CH30: Barriers to Development

Economic Barriers

1. economic inequality
2. lack of infrastructure
3. lack of appropriate technology
4. weak education
5. weak healthcare
6. dependence on primary commodities
7. lack of access to international markets
8. informal markets
9. capital flight
10. indebtedness
11. geographical factors

Political/Social Barriers

1. Weak institutional framework

   1. lack of private property

   2. ineffective taxation system

   3. Ineffective banking system

2. Gender Inequality

3. Lack of governance and corruption

   1. corruption

   2. political instability

   3. Unequal political power

Economic Inequality

low income people can’t save → lower investment → lower entrepreneurship

high income people

→ consume foreign goods

→ have influence over governance → more anti-poor policies

Lack of Education and Healthcare

• prevents workplace efficiency

• domino effect on children

  Hard to provide due to:

• gov needs funding

• geographical and gender disparities

• less enrolment in secondary school

Over Dependence on primary commodities

price volatility of primary commodities

→ primary source of gov revenue and inflow of cash from abroad → unpredictable gov revenue → inability for gov and firms to plan ahead

→ current account deficits and decreased currency

Lack of Access to international markets

• due to landlock and increased costs to transport goods

• due to non-convertible currency (discourages FDI, hard to import, pay off debts)

protectionism against developing countries decreases revenues

→ less foreign currency entering the country → harder to trade

→ citizens have lower incomes → cannot afford schooling, healthcare

Informal Markets

* due to lack of proper education (cannot find appropriate job)

unrecorded economic activity

→ lack of social protection of workers

→ low levels of production and investment

→ less gov revenue from taxes

Capital Flight definition

the movement of large sums of money out of a country

Infastructure

The essential facilities and services for transport, communication and other utilities necessary for economic activity

Indebtedness definition

the level of debt repayments that countries have to make on money previously borrowed

Indebtedness

indebted countries

→ hard to service their debt due to need for convertible currency (lack of inflow of foreign currency)

→ countries need to service their debt → decrease spending on economy

Geographical Factors

landlocked countries

→ increased costs of transport

Tropical climates

→ harder for agriculture (more costs)

→ prevalence of diseases → effect on health of workforce → effect on productivity

Lack of private Property

→ decreased investment on property → dead capital → owner cannot make a profit out of it

→ owner cannot use it as collateral for a loan → decreased entrepreneurship → decreased income → cannot pay for education/healthcare

Ineffective taxation system

• due to corrupt and inefficient administration

• presence of informal markets

• decreased taxation on businesses to encourage businesses and FDI

• WTO makes it difficult for developing countries to place tariffs → main source of gov revenue decreased)

  → decreased gov revenue for spending on infrastructure, healthcare, education, debt servicing

Banking System

Lack of trusted financial institutions/ only foreign institutes

→ people don’t save money in banks → inability to fund loans/investment

→ high income invest out-side of country → outflow of money and account deficit

→ people cannot take out loans for entrepreneurship → illegal loans with high interest → inability to pay for education/ healthcare

Gender Inequality

uneducated women

→ uneducated children and workforce

→ high birth rates and population

Political instability

→ uncertainty for businesses and FDI investment

→ laws are not enforceable

→ lower standards of living

Unequal distribution of power

→ lack of pro-poor policies → lack of education → poor cannot voice their opinions

Corruption

governors not adopting policies benefiting the poor

→ monetary gains go to rich government officials (often taken out of country causing a deficit)

→ unfair allocation of resources (to the rich and not the productive → rich stay rich poor stay poor)

reduced effect of legal system

→ risk of contracts not being honored → informal markets → increased crime and poverty

→ distrust in market → decreased FDI

→ increased bribery → increased living costs