Domestic Factors and Economic Development

Lesson Objectives By the end of this chapter you should be able to  Identify domestic factors that may contribute to economic development  Explain how domestic factors may contribute to economic development

Institutional factors affecting development  There are a number of domestic factors that act as sources of economic development and barriers to development  What do we mean the institutional framework?  Organisations, structures, rules  The main institutional factors are  Education  Healthcare  Infrastructure  Political Stability and corruption  Legal system  Financial system, credit and micro finance  Taxation  The use of appropriate technology  The empowerment of women  Income distribution

Education Improve the role of women in society – there are high correlations between women’s education and child survival rates and fertility rates Sen says ‘Nothing arguably, is as important today in the political economy of development as an adequate recognition of political, economic, and social participation and leadership of women’ Improve levels of health – improving education (particularly literacy) improves the health of society. Individuals can read about and be informed about vaccines and water filtering. Also dangers such as HIV, sanitary habits, diet etc Despite improvements around 38 million children of primary school age are still out of school in sub- Saharan Africa. In southern Asia 18 million.  Education requires vast funding  Within a country there may be vast disparities between urban and rural areas  Children may need to work  Often if the mothers received no education the children do not either  Enrolment in secondary schools is lower than primary

Healthcare Strong correlation between health care and life expectancy - it would appear that countries that spend a high proportion of GDP on healthcare have a higher life expectancy (there are many other variables at play) Throughout the world infant mortality rates have fallen, life expectancy has increased, more children are immunised and maternal mortality rates are falling Progress - there has been a lot of progress in terms of training doctors and nurses, building of hospitals, and provision of immunisation and safe water There is still a lot to do  See table 29.2 P359 Healthcare

Better roads and better public transport – allows children to get to school, adults to get to market and goods to get to potential buyers Electricity is needed for food preservation Gas is needed for cooking A developed radio and television network - makes it possible for people to link up with and participate in wider communities Any improvement in infrastructure will improve the well being of the people Infrastructure

Countries that have political stability are more likely to attract FDI and Aid – may lead to growth and development Political instability can lead to wars and complete economic breakdown - this will lead to poor economic performance, high levels of poverty and low standards of living When there is political stability citizens are more likely to have a say – leads to higher living standards Corruption = dishonest exploitation of power for personal gain Political stability and lack of corruption Corruption is prevalent when-  governments are not accountable to the people  Governments spend large amounts on large investment projects  Accounting practices are not controlled  Officials are not well paid  Elections are not well controlled  Legal structure is weak  Freedom of speech is lacking

Corruption hinders growth and Development Corruption leads to reduction in effectiveness of legal system (people can buy their way out) Electoral corruption means peoples wishes are not heeded Corruption leads to an unfair allocation of resources – contracts don’t go to most efficient bidder Corruption Bribes increase the costs of business leading to higher prices Corruption reduces trust in an economy – hard to attract FDI Increased risk that contracts are not honoured - leads to lack of investment Officials divert funds to projects that are not in the public interest Officials turn a blind eye to regulations – don’t care about environment Funds leave the country – capital flight Constant paying of small bribes reduces economic well being of ordinary citizens

No way to uphold property rights and so removes the  Right to own assets  Right to benefit from assets e.g. rent  Right to sell assets  Right to exclude others from using or taking over assets Investment and growth will be reduced and so economic growth and development will be limited (With no property rights there is no incentive to improve that property) Legal system

Most developing countries have dual financial markets and so removes the  Official (big banks that finance established large businesses)  Unofficial (illegal who lend to those that are desperate) Savings are needed for investment but saving is hard when there is poverty and no where safe to save that will give a good return People will buy assets such as livestock or send their money abroad Financial System In developing countries poor people find it almost impossible to access traditional banking systems  No collateral  Often unemployed  Lack savings Even if there is entrepreneurial spirit they cannot borrow to start up Micro-Finance may be the answer Micro finance videos Insert links

Very difficult for governments to collect 3% in developing countries 60-80% in developed countries There is little corporate activity Often low tax incentives to encourage FDI Taxation Main source is exports, imports and customs duties – country needs to be heavily involved in foreign trade Being part of the WTO reduces tariffs Large informal markets in developing countries If incomes are not recorded how can you collect tax? Problems with administration – inefficiency, lack of information and corruption If a government finds it difficult to collect taxes it will have less to spend on growth and development objectives

Technology needs to be appropriate for large labour surplus Cheap to make and needs labour Provides greater employment than automated systems Appropriate Technology Universal nut sheller – turned by hand and is used to shell nuts Solar cooker for consumers – aids development because  it doesn’t need wood  no loss of trees  Don’t need to look for fire wood – more time for other activities (improves the position of the woman)

Well being of families is improved Better informed about health care, hygiene and diet Healthier children lead to healthier adults and a better future workforce Empowerment of Women Increasing income levels for women – leads to increases in family welfare (more than an increase in men’s incomes) The education of the children in the family group improves –  pass on their own education  Value education  Educated children have better life opportunities  Leads to a better quality future workforce More control over contraception, marry later and have smaller families – lowers population growth

Low levels of income leads to low levels of savings leads to low levels of investment leads to low growth Income Distribution The rich dominate politics  policies favour the well off  No pro-poor growth  No agreed measures of poverty The rich consumer foreign goods – does not help domestic economy Capital flight – rich send their money abroad Income inequality leads to both poor growth and poor development

Using examples wherever possible, explain how each of the following can contribute to economic development 1.Education 2.Property Rights 3.The use of appropriate technology 4.Access to Credit 5.Women’s empowerment