5.3 Barriers To Development


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5.3 Barriers To Development

  1. 1. + Development Topic 5.3 Barriers to economic growth and development
  2. 2. + Key concepts for Topic 5.3 Barriers prevent or restrict development in some 1. countries. Some things are barriers to Economic growth 2. Some things are barriers to Economic 3. Development Change and the process of development is a multi- 4. generational process. Be careful when answering questions about Development. Is the question asking about Economic Growth / and / or Economic Development? Be sure to adapt you knowledge to the question. Economic Growth ≠ Economic Development
  3. 3. Poverty Trap and Cycle + Barriers to Economic Growth How do we get these people out of the poverty trap?
  4. 4. + Poverty Cycle Growth Development Low economic Low levels of growth education and healthcare Low levels of Low levels of Low incomes investment human capital Low level of Low savings productivity
  5. 5. Institutional and Political + Barriers to Economic Growth Poor healthcare Insufficient provision and systems investment in education Weak institutional framework, law and finance Political instability and corruption Ineffective tax structure and formal and informal markets
  6. 6. + Insufficient provision of education
  7. 7. + Insufficient provision of healthcare
  8. 8. + Political instability and corruption  Rule of Law and appropriate enforcement  Democratic institutions  Legal Institutions Corruption – people acting in an official capacity of trust  and responsibility misuse their position for private gain. Discourages investment  Increases tax evasion  Increased ‘tax burdens’ on the poor  Distortion of government policies and can reshape government  spending patterns
  9. 9. + Ineffective tax structures  Mixture of market and non market activity  Informal markets - importing  Taxevasion by multinational companies in developing countries. Growth of tax havens such as Bermuda, Monaco  Too many tax incentives offered to attract increased Foreign Direct Investment.
  10. 10. International and Financial + Barriers to Economic Growth Indebtedness issues Capital Flight Non convertible currencies Trade Barriers and Protectionism Social and cultural barriers
  11. 11. Trade Barriers and Overdependence + Chile 1975 - 1986 Widespread economic reform Exporter of primary products  Copper  Wine  Fruit  Large shift away from  mineral export to a wider range of export. Different products, different  markets, different prices.
  12. 12. 2008 + 40% of exports are mineral related 1975 70% of exports are mineral related 1975 – 1986 Economic reform, less state involvement, floating exchange rates
  13. 13. + Over-dependence creates issues when prices of export fluctuate  One export product generates 80% of all agricultural exports !!  http://www.fao.org/docrep/005/y3733E/y3733e0d.htm 
  14. 14. + Changes in the terms of trade  Developing nations need to ensure that the average export price remains relative to the average price of imported products. Constant terms of trade  A fallin the price of exports relative to imports; if a country is over-dependent can have severe flow on effects. A fall in terms of trade.
  15. 15. + Flow on effects Value of Imports Value of Exports (Imports Price Index) (Export Price Index) Terms of Trade Index (worsens) Current Acc Balance deteroriates (X – M) Balance of Payments worsens
  16. 16. + Consequences of an adverse terms of trade? High costs of debt servicing; as a greater quantity of export are  required to pay back the same amount of foreign debt. Falling export receipts can cause current account deficits, which  could lead to increased borrowing. Reduces the countries ability to afford much needed  imports, which are comparatively more expensive. Illegal crops can seem attractive to growers, such as coca leaves  (cocaine) in South America. Incentive to export more primary products to compensate for  lower export prices. This can lead to long term depletion of resources.
  17. 17. + Adverse cycle of falling terms of trade Price of exports Terms of Trade Exchange Rate Low Price elasticity of Current Account demand for exports Export Revenue
  18. 18. + Tariff’s and the effect on free trade
  19. 19. + Summary points Barriers prevent or restrict development in some 1. countries. Each nation has a unique set of barriers, these 2. could be institutional or trade barriers Over-dependence and falling terms of trade is a 3. strong barrier to economic development that several African nations face. Be careful when answering questions about Development. Is the question asking about Economic Growth / and / or Economic Development? Be sure to adapt you knowledge to the question. Economic Growth ≠ Economic Development
  20. 20. Differences between Countries + Balance of Payments Balance of Payments surplus deficits United Arab Emirates USA   Brazil New Zealand   Singapore Australia   China France, Spain,UK   Net Exporters Net Importers Oil and Resources Oil Dependent Net Foreign Investors Net Foreign Borrowers
  21. 21. +
  22. 22. + Losing Traction - 3 mark questions how can the tigers get back their bounce? What makes South Korea, Singapore, Taiwan and Hong Kong 1. unique? Describe their key economic characteristics Draw a fully labeled graph of your choice to show the effects of the 2. sudden downturn in economic activity, on one of the countries. Draw a diagram to show the flow-on effects of this situation for one of 3. the four countries Explain how the downturn in 2008 is different than other downturns? 4. Why may this situation be good for the long term development and 5. growth of these four nations? What, if any, are the lessons for other developing nations? 6.