Economic Growth & Development It takes money to makes money

Effects of unequal resource distribution 1.Interdependence- nations must trade with each other to acquire goods they do not possess 2.Uneven economic development- rich & poor countries (haves & have-nots) 3.Energy producers & consumers 4.Imperialism- one country dominating another 5.Conflicts over control of resources

The Wealth (& Welfare) Gap The 80/20 rule: The 80/20 rule: The richest 20% of the world’s population receives 80% of the world’s incomeThe richest 20% of the world’s population receives 80% of the world’s income At the other end of the spectrum … At the other end of the spectrum … The poorest 60% receives less than 6% of the world’s incomeThe poorest 60% receives less than 6% of the world’s income The U.S.(with only 5% of the world’s population) accounts for more than 30% of the world’s economic output. The U.S.(with only 5% of the world’s population) accounts for more than 30% of the world’s economic output.

Development Problems Natural Resources Availability of natural resources varies among Less Developed Countries (LDC). Availability of natural resources varies among Less Developed Countries (LDC). LDC natural resources are sometimes controlled by foreign Multi-National Corporations. LDC natural resources are sometimes controlled by foreign Multi-National Corporations. Commodity prices subject to price volatility. Commodity prices subject to price volatility. Human Resources Overpopulation Overpopulation High population growth rates = low per capita income Increase in income tends to increase population growth Un/underemployment Un/underemployment Low labor productivity due to deficiencies in literacy, health care, technology, investment, etc. Low labor productivity due to deficiencies in literacy, health care, technology, investment, etc.

Annual Population Growth

Development Problems Capital Formation Generating savings is difficult when income levels are so low. Generating savings is difficult when income levels are so low. High level of investment risk in LDCs acts as a deterrent for foreign investment due to: High level of investment risk in LDCs acts as a deterrent for foreign investment due to: Political instabilityPolitical instability Currency devaluationCurrency devaluation Poor public infrastructurePoor public infrastructureTechnology Linked to capital investment. Linked to capital investment. Helps drive increases in productivity. Helps drive increases in productivity. Inability to borrow technology from more advanced countries. Inability to borrow technology from more advanced countries. Lack of skilled labor & existing capital can limit application of new technology. Lack of skilled labor & existing capital can limit application of new technology.

The Vicious Circle Low per capita income... Low per capita income... Creates a low level of demand & low (or negative) savings rate… Creates a low level of demand & low (or negative) savings rate… Which limits new investment… Which limits new investment… Which maintains low productivity… Which maintains low productivity… And perpetuates low income, which is further reduced by population growth... And perpetuates low income, which is further reduced by population growth... And the cycle begins again… And the cycle begins again…