Factors Influencing Growth & Development

T4 CC7 (key words)

Economic Development

Refers to improvements in living standards and quality of life, including health, education, and social well-being, not just an increase in national income.

Human Development Index (HDI)

A composite index used to measure economic development, calculated by the UN, that combines three factors: health (life expectancy at birth), education (mean and expected years of schooling), and income (real GNI per capita at PPP).

Primary Product Dependency (PPD)

An economic situation where a country heavily relies on the export of raw materials (agricultural goods, minerals, or commodities) as a significant source of revenue and foreign exchange.

Volatility of Commodity Prices

The degree of rapid and unpredictable price fluctuation in markets where raw materials are traded, typically caused by sudden changes in supply (e.g., weather) or demand (e.g., global economic growth or recession).

Prebisch-Singer Hypothesis

The theory suggesting that the prices of primary products tend to fall relative to the prices of manufactured goods over the long term, leading to a deterioration in the terms of trade for primary product-dependent developing countries.

Savings Gap (Harrod-Domar Model)

The difference between the amount of savings required to finance a country desired level of investment for growth and the actual level of domestic savings available. The Harrod-Domar model relates economic growth to the level of saving and investment.

Capital Flight

The rapid and uncertain movement of large sums of money or financial assets out of a country, often triggered by economic or political instability, fears of devaluation, or rising tax rates.

Foreign Currency Gap

A situation where a country’s expenditures in foreign currency (e.g., for imports or debt servicing) exceed its foreign currency earnings (from exports or foreign investment).

Absence of Property Rights

A barrier to development where individuals lack formal, legal ownership of their land or assets, meaning they cannot use them as collateral to secure loans or investment, leaving the assets as “dead capital.”

Debt and Debt Relief

The total amount of money owed by a country to foreign creditors (Debt). Debt relief is a policy that reduces or cancels some or all of a developing country’s debt to free up resources for essential services and investment.

Landlocked Countries

A country that is entirely surrounded by land and does not have direct access to the ocean or any large body of water, making it economically reliant on neighboring countries for access to vital maritime trade routes. There are 44 landlocked countries in the world.

Political Instability & War

The propensity for frequent government collapse or conflict, which creates uncertainty and discourages domestic and foreign investment, leading to lower economic growth and development.