IB Economics/Development Economics

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Contents 1 Development Economics 1.1 Sources of Economic Growth and/or Development 1.2 Consequences of Growth 1.3 Barriers to Economic growth and/or Development 1.4 Growth and Development Strategies 1.5 Evaluation of Growth and Development Strategies

[edit] Development Economics

[edit] Sources of Economic Growth and/or Development

• Natural factors: the quantity and/or quality of land or raw materials

Many LDCs have abundant natural resources. Agriculture is especially important as an export sector, and is an area for initial mechanisation, productivity gains and growth. Agricultural land is finite and therefore the law of diminishing returns applies as more labour is added to the land. Many LDCs have had problems with severe weather, low agricultural productivity, worsening terms of trade and rising prices for crucial pesticides and fertilisers.

• Human factors: the quantity and/or quality of human resources.

• Physical capital and technological factors: the quantity and/or quality of physical capital

• Institutional factors that contribute to development:
  • banking system
  • education system
  • health care
  • infrastructure
  • political stability

[edit] Consequences of Growth

• Externalities

Negative: pollution, overuse of land
Positive: more efficient production methods that are better for the environment, results in larger tax base which may be spent on environment

• Income distribution

May increase inequality if benefits of growth only seen by a select few, or decrease inequality if benefits seen by entire population.

• Sustainability

Economic growth will put pressure on the environment.

[edit] Barriers to Economic growth and/or Development

• poverty cycle: low incomes --> low savings --> low investment --> low income
• Institutional and political factors
• ineffective taxation structure
• lack of property rights
• political instability
• corruption
• unequal distribution of income
• formal and informal markets
• lack of infrastructure
• International trade barriers
• overdependence on primary products
• consequences of adverse terms of trade
• consequences of a narrow range of exports
• protectionism in international trade
• International financial barriers
• indebtedness
• non-convertible currencies
• capital flight
• Social and cultural factors acting as barriers
• religion
• culture
• tradition
• gender issues

[edit] Growth and Development Strategies

• Harrod-Domar growth model
• Structural change/dual sector model
• Types of aid
  • bilateral, multilateral
  • giant aid, soft loans
  • official aid
  • tied aid
• export-led growth/outward oriented strategies
• Import substitution/inward-oriented strategies/protectionism
• Commercial loans
• Fair trade organizations
• Micro-credit schemes
• Foreign direct investment
• Sustainable development

[edit] Evaluation of Growth and Development Strategies

• Evaluation of the following in terms of achieving growth and/or development
• aid and trade
• market-led and interventionist strategies
• The role of international financial institutions
• The IMF: The International Monetary Fund aims to ensure international financial stability. They provide loans under certain conditions.
• The World Bank: Aims to promote development to some extent.
• Private sector banks: Provide loans in exchange for interest.
• non-governmental organizations (NGOs): Foreign Aid by NGOS
• multinational corporations/transnational corporations: Foreign Direct Investment
• commodity agreements: Agreements between developing countries in an attempt to stabilize prices for certain commodities.