Growth and Development: Barriers and Strategies in Poorer Economies
Economic growth (a rise in real output) is distinct from economic development, a broader improvement in living standards that includes health, education and the reduction of poverty, commonly measured using the Human Development Index (HDI), which combines income, health and education indicators.
Before you start
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Method
- Distinguish economic growth (a rise in real output or GDP) from economic development (a broader improvement in living standards, incorporating health, education and poverty reduction, often measured by the Human Development Index).
- Identify the barrier or barriers named in the question and explain the mechanism by which each restricts growth or development, for example primary product dependency, where volatile world commodity prices cause unstable export revenue and government tax revenue, discouraging investment.
- Explain the savings and capital gap: low average incomes leave little surplus for domestic saving, so funds available for investment in infrastructure and capital are scarce, restricting the growth of the capital stock and, in turn, future output.
- Identify the strategy or strategies used to address the named barrier(s), for example attracting FDI or aid to fill a savings or foreign currency gap, debt relief to free up government revenue for public spending, or microfinance to build capital from the bottom up.
- Distinguish market-led (top-down) strategies, such as trade liberalisation, privatisation and attracting FDI, from interventionist (bottom-up) strategies, such as aid, debt relief, microfinance and government-led infrastructure investment.
- Evaluate by considering whether the strategy suits the specific barrier and country context, the risk of dependency (on aid, or on a single volatile export commodity), the time lag before the strategy shows results, and the trade-off between growth (which can be narrowly concentrated) and broad-based development (which requires the gains from growth to reach health, education and poverty reduction).
Worked example
A developing country earns 70% of its export revenue from coffee. In Year 1, it exports 200,000 tonnes at a world price of 3,000 pounds per tonne. In Year 2, a poor harvest elsewhere pushes the world price up to 4,500 pounds per tonne, but a poor domestic harvest cuts this country's own export volume to 120,000 tonnes. Calculate the change in this country's coffee export revenue between the two years, and explain why this illustrates a barrier to development.
- Calculate Year 1 coffee export revenue: 200,000 x 3,000 = 600,000,000 pounds (600 million).
- Calculate Year 2 coffee export revenue: 120,000 x 4,500 = 540,000,000 pounds (540 million).
- Calculate the change: 540,000,000 - 600,000,000 = -60,000,000 pounds, a fall of 60 million.
- Calculate the percentage change: 60,000,000 / 600,000,000 x 100 = 10% fall.
- Explain the development barrier: despite a large rise in the world price, a domestic harvest shock still cut this country's total export revenue, illustrating how heavy reliance on one volatile primary commodity export makes government and export revenue unpredictable, a classic barrier to sustained development, since it makes it hard to plan long-term spending on health, education or infrastructure.
Practice questions
Try each question, then tap to reveal the answer.
Q1Define economic development.Show answer
Answer: A broad improvement in living standards, including health, education and the reduction of poverty, not just a rise in real output.
Q2Name the three components combined in the Human Development Index (HDI).Show answer
Answer: Life expectancy (health), education, and income (GNI per capita).
Q3Give one barrier to growth and development commonly found in low-income countries.Show answer
Answer: For example, primary product dependency, a savings and capital gap, weak infrastructure, low levels of education, or a heavy external debt burden.
Q4Give one strategy used to address a lack of domestic savings for investment.Show answer
Answer: Attracting foreign direct investment (FDI), or receiving foreign aid, to supply funds for investment that domestic saving cannot provide.
Q5A country's coffee export revenue falls from 500 million pounds to 400 million pounds. Calculate the percentage fall.Show answer
Answer: (500 - 400) / 500 x 100 = 20% fall.
Q6Explain in one sentence why microfinance is described as a 'bottom-up' development strategy.Show answer
Answer: It provides small loans directly to individuals or small businesses at the local level, rather than being channelled through large, top-down, government-led projects.
Q7Distinguish import substitution industrialisation from export-oriented industrialisation.Show answer
Answer: Import substitution industrialisation protects and builds domestic industries to replace imports, often behind trade barriers, while export-oriented industrialisation builds industries specifically to compete in and sell to foreign markets.
Exam-style questions
Written in the style of a A Level Economics exam paper, with a full mark scheme.
Explain two barriers to economic growth and development commonly faced by low-income countries.
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Evaluate the view that attracting foreign direct investment (FDI) is the most effective strategy for promoting growth and development in a low-income country.
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See real A Level Economics past-paper questions, with official mark schemes →
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