1. Economic Growth and Development
The Ultimate End-Game of Economic Analysis

2. A Few Warm Up Questions What is “Development?”
What is the difference between economic growth and development?
What does it mean for a country to be “developing?”
What factors (economic, political, cultural, social) are necessary for development to occur?
Is promoting the growth and development of LDCs in the best interest of more developed countries?

3. The Wealth (and Welfare) Gap
The 80/20 rule does apply …
The richest 20% of the world’s population receives more than 80% of the world’s income
At the other end of the spectrum …
The poorest 60% receives less than 6% of the world’s income

4. A Few Other Comparisons
The GDP of the U.S. is about 70% greater than the combined GDPs of all the developing countries in the world.
The U.S.(with only 5% of the world’s population) accounts for more than 30% of the world’s output.

5. Defining the Challenge
So, just how big is the global development challenge?
Let’s take a look …

6. Obstacles to (and Sources of) Economic Development
Natural resources
Human resources
Capital formation
Technology
Sociocultural and institutional factors

7. Natural Resources
Availability of natural resources varies widely among LDCs
If available, LDC natural resources are sometimes owned or controlled by foreign MNCs.
Commodity prices subject to price volatility
Without a strong resource base – a tougher road to development

8. Human Resources Overpopulation Un/underemployment
Extremely low per capita income
Relatively high population growth rates
Any increase in income tends to increase population growth rates
Un/underemployment
Low labor productivity (literacy, health care, technology, investment)

9. Capital Formation
Capital investment drives increases in labor productivity and per capita output.
If output rises faster than population growth, savings may enable additional capital formation.
But, generating savings is extremely difficult when income levels are so low.

10. Capital Formation
Relatively high level of investment risk in LDCs acts as a disincentive for investment
Political risk
Currency devaluation
Poor public infrastructure

11. Technology Linked to capital investment
Helps drive increases in productivity
Ability to borrow technology from more advanced countries
Lack of skilled labor and existing capital base can limit application of new technology

12. Sociocultural Obstacles
Culture, tradition and custom
Tribal allegiances and animosity
Views regarding work and individual achievement

13. Institutional Obstacles
Corruption and bribery
Education systems
Land ownership (too concentrated or too fractured)

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

15. How Can More Developed Nations Help?
Expanding trade
Foreign aid (worth a separate discussion)
Flows of private capital
Direct foreign investment
Technology often moves with capital
Selective regional focus