
• Economic development

  Refers to living standards, freedom (from oppression) and life expectancy. Covers a more moral side to economic growth and is normative. Development is also concerned with how sustainable the economy is and whether the needs of future generations can be met
• Sectors of an economy

  • Primary (extraction of raw materials)
  • Secondary (manufacturing)
  • Tertiary (services)
• Lewis model

  Explanation of how a developing country which focuses on agriculture could move towards manufacturing. Assumes surplus of unproductive labour in agriculture, and higher wages in manufacturing attract workers
• Components of Human Development Index (HDI)

  • Education (mean years of schooling, expected years of schooling)
  • Life expectancy
  • Standard of living (GNI per capita adjusted for PPP)
• The average world HDI rose from 0.48 in 1970 to 0.68 in 2010, mainly due to growth in East Asia, the Pacific and South Asia
• HDI

  Measure of economic and social welfare of countries over time. A value close to 1 indicates high development, close to 0 indicates low development
• Advantages of HDI

  • Allows comparisons between countries
  • Considers education and health, which are important development factors
  • Shows how successful government policies have been
• Limitations of HDI

  • Does not consider political freedom, human rights, gender equality or cultural identity
  • Does not take the environment into account
  • Does not consider income distribution
• Human Poverty Index (HPI)

  Measures life expectancy, education and the ability of citizens to meet basic needs. HPI-1 for developing countries, HPI-2 for developed countries
• Gender-related Development Index (GDI)

  Measures the relative inequality between men and women, combining HDI with gender differences
• Millennium Development Goals

  • Eradicate extreme hunger and poverty
  • Achieve universal primary education
  • Promote gender equality and empower women
  • Reduce child mortality
  • Improve maternal health
  • Combat HIV/AIDS, malaria and other diseases
  • Ensure environmental sustainability
  • Develop a global partnership for development
• The Millennium Development Goal to half the number in extreme poverty and hunger by 2015 has been met
• Other indicators of development

  • Access to health
  • Access to education
  • Access to the internet
  • Mobile phone usage
• 780m people in the world do not have access to clean water, which is an important indicator related to life expectancy and infrastructure quality
• Primary product dependency

  Reliance on raw materials in industries like agriculture, mining and forestry as a significant part of the economy. Can lead to volatility in commodity prices and unsustainable extraction
• Savings gap

  Limited wealth in developing countries means money cannot be put aside for the future, and consumers have to focus on immediate needs. Inadequate capital accumulation impedes growth
• Harrod-Domar model

  States that investment, saving and technological change are required for economic growth. Growth increases with higher savings ratio and lower capital output ratio
• Africa's saving rate is around 17%, whilst the average for middle income countries is around 31%, making it more expensive for the African public and private sectors to get funds
• Foreign currency gap

  When the value of the current account deficit is larger than the value of capital inflows, meaning the country is not attracting sufficient capital flows
• Capital flight

  When capital and money leave the economy through investment in foreign economies, often triggered by economic threats like hyperinflation or rising tax rates
• Demographic factors

  The population can impact the growth and development of a country, with rapid population growth complicating efforts to reduce poverty and eliminate hunger
• Debt

  The debt crisis emerging in the developing world threatens the fight against poverty and inequality
• Access to credit and banking

  Without a safe, secure and stable banking system, there is unlikely to be a lot of saving in a country
• Infrastructure

  Poor infrastructure discourages MNCs from setting up premises in the country, as production costs increase where basic infrastructure is not available
• Education/skills


  Important for developing human capital, ensuring the economy can be productive and generate employment and higher standards of living
• Absence of property rights

  Weak or absent property rights can be a barrier to growth and development
• Rapid population growth has complicated efforts to reduce poverty and eliminate hunger in Africa. The current population of 1.1 billion is expected to double by 2050, which is not sustainable.
• Corruption

  In sub-Saharan Africa, the money lost from corruption could pay for the education of 10 million children per year in developing countries.
• Governance/civil war

  Could hold back infrastructure development and is a constraint on future economic development. It could destroy current infrastructure and force people into poverty.
• Vulnerability to external shocks

  For example, an earthquake prone country is likely to find it hard to develop their infrastructure, and people might be pushed into poverty. Nepal was already one of the poorest countries in the world, but the Nepal earthquake in 2015 pushed more people into poverty.
• Raising the level of economic development

  1. Trade liberalisation

  2. Promotion of FDI

  3. Microfinance schemes

  4. Privatisation

  5. Development of human capital

  6. Infrastructure development

  7. Development of tourism

  8. Development of primary industries

  9. Fairtrade schemes

  10. Aid

  11. Debt relief
• Trade liberalisation

  Free trade is the act of trading between nations without protectionist barriers, such as tariffs, quotas or regulations. World GDP can be increased using free trade, since output increases when countries specialise. Therefore, living standards might increase and there could be more economic growth.
• FDI

  The flow of capital from one country to another, in order to gain a lasting interest in an enterprise in the foreign country. FDI can help create employment, encourage the innovation of technology and help promote long term sustainable growth. It provides LEDCs with funds to invest and develop.
• Microfinance

  Involves borrowing small amounts of money from lenders to finance enterprises. It increases the incomes of those who borrow, and can reduce their dependency on primary products. There could be a multiplier effect from the investment of the loan. They are small loans for usually unbankable people. It allows them to break away from aid and gives borrowers financial independence. In Bangladesh, 95% of microfinance cohorts are women.
• Privatisation

  This means that assets are transferred from the public sector to the private sector. In other words, the government sells a firm so that it is no longer in their control. The firm is left to the free market and private individuals. Free market economists will argue that the private sector gives firms incentives to operate efficiently, which increases economic welfare. This is because firms operating on the free market have a profit incentive, which firms which are nationalised do not.