Chapter 19 - Barriers to economic growth and economic development

poverty cycle (poverty trap)

arises when low incomes result in low (or zero) investments in physical, human and natural capital, and therefore low productivity of labour and of land. This gives rise to low, if any, growth in income (sometimes growth may be negative), and hence low incomes once again. A poverty cycle may occur in a family, a community, a part of an economy, or in an economy as a whole.

An important feature of the poverty cycle is that poverty is transmitted from generation to generation

How poverty is transmitted across generations

• people can’t afford to send children to school

• can’t afford the necessary medical care for themselves or for their children

• often have large families. The income of the parents must therefore be split among a larger number of children

breaking out of the poverty cycle

people cannot break out of the poverty cycle on their own, they require intervention from the government.

Government must invest in human capital (health services, education, nutrition), physical capital in the form of infrastructure, and natural capital (conservation and regulation of the environment to preserve environmental quality)

economic barriers

• economic inequality

• limited access to infrastructure

• limited access to appropriate technology

• low levels of human capital

• dependence of production and exports on the primary sector

• limited access to international markets

• the informal economy

• capital flight

• indebtedness

• weak institutional framework

• ineffective taxation structures

• banking

• property rights and land rights

• gender inequality

• Inappropriate governance

• corruption

• unequal political power and status

barriers to infrastructure development

• problems of financing

• inadequate maintenance and poor quality

• limited access by the poor

• misallocation of resources

• neglect of the environment

appropriate technology

technology must be well-suited to particular economic, geographical, ecological and climate conditions

labour-using (labour-intensive) technologies

use more labour in relation to capital. They result in increases in local employment and the use of local skills and materials, increases in incomes and poverty alleviation, and save on the use of scarce foreign exchange

capital-using (capital-intensive) technologies

Use more capital than labour. In developing countries with large supplies of labour, they displace workers and increase unemployment, reduce incomes and throw people into poverty, and require skill levels that may be costly and difficult to aquire

barriers to education

• insufficient funding for education

• Insufficient teachers or untrained teachers

• Insufficient classrooms and basic facilities

• lack of teaching materials

• children with disabilities are excluded

• gender discrimination

• conflict or risk of conflict

• distance of school from home

• hunger and malnutrition

• inability to pay for education

barriers to achieving good health

• insufficient funding for health care

• insufficient access to health care services

• private payments for health care

• geographical access

• insufficient number of trained medical practitioners

• insufficient medical facilities and medical supplies

• acceptability of modern medical practices

• insufficient access to clean water and sanitation

primary sector

sector that produces primary commodities, which come from the FOP land

problems with over-reliance on primary sector

primary products have volatile prices