Assess the significance of three factors which might limit economic development in the developing countries.
Economic development can be defined generally as involving an improvement in economic welfare, measured using a variety of indices, such as the Human Development Index (HDI). A developing country is described as a nation with a lower standard of living, underdeveloped industrial base, and a low HDI relative to other countries. There are several factors which may have the effect of limiting economic development in such countries. Factors such as these include: primary product dependency, the savings gap and political instability. Primary product dependency occurs where production of primary products accounts for a large proportion
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This is because many developed countries may use protectionist measures to prevent developing countries from having free access to certain markets (which may include the markets for the developing countries’ primary product) thus making it more difficult for poorer countries to grow and develop. Foreign demand for a primary product may also limit economic growth as demand for a particular commodity will cause an increase in demand for a country’s currency, thus resulting in the appreciation of the currency. This would reduce the competitiveness of the country’s manufactured exports, thus leading to a decrease in the financial resources gained from exports which could have enabled the country to raise the level of economic welfare to encourage development. Moreover, falling terms of trade due to primary product dependency could limit economic development. This is illustrated by the Prebisch-Singer hypothesis states that primary products tend to be income inelastic whereas the demand for manufactured good is income elastic in the long run. Therefore, as real incomes rise, the demand for manufactured goods will increase at a faster rate than the demand for primary products. This therefore means that primary product dependency acts as a limit to development in developing countries because it means that in the long run the terms of trade would be better for manufacturing products thus there would be more financial
Economic development has to occur after a period of sustained economic growth. It is therefore the growth in total economic output accompanied by changes in the structure of the economy.
A satisfactory understanding of economic growth also requires an appreciation of how countries interact with each other, because countries income levels are interdependent. Trade policies help foster these interactions between countries (and businesses). The question of how trade policies affect economic growth and development has become a controversial topic.
The developed countries can influence the developing countries economic growth by means of financial, political and cultural on national development policy. The dependency theory is in contrast to the neoclassical theory which believed that economic growth was equally beneficially to both developed and developing country. According to the dependency theory economic growth in the advanced industrialised countries does not benefit the developing countries but rather the developed countries, the theorists argue that the developed countries exploit the developing countries by means of import and export. The theorists go on to explaining their arguments, developing or under developed countries export the raw materials to developed countries for manufacturing and when the when the developing countries import these consumable materials back they get them at a price much higher than the cost of manufacturing therefore the developing countries will never make enough to finance their own manufacturing developments or the costs of import and export (Ferraro,
Using named examples, examine the extent to which the development gap occurs within countries as well as globally.
Some of the countries with surplus commodities may dumb them on international markets at a low price. Under such conditions, some of the efficient industries can might find difficulties in competing for long period. Furthermore, countries whose economies are mostly rural will face unfavourable terms of trade. For example, ration of export prices to import prices. Which means that their export income is more smaller than their import payments the make for high value added imports, as it leads to subsequently large foreign debt levels.
ISI was a trade policy adopted by many developing countries before the 1980s. Two background of ISI implementation: first, the argument that there is a secular deterioration in the international relative prices of the principal exports of developing countries (primary commodities) and second, is infant industry argument that aimed to encourage domestic industries by protecting them from competing imports (Duncan and Quang, 2012). It was assume that domestic industry initially could not compete with the competitors from developed countries. Thus, import limitation was conducted through
Economic development and growth should be assessed in direct correlation in a particular economy to gather an equal perspective on the composition and manner of trade as well as the emphasis on ESD in industries.
With the development of the manufacturing sector, consumption of manufactured goods would increase, resulting in a decrease of imported manufactured goods. This will reduce an economy’s dependency on trade. Furthermore, if the phenomenon has any affect on world markets, it will improve the terms of trade (TOT).
To avoid the situation- just as Edwards (1993) discusses- put too much emphasis on exports, we include exports shares as well as import shares in GDP to do case study and believe that this is an important step to understand the association between international trade and economic growth. In addition to that, since most of the countries started with a significant degree of anti-export and anti-import prejudice, tariff reductions will also be mentioned in this section.
According to U nited Nations Conference on Trade and Development(2004), international trade can play a positive and important role in reducing poverty in developing countires.Therefore, poverty alleviation has strong correlation with economic development and international trade.Even though other political, social and cultural problems arethe causes of poverty, it is believed that the various causes are so complicated that no simple soultion is universially applicable.Also, although there were many strategies and international aid for developing countries, the majority of countries thar were underdeveloped fifty years ago still remain poor. (Lee,2006) Thus,
An excessive development problem is facing numerous nations around the world; these problems are directly related to the developing countries increasing stages of poverty and income inequality. In the 1960s and the 1970s, economic growth was understood for decreasing poverty. The different governments have the ability to further the process towards a “free market type economy” accomplishing economic growth. According to “The woes of economic reform: poverty and income inequality in Fiji” the influences of “economic structural adjustment policies (SAPs)” are the controversy of society today involving poverty and inequality. The poverty level has gone up severely in countless developing countries including Fiji. The process of free market
Another factor influencing growth is the significance of international trade. In countries that don’t participate in international trade, such as , there is very slow or no economic growth. This is because it is very hard for one economy to produce all goods which people require. It is better to specialise in a few goods, use them, sell the
Government plays and integral role in ensuring that developing countries have a fair and sustainable share of the benefits of the international trade environment. There is a large contrast between a system operating in a free market type environment versus one with heavy government regulations and intervention. It is important to examine industrial policy, strategic trade policy, trade problems facing developing nations, import substitution and export-led growth.
Harrod domar – assumed closed economy, no foreign trade – infer that growth for an economy should come from within the economy’s resources making full utilization of the country’s resources for its benefit. Growth/development a function of Savings and investment in an economy. The reason why poor countries are poor is due to a fundamental savings gap/lack of capital accumulation which is then not enough to capitalise on investment opportunities and low productivity. So the way out is to increase savings, investment and its productivity – by tech changes. Savings gap facilitated by foreign aid, private foreign investment. Similar to Marshall Plan rationalisation – American financial support to European countries post WWII – discourage Soviet Union communist expansion and capitalism promotion.
Chenery and Strout (1994) asserted that for a long time, there was hardly any country which exhibited sustained growth rate higher than its growth of exports. They also claim that growth rates of individual developing countries since 1950 correlate better with their export performance than with any other single economic indicator. Thirlwall (1997) in his work, explained the possibility that export growth may set up a vicious cycle of growth such that once a country is launched on the path, it maintains its competitive position in world trade and performs continually better relative to other countries. He also contended that export growth relieves a country of balance of payments constraints so that the faster exports grow, the faster output growth can be without running into balance of payments difficulties. His findings suggest that an export based strategy of development offers the best prospects for economic growth. Although theoretical links between trade and economic growth have been extensively discussed for over two centuries, a lot of controversies still abound concerning their real effects. The arguments in favour of trade can be traced to the classical school of economic thought that started with Adam Smith (Medina–Smith, 2001). Since then, the justification for free trade