Economic Development and Growth The Process of Increasing the Average Income Per Head of the Population

Economic Development and Growth Economic development is the process of increasing the average income per head of the population while changing the structure of the economy or the society. It normally involves changing from a rural agricultural society to an urbanised industrial economy. Economic growth means increasing the average income per head of the population without changing the structure of the economy / society.

Characteristics of Least Developed and Developing Countries Poverty trap Most people earn only a subsistence level of income. As a result they can’t set aside any money to improve their living standards. Economic dualism While the vast majority of people earn only a subsistence level of income there is often one “rich” region in the country, the wealth of which is based on natural resources, and this wealth is owned by a tiny percentage of the population.

Characteristics of an LDC Four “imbalances” Imbalanced economy Agriculture is the main source of wealth and there are few or no manufacturing or service industries. Imbalanced population structure The majority will be young people – average life expectancy is 45 years. Imbalanced distribution of wealth 85% of the wealth of the country will be owned by 5% of the population. Imbalanced employment Because of an imbalanced economy, there will be employment only in the agricultural sector.

Characteristics of an LDC Four “lacks” Lack of capital Because of subsistence level of income no savings can take place, which are essential for capital formation. Lack of demand The low level of income leads to a low level of demand. Thus there is no incentive to create or expand businesses. Lack of education Because of low incomes government can’t raise taxes to spend on education thus stunting development. Lack of an infrastructure As above.

Characteristics of an LDC Sundries Political corruption Political instability Poor health facilities No financial services sector High national debt as a percentage of GNP Unfavourable terms of trade

Requirements for Economic Development Desire for economic development Education Capital Increase in agricultural production Development of the infrastructure Development of trading opportunities Obtain foreign aid Achieve political stability Control birth rate

Benefits of Economic Development Improves the standard of living A large percentage of the population will have access to a greater quantity and better quality of goods and services. More employment There is a greater number of, and variety of, employment opportunities. It is easier for people to get employment to match their talents. Improves government finances Government revenue increases as employment and sale of goods increases, allowing the government to provide more services in education, health, infrastructure, etc. The government may also be able to repay some of the national debt. Alleviates poverty As the economy develops the government can afford to implement a social welfare system, which is not available to the LDCs. While poverty can never be eliminated it can be alleviated.

Costs of Economic Development Harm to the environment. Migration within the country. This can lead to depopulation of rural areas and over population of cities. Extra wealth does not guarantee an improvement in the quality of life. People may have to work long hours to accumulate their wealth, resulting in stress and loss of family / social life. Benefits of economic development are not always evenly distributed. While the majority of people benefit from economic development, the gap between the rich and the poor often widens.

Improve basic infrastructure Spend more on education and training How Governments of LDCs Can Help to Promote Economic Development in their Own Countries Improve basic infrastructure Spend more on education and training Reform agriculture Invest in industrial capital Create incentives for entrepreneurs Promote population control

Develop foreign aid programmes. How Foreign Governments can Help to Promote Economic Development of LDCs Develop foreign aid programmes. Encourage multinationals to locate there. Make technology available to them. Enter into trade agreements with them. Restructure LDCs’ foreign debt.