5.1 Ecomomic Growth, Development and population

Economic Development

Refers to an increase in a country’s GDP per capita following a fundamental change to the structure of society.

Economic Growth

Refers to the increase in a country’s GDP per capita without the need for a fundamental change to the structure of society.

Changes to the structure of society which lead to economic development:

• Rural → Urban society: If a country saw many people move from farming as their main practice to people migrating to cities and towns, this would lead to economic development.

• Primary sector → Tertiary Sector Dominated: If a country began to change its economic activity from the agriculture, mining and fishing and begins to focus more on providing services, this would constitute a fundamental change in the structure to society and aid Economic Development.

• Low Education Attainment → High Education Attainment: If a country began to invest in education for all its citizens, this would improve the overall skill and training of the workforce which would lead to Economic Development.

• Poor Infrastructure→ Developed Infrastructure: If a country has poor infrastructure, it will suffer Economically. Thus if a country improves this, expansion and businesses will be facilitated leading to economic development.

Developed Countries

Nations developed in terms of their industrialisation and considered politically and Economically stable. They are self-sufficient nations.

Developing Countries

Nations at initial levels of industrialisation and with low levels of material well-being.

Industrialisation

Process by which an economy transforms from primarily agriculture to one based on the manufacturing of goods.

What are LDC’s?

Least developed countries. The poorest and weakest Countries. Have a low HDI.

Characteristics of LDC’s:

• High Population Growth Rates: Rates of population growth are highest in developing countries(LDC’s) resulting in economic problems.

• More uneven distribution of wealth: A minority of the population may control a large part of the countries wealth resulting in poverty for most of the population.

• High Percentage of the Population Engaged in Primary Industries: This results in not enough workers in secondary and tertiary sectors resulting in an overall low standard of living.

• Poor Infrastructure:

• Poor levels of Education: Educational opportunities are very limited leading to high unemployment and discourages FDI.

• Political Corruption: some LDC’s spend a disproportionate amount on bureaucratic administration and military spending which results in civil unrest.

How can governments of LDC’s promote Economic Development?

1. Agricultural Reform should be promoted: They may decrease emphasis on one crop-diversify production. They can also aim to improve production methods; this can be dome if they try to modernise the agricultural industry.

2. Basic Infrastructure must be improved: Governments can focus on Providing clean water and proper sanitation. They can invest in development of roads, power supplies, etc.

3. Corruption must be eliminated: They should try to reduce Bureaucracy within state institutions. They must eliminate corruption so that aid flows to those who it was intended for, inspiring economic growth.

4. Development of Enterprise:

5. Education Improvement: providing education or developing the secondary sector and initiating education programs will lead to increased en payment opportunities and economic development.

How can Developed Countries Help Developing Countries

• Voluntary Agencies: Various International Voluntary Agencies provide direct aid to LDC’s.

• Buy fair trade products: Buying fair trade products ensures higher prices for produces and hence a better standard of living for citizens.

• Multinationals setting up in LDC’s: Multinationals provide employment opportunities and provide workers with skills. The fair wages received could help boost domestic demand, provide tax revenue for the state and boost employment.

• Official Development Assistance: Governments may provide aid to help in emergency situations. They can also assist with the development of infrastructure and the provision of education.

• Peace measures and promote political stability:

Steps taken by governments of developed countries to help solve the debt crisis which LDC’s experience.

• Debt relief and forgiveness

• Restructuring Debt

• Enhancing Trade Opportunities

• Promoting Sustainable Economic Policies

Benefits of Official Development Assistance(ODA) for LDC’s (Irish Aid)

• Helps build infrastructure: ODA can be used to fund roads, airports and communication infrastructure.

• Improvement in health services: ODA can fund new hospitals, medical equipment and personnel, helping save lives in LDC’s

• Support Education: ODA can help build schools, helping reduce illiteracy by providing basic education to all children.

• Reduction in Poverty Level: ODA can create jobs and provide training, enabling citizens to earn wages and lift themselves out of poverty.

Challenges of Official Development Assistance(ODA) for LDC’s (Irish Aid)

• Unfair Distribution of Benefits: Increased wealth may not trickle down to those who need it most, often concentrating in the hands of a small elite.

• Develop a Culture of Dependency: Aid may reinforce dependency, reducing the incentive for risk taking ventures and limiting economic growth.

• Costs to the Environment: Increased pollution, landscape disfigurement, and urban sprawl may negate positive effects of aid.

• High Profile Projects: Infrastructure projects may prioritize high-profile initiatives over essential needs, leading to inefficient resource use.

How factors of production contribute to economic growth and development.

Land: Countries that have a large amount of natural resources tend to be wealthier and more developed. Some LDC’s like The Congo have lots of available resources but due to corruption and exploitation this never benefits these societies.

Capital: Capital goods, such as infrastructure are vital to aid the economic development of a country.

Labour: Economically developed countries tend to have a better educated workforce. In LDC’s, educational attainment is often very low.

Enterprise: If a country encourages and creates the right conditions for entrepreneurship, they are more likely to be economically developed.

The Human Development Index(HDI):

The HDI is a way to measure and compare how well people are living in different countries by looking ag three main aspects:

• Health: This measures the life expectancy, which is how long long people, on average, are expected to live in a country. The longer the life expectancy the higher the score.

• Education: The HDI looks at the mean number of years of schooling people receive and literacy rates. The higher the years of schooling and literacy rates the higher the score.

• Standard of Living: This part of the HDI considers the income people must live on.

HDI is measured from 0(No human development) to 1(Full human development)

IHDI

It’s HDI adjusted for inequality.

Policies to Narrow Gap Between HDI and IHDI:

• Equitable Access to Quality Education: Ensure that all segments of the population have access to quality education, regardless of their socio-economic status or geographic location.

• Improvement in Healthcare access: Enhance healthcare services and make them accessible to all citizens. This involves increasing access to healthcare services and improving health outcomes, especially for vulnerable and marginalised communities.

• Income Equality: Implement policies that address income disparities, such as progressive taxation, social welfare and minimum wage regulations, to reduce poverty and ensure a more equitable distribution of wealth.

Income inequality

How unevenly income is distributed throughout a population. e.g. males vs females, different ethnicities, geographic location and occupation.

The Goni index/coefficient

Used as a gauge of economic inequality, measuring income distribution. The coefficient ranges from 0 to 1

Policies the government could implement to reduce inequality, redistribute income and wealth, improve gini index score, achieve a just social policy.

• Increasing the national minimum wage: by doing this, those workers on lower income would have higher disposable income and better standard of living.

• Increased Expenditure on Education: The government could invest in pre-primary education. This would provide all children with access to education at an early age.

• Alter current tax policy: Ensuring taxes are progressive will make it so those who can’t afford to pay much pay less and those who can pay more.

• Universal access to basic goods: Ensure that basic services are available to all citizens such as health care, housing, education, etc.

Why is the Population in Ireland increasing?

• Increased Birth Rate and Death Rate: A high birth rate and a decreasing death rate with an increasing older population is contributing to a higher population.

• Improved Healthcare: Improvements in medicines and medical technologies have led to an increase in the average age meaning we now have a larger population.

• Positive net migration: There has been more people immigrating to Ireland than emigrating out of Ireland.

Positives of a growing population

• Economic Growth: A larger population can boost economic activity through increased consumer spending and a larger workforce leading to economic growth.

• Increased Tax Revenue: More people means higher tax revenues for the government, which can be invested in public services and infrastructure improvements.

• Labour Market Expansion: A larger population can expand the labour market, providing a broader talent pool and helping to address skill shortages.

Why is Ireland’s population growing older?

1. Improvement in healthcare: Has resulted in improved treatments of illnesses and thus reducing death rates.

2. Improved Income: Has seen individuals have greater access to higher quality foods, better exercise and access to medicines.

3. Increases Focus on a healthy lifestyle: Irish Society has seen individuals make a greater effort to maintain healthy habits as they age and to take care of themselves.

4. Improved government Planning: This has facilitated the increase in Ireland’s elderly population.

Dependency Ratio Formula:

Dependency Ratio = (Number of Dependents/Working Age Population) * 100

Dependency Ratio

Used to indicate the ratio of dependents to the working age population.

Advantages of an Ageing Irish Population

• Increased tax revenue: Due to older workers remaining in the workforce, they will continue to earn a wage and pay income tax to the government.

• Large Labour Force: There will be an increased number of people who may participate in the Labour force as people are living longer.

• More experienced Workforce: As workers grow older, they tend to become more skilled. Thus these workers will bring years of experience to the workforce.

Disadvantages of an Ageing Irish Population:

• Pressure on provision of state pensions: The government must encourage individuals through tax incentives to avail of private pensions in order to reduce the pressure on the government to provide state pensions.

• Possible increased Tax burden/ increased government expenditure: With larger numbers of people over 65, the government may need to spend a greater proportion of its revenue on provision of services to the elderly.

• The Participation Rate Falls: As more people reach retirement age, the supply of labour may be affected. Some may wish to work part-time. Some may retire.

Policies the Government must make to tackle the consequences of Ireland’s ageing population.

• Increased government spending on healthcare

• Increased pressure on government finances as more pensions will be required and this may result in the government increasing the pension age.

• Impact on unemployment: If people extend their working lives, this might cause an increase in youth imployment as firms do not want to increase their wage costs by hiring new workers if no employees leave the company.

Positives of raising the retirement age

• Increased Government Revenue: As people work longer hours they will continue to provide government revenue by paying tax.

• Increased Consumption: More demand for goods and services as salaries are higher than pensions, potentially creating more jobs and leading to economic growth.

• Reduced Government Spending: Reduction in government spending on pensions allowing more revenue to be allocated to other services.

Negatives of raising the retirement age

Unequal impact: Raising the retirement age may be considered anti-worker and unjust, as the wealthy still have the means to retire earlier.

Labour market competition for younger workers: Older employees staying in the workforce longer could reduce job opportunities for younger workers.

Potential Health Issues: Older workers may face health issues that can affect their productivity and increase healthcare costs for employers.