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Define economic growth

Increase in real output of an economy over time


Sources of Economic Growth

Natural, Human capital, Physical capital, Institutional


Natural factors in economic growth

Land reclamation through landfills \n\nFertilization\nBetter planning of land usage\nImproved agricultural method \n\nBuilding upward instead of outward


Human capital factors

Encouraging population growth\nIncreasing immigration levels\nImproving health care, education training, access to fresh water


Physical or technological factors

Factories, machinery, shops, offices\nSocial capital: schools, roads, hospitals, houses


Capital widening

Extra capital used with increased amount of labor bu ratio of capital per worker does not change


Capital deepening

Increase in amount of capital for each worker, improvements in labor productivity


Institutional factors

Banking, legal, education, infrastructure, political stability, good international relationships


Economic development

An improvement in welfare from viewpoints: \n\nReducing widespread poverty\nRaising living standards\nReducing income inequalities\nIncreasing employment opportunities


Relationship between growth and development

1 Higher incomes–> Improves standard on living \n\n2 Higher government revenue–>Govt able to provide education, healthcare and infrastructure \n\n3 Creation of inequality \n\n4 Lack of sustainability because of pollution


Common characteristics of developing

1 High birth rates \n\n2 Low levels of GDP per capita\n3 Large agricultural sectors \n\n4 Large urban informal market \n\n5 Poverty trap


Poverty trap

A self perpetuating mechanism that contributes to the persistence of poverty in a nation\n\n\nLow income–> savings –> investment –> productivity


What do LEDCs not have in common

Climate\nResource endowments\nPolitical system \n\nHistory (warfare, colionalism)


Absolute poverty

do not have access to the basic necessities needed to sustain life


Relative poverty

living standards are well below an observed "average" in an economy


Millennium Development Goals

GAP RICEE \n\n\n\nGlobal partnership for development\n\nAchieve universal primary education\nPromote gender equality and empower women \n\n\nReduce child mortality \n\nImprove maternal health\nCombat HIV/AIDS, malaria and other diseases\nEradicate extreme poverty and hunger \nEnsure environmental stability



GDP: Total economic activity in country regardless of who owns productive assets \n\nGNI: Total income earned by a country's factors of productions regardless of asset location \n\nFDI increases GDP above GNI


Purchasing power parity (PPP)

A technique used to determine the relative value of different currencies by comparing prices of identical goods and services in different countries


Exchange rate vs PPP

– EX attempts to equate PPP of currencies in different countries \n– Very volatile and relevant to trading products\n– GDP based on market EX tend to over–estimate cost of living in developing countries


Measures of welfare

1 Health\n– Life expectancy at birth\n– Infant mortality rate\n\n2 Education \n\n– Adult literacy rate: proportion of adults aged 15 or above who are literate \n\n– Net enrollment in primary school:\n3 Composite indicators


Human development index (HDI)

A measurement of economic development, which accounts for education level, health provision and decent standard of living (GDP per capita). A value between 0 and 1, with higher values representing higher levels of development\n\n\n\nHigh: Singapore, Australia \n\nMedium: India, China\nLow: Nigeria, Ethiopia


Problems with HDI

Only an average figure that can mask inequalities within the country. Likely to occur between:\n– Rural and urban citizens\n– Genders\n– Ethnic groups


Domestic factors that contribute to economic development

1 Education\n2 Healthcare\n3 Technology\n4 Access to credit and micro–credit schemes\n5 Empowerment of women\n6 Income distribution



Micro–credit offers loans to people on low incomes to start their own businesses. Enabling and empowering bottoms–up tool to poverty alleviation. \n\n\n\nCredit creates opportunities for self–employment liberating poor from poverty to gain income \n\n\n\nEnables them to invest


Why is unequal income distribution a barrier to growth and development?

– Tend to be lower saving because poor save very small proportion of their income \n\n– Rich tend to dominate both politics and economy so policies favor the rich\n– Rich move large amounts of funds out of economy


International barriers to economic development

1 Over specialization on narrow range of products\n2 Price volatility of primary products (Suppy–elastic). PES is relatively inelastic so changes will lead to large price fluctuation. Makes it difficult for producers to plan ahead \n\n3 Inability to access international markets due to protectionism. Cannot benefit from comparative advantage. Rate of tariff increases as processing increases so cannot move away from raw materials


Strategies for achieving economic growth and development

–Import substitution\n–Export promotion\n–Trade liberalisation \n\n–Bilateral and regional preferential



Any assistance that is given to a country that would not have been provided through normal market force. Two types are humanitarian which are short term and development which is long term


Why give aid?

–Help people who have experienced some form of natural disaster or war\n–Help developing countries achieve development\n–Create alliances\n–Fill savings gap in developing countries\n–Improve quality of human resources\n–Improve levels of technology\n–Fund specific development projects


Humanitarian aid

Given to alleviate short–term suffering: droughts, earthquakes \n\nGrant aid: does not have to be paid \n\nFood aid: food or money to buy it\nEmergency aid: shelter, tents, clothing \n\nMedical aid