Economic Development

Poor economic growth:

• gov. cannot invest in improvements in healthcare/education (low fiscal dividend)

Poor social capital/corruption/institutional failure

• uncertainty- lack of FDI and domestic investment- poor rule of law

Poor human capital

• poor education= lack of skills- poor productivity
• lower incomes
• fewer doctors, teachers- lower levels of education and healthcare

Lack of infrastructure

• increases supply costs for businesses- lack of FDI/domestic investment

Lack of access to international markets

• difficult to grow through exports

Costly capital/lack of access to capital

• low saving ratios: firms have less access to capital from banks= less investment

Harrod-Domar model

• nations that lack capital + low productivity= low growth rates
• little saving to fund investment therefore gov. should borrow to fund investment

Rostow's Model

• need to help countries industrialise- priority should be the growth of the manufacturing industry
• use surplus labour from the countryside to help factories develop

Export-oriented

• X increases- AD increases = econ growth= possible development
• countries should specialise in areas where they have a comparative advantage (e.g. resource-rich) 
• BUT: Prebisch-Singer hypothesis: growth in export of commodities= lower profits for producers

Import subsitution

• high tariffs on imported goods= develop local industry 
• infant industry argument 
• BUT: trade diversion, comparative advantage theory, potential for exploitation of monopoly

Free-market approach

• encourage efficiency and entrepreneurship
• privatisation, reduction of tariffs, no budget deficit etc.
• BUT: often badly affects the poor, country may lack infrastructure for sustainable business development
  

Statist approach

• govt. intervention to develop infrastructure 

• e.g. build roads, ports etc.
• BUT: build-up of debt, corruption= mismanagement and inefficiency

Can be helpful:

• strong cenral government (i.e. lack of corruption)
• used to support healthcare and education= long-term development
• focused on the poorest helping themselves

Can be unhelpful:

• corrupt government
• fosters unsustainable reliance on donors
• tied aid/ forces reduction in tariffs (trade opening)

Good:

• allows entrepreneurs to borrow start up capital
• increased investment: increased productivity, increased AD, multiplier effect etc.

Bad:

• higher interest rates on loans to MNC's (less confidence of ability to pay it back)
• interest rates can fluctuate due to global events rather than the country's own economic cycle

Good: 

• increased investment- increased AD, increased productivity= long run economic growth improves, multiplier effect, higher wages etc.
• increased employment- increased consumption, increased stds. of living
• increased fiscal dividend (corporation tax)
• govt. expenditure increases- better infrastructure
• X increases
• BUT: does the LEDC offer tax breaks? strong central gov. to collect tax?

Bad:

• discourages development of local firms
• reduces demand for local goods (increased competition)
• profits repatriated back to developed nation

GDP per capita is often used but has flaws:

• differences in exchange rates- GDP measured in $ will fluctuate with exchange rates
• differences in living costs- prices of goods and services will vary between countries (therefore adjust for PPP- purchasing power parity)
• regional variations in income and spending
• inequality

Inequality is measured by the Lorenz curve and Gini coefficient

Lorenz curve- closer the curve is to the curve of perfect equality= more equal society

Gini coefficient- closer to 0, more equal the society- 1 is perfectly unequal

• economic growth and externalities- increasing GDP may be at the expense of sustainability
• black economy and non-monetised sectors
• reliability of GDP/GNP figures- difficult to collect in countries with a weak civil service

Therefore: use HDI (human development index); considers education, health etc.