4.9 barriers to economic growth and development

Barriers to Economic Growth & Development

Poverty Traps

  • Understanding Poverty Trap

    • Poor countries share several characteristics that perpetuate poverty.

    • Economic growth and human development are crucial to breaking the poverty cycle.

    • Low Wages:

      • Result from unemployment, informal employment, lack of skills, or reliance on primary sector.

      • Directly connect to poverty.

    • Low Levels of Education & Healthcare:

      • Inaccessible due to low income, leading to ill health.

Effects of Low Human Capital

  • Decreased productivity due to low education and healthcare levels.

  • Low Productivity:

    • Leads to low wages, perpetuating a cycle of poverty.

Growth Factors

  • Low Savings & Investment:

    • Low incomes hinder savings, limiting access to investment funds.

  • Overall Economic Growth:

    • Investments are needed for productivity improvements and growth.

Economic, Political & Social Barriers

Economic Barriers

  • Dependency on Primary Sector:

    • High reliance on primary products (e.g., copper in Zambia) leads to vulnerability and over-specialization.

    • Low-income elasticity of demand limits growth potential.

  • Rising Income Inequality:

    • Less consumption capacity among lower-income households leads to stagnation.

  • Lack of Access to International Markets:

    • Trade barriers inhibit growth by restricting market access for developing economies.

    • WTO's role in enhancing trade liberalization.

  • Informal Economy:

    • Limited tax revenue hampers public services and infrastructure development.

  • Capital Flight:

    • Large outflows of money due to political/economic instability restrict investment.

  • Indebtedness:

    • High borrowing reduces funds for investment and public goods.

  • Infrastructure & Technology:

    • Poor infrastructure limits economic activity and foreign investment potential.

Factors Affecting Human Capital

  • Low Education & Healthcare:

    • Investments needed for improvement.

  • Geographical Constraints:

    • Landlocked countries face higher import/export costs.

    • Adverse natural conditions (e.g., deserts and diseases) impede productivity.

Political & Social Barriers

  • Institutional Framework:

    • Effective government functions are vital for growth.

    • Strong legal systems encourage investment and facilitate economic activities.

  • Tax Structure:

    • Progressive taxation can reduce inequality if effectively enforced.

  • Banking System:

    • Limited credit access stunts growth.

  • Property Rights:

    • Essential for securing loans and encouraging investment.

  • Governance and Corruption:

    • Poor governance leads to resource misallocation and weakens growth.

  • Social Inequality:

    • Discrimination limits participation and productivity of marginalized groups.

Evaluating Barriers To Growth & Development

  • Each country faces unique factors impacting its growth potential.

  • Contextual understanding is critical in evaluating barriers.

    • Examples:

      • Romania faces corruption limiting development.

      • India invests in infrastructure to boost growth.

      • Malawi's landlocked status raises export costs.

Examiner Tips and Tricks

  • Analyze data extracts to identify prominent economic, political, and social barriers affecting development.