Growth and Development

Question 1

Factors affecting growth and development

Answer 1

Investment

Education

Training

Question 2

Barriers to growth and development

Answer 2

Institutional factors

Corruption

Poor infrastructure

Inadequate human capital

Lack of property rights

Question 3

Institutional factors as a barriers to growth and development

Answer 3

A country’s institutional structures include: govt, financial markets, judiciary and public administration

Less-developed countries tend to suffer from weak public institutions that are either poorly funded, poorly managed or both

They may also suffer from corruption which exacerbates problems

In contrast, the UK with actually independant BoE guiding monetary policy, far better placed to help UK grow and development

Question 4

Corruption as a barrier to growth and development

Answer 4

The dishonest or fraudulent conduct by government officials or others in positions of power and influence can significantly hamper growth and development

In less developed countries, corruptions is widespread

This leads to a poor and/ or inefficient use or scarce resources, higher prices and acts as a disincentive for overseas investors

Question 5

Investment as a factor affecting growth and development

Answer 5

Investment in capital is vital for long term growth and dev

Investment also boosts SR growth via AD

Directly or indirectly improve economic well-being and quality of life

Stagnant infrastructure and weak capital stock make it difficult to grow GDP

Core infrastructure weaknesses lower life expectancy and knowledge

Question 6

Education as a factor affecting growth and development

Answer 6

Concerns both access to school and quality

Increased occupational mobility and productivity leads to higher employability, higher income levels and Long term economic growth

Question 7

Training as a factor affecting growth and development

Answer 7

Training involves the acquisition of specific workplace skills

higher occupational mobility and productivity leads to higher employability and higher income levels and LT economic growth

Question 8

Poor infrastructure as a factor affecting growth and dev

Answer 8

LDEs typically have poor core infrastructure in terms of roads, railways and telecommunications

This makes it difficult for businesses operating in these countries to access markets or take advantage of tech progress, raising their costs, makes them less competitive

Also deters foreign investment

Question 9

Inadequate human capital as a factor affecting growth and dev

Answer 9

The collective knowledge, skills, abilities of the labour force

LDEs require continuous investment in their labour force leading to a combination of poor infrastructure and weak public sector institutions that fund education and training

Question 10

Lack of property rights as a factor affecting growth and dev

Answer 10

LDEs often suffer from a lack of clearly defined property rights, which act as a major obstacle to growth and development

Building a strong domestic productive capacity requires effective use of property rights e.g. patents, copyrights, trademarks

W/o these, insufficient incentives are given to individuals and firms to innovate and develop

Question 11

Market based strategies for growth and development

Answer 11

-Trade liberalisation

Promote FDI
Remove government subsidies
Floating exchange rates
Privatisation

Question 12

Interventionist strategies for growth and development

Answer 12

Development of human capital
Protectionism
Managed Exchange rates
Infrastructure development

Question 13

How does Trade liberalisation promote growth and developonent

Answer 13

Boosts exports and investments

Question 14

How does FDI promote growth and development

Answer 14

Encourages investment and boosts AD and productive capacity of an economy

Question 15

How does removing government subsidies promote growth and development

Answer 15

Forces firms to become more efficient, increases international competitiveness, frees up government finances

Question 16

How does a floating exchange rate promote growth and development

Answer 16

Freeing up currencies should lead to depreciation WPIDEC

Question 17

How does privatisation lead to growth and developonent

Answer 17

Increases productive and allocative efficiency and frees up government finances

Question 18

How can aid be a successful strategy for growth and development

Answer 18

Provides capital for investment which helps to improve productive capacity

Investment in human capital can provide the skills required for the workforce to contribute to productive capacity in the future

Question 19

Different types of aid

Answer 19

Bilateral aid

Multilateral aid

Tied aid

Developmental aid

Emergency aid

Debt relief

Question 20

Bilateral aid

Answer 20

Assistance given by a government directly to the government of another country, typically capital flows from developed to developing

Question 21

Multilateral aid

Answer 21

Assistance provided by many governments who pool funds to international orgs like the World Bank, United Nations and IMF

Question 22

Tied Aid

Answer 22

One country donates money or resources but with conditions attached

Question 23

Developmental aid

Answer 23

Funds that are used to finance a particular project, such as a school or a hospital

Question 24

Emergency aid

Answer 24

One of injections of cash or goods/services to help a country facing a humanitarian crisis e.g. Haiti 2010 earthquake

Question 25

Debt relief

Answer 25

Cancelling debt can save vital funds that can be re-directed to internal investment projects

Question 26

How can debt relief cause problems

Answer 26

Can lead to poor financial discipline as countries are rewarded for getting into financial trouble whilst those who control spending do not receive help Can lead to moral hazard, debt relief normally tied to certain conditions e.g. free market reforms

Question 27

Development of tourism as a strategy for development

Answer 27

Many emerging economies are highly dependant on tourism and may encourage it as it allows foreign currency to be earned and is labour intensive BUT there are negative externalities with tourism e.g. loss of farmland, pollution, over-use of water etc.

Question 28

What is the Lewis model

Answer 28

Arthur Lewis believed that economies were made up of two sectors: Agricultural or industrial Most LDEs began as rural economies, and that the marginal productivity of labour was close to 0 and there was no point in adding extra labour to agricultural workforce. Whereas industrial workforces had a higher MP of labour Therefore transferring labour from agricultural to industrial sector improved productivity of whole economy.

Question 29

When is the lewis model inappropriate

Answer 29

Where there are high levels of unemployment in urban areas and also assumes that production is labour intensive

Question 30

What is the harrod-domar model

Answer 30

A savings and investment model that suggests economic growth is dependant on the level of savings and the capital output ratio Increased savings ratio provides increased finance for investment Increased investment increases the capital stock of an economy e.g. factories and machinery

Question 31

Formula and interpretations for harrod-domar model

Answer 31

The rate of economic growth = savings ratio / capital output ratio y= s/k lower Capital output ratio = less capital is needed to produce a unit of output, therefore economic growth increases