economic development for chapter notes
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4.1 Economic Development
Economic growth: an increase in the country's real output through time.
Economic development: a qualitative measure of the country's standard of living. It is a more multidimensional concept than economic growth as it involves reducing widespread poverty, reducing income inequalities and increasing employment opportunities.
Sources of economic growth in less developed countries:
Increases in human capital: new training and education schemes would likely improve the productivity of the workforce and therefore have a positive impact on economic growth. Also an increase in the birth rate, or a decrease in the mortality rate, that increases the labour force should lead to an increase in the national output.
Increases in physical capital: improvements and an increase in access to machinery would likely benefit firms by increasing their productivity and allowing them to expand, susbquently leading to economic growth.
New technologies: technologies can often induce economic growth as they increase the efficiency of manufacturing and can reduce firms' costs of production. However, for developing countries, it is important that these technologies are not labour saving technologies as these replace the work done by individuals and lead to a increase in unemployment.
Institutional change: in order to encourage entrepreneurship and economic growth, it is exceedingly important that well defined property rights are established as these promote certainty and stability, which is necessary for investors to have confidence. In additon, in order to ensure that consumers have enough confidence to purchase goods and services, it is important that governments make reforms to increase transparency and reduce corruption.
The relationship between economic growth and development
Some limited economic development is possible without economic growth. However, in the long term economic growth is usually necessary for economic development. This is because an increase in the quality of life tends to require an increase in real incomes. Also economic growth does not necessarily lead to economic development because the benefits of growth may be highly concentrated amongst a few individuals and therefore create a increase in income inequality.
Common characteristics of economically less developed countries
It is difficult to generalise about economically less developed counrties as their economies are shaped by their respective political and social history. However, they tend to share these common characteristics:
Low levels of GDP per capita
High levels of poverty
Relatively large agricultural sector
Large urban informal sectors
High birth rates
Some countries may be in a poverty trap (poverty cycle) where poor communities are unable to invest in physical, human and natural capital due to low or no savings; poverty is therefore transmitted from generation to generation, and there is a need for intervention to break out of the cycle.
Diversity amoung developing countries
Developing countries range enormously in their resources, history, climate, political systems and degree of political stability. Take a look at this map showing the main exports of each country to see how developing countries compare to those that are more developed:
Country Profiles:
Afghanistan is situated in south east and central Asia. It has a population of about 33.4 million (UN, 2012) and its life expectancy for both men and women is 49 years (UN). The country has sufffered many conflicts and instability in recent times, which have contributed to damaged infrastructure and a fragile economy.
Bolivia is found in central South America, bordering Brazil, Argentina, Chile, Paraguay and Peru. Its climate is variable, ranging from humid and tropical to cold and semiarid. Bolivia is a very resource rich country which predominantly relies on its natural gas exports as a source of growth. However, political instability, social tensions and a lack of foreign investment are attributed to its poor level of development.
Chad has a population of 11.8 million (UN, 2012) with a life expectancy of 49 year for men and 52 year for women (UN). The country is found in central Africa and its main languages are French and Arabic. Chad has a rich supply of uranium, gold and oil. However, the country is believed to have high levels of corruption, whilst
Economic growth: an increase in the country's real output through time.
Economic development: a qualitative measure of the country's standard of living. It is a more multidimensional concept than economic growth as it involves reducing widespread poverty, reducing income inequalities and increasing employment opportunities.
Sources of economic growth in less developed countries:
Increases in human capital: new training and education schemes would likely improve the productivity of the workforce and therefore have a positive impact on economic growth. Also an increase in the birth rate, or a decrease in the mortality rate, that increases the labour force should lead to an increase in the national output.
Increases in physical capital: improvements and an increase in access to machinery would likely benefit firms by increasing their productivity and allowing them to expand, susbquently leading to economic growth.
New technologies: technologies can often induce economic growth as they increase the efficiency of manufacturing and can reduce firms' costs of production. However, for developing countries, it is important that these technologies are not labour saving technologies as these replace the work done by individuals and lead to a increase in unemployment.
Institutional change: in order to encourage entrepreneurship and economic growth, it is exceedingly important that well defined property rights are established as these promote certainty and stability, which is necessary for investors to have confidence. In additon, in order to ensure that consumers have enough confidence to purchase goods and services, it is important that governments make reforms to increase transparency and reduce corruption.
The relationship between economic growth and development
Some limited economic development is possible without economic growth. However, in the long term economic growth is usually necessary for economic development. This is because an increase in the quality of life tends to require an increase in real incomes. Also economic growth does not necessarily lead to economic development because the benefits of growth may be highly concentrated amongst a few individuals and therefore create a increase in income inequality.
Common characteristics of economically less developed countries
It is difficult to generalise about economically less developed counrties as their economies are shaped by their respective political and social history. However, they tend to share these common characteristics:
Low levels of GDP per capita
High levels of poverty
Relatively large agricultural sector
Large urban informal sectors
High birth rates
Some countries may be in a poverty trap (poverty cycle) where poor communities are unable to invest in physical, human and natural capital due to low or no savings; poverty is therefore transmitted from generation to generation, and there is a need for intervention to break out of the cycle.
Diversity amoung developing countries
Developing countries range enormously in their resources, history, climate, political systems and degree of political stability. Take a look at this map showing the main exports of each country to see how developing countries compare to those that are more developed:
Country Profiles:
Afghanistan is situated in south east and central Asia. It has a population of about 33.4 million (UN, 2012) and its life expectancy for both men and women is 49 years (UN). The country has sufffered many conflicts and instability in recent times, which have contributed to damaged infrastructure and a fragile economy.
Bolivia is found in central South America, bordering Brazil, Argentina, Chile, Paraguay and Peru. Its climate is variable, ranging from humid and tropical to cold and semiarid. Bolivia is a very resource rich country which predominantly relies on its natural gas exports as a source of growth. However, political instability, social tensions and a lack of foreign investment are attributed to its poor level of development.
Chad has a population of 11.8 million (UN, 2012) with a life expectancy of 49 year for men and 52 year for women (UN). The country is found in central Africa and its main languages are French and Arabic. Chad has a rich supply of uranium, gold and oil. However, the country is believed to have high levels of corruption, whilst
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