Revision:Limits to growth and development

Primary product dependency

• Comparative advantage – means exports one g/s, imports everything else, so very dependent on one commodity, e.g. Zambia almost 100% dependent on copper. A natural disaster could ruin whole crop, e.g. earthquake ruined much of Chilean wine industry.

• Structural distortion Developed countries pose further problems as they will only import raw materials, and choose to manufacture these themselves. E.g., CAP mean dumping and developing countries cannot compete. Therefore; developing countries cannot process them (e.g. value added) and move into secondary sector. They lose the job chain that would normally result. Primary sector is not very productive (Lewis model).

• Prebisch-Singer Hypothesis the terms of trade between primary products and manufactured goods tend to deteriorate over time because as world incomes rise we tend to demand more manufactured goods, than say, food.

• Price fluctuations deter investment and mean farmers cannot invest and plan for the future, to get the best of their harvest. Very inelastic supply and demand curves mean that prices are very volatile

• Capital-intensive farming – this is to provide for the world market, often by MNCs. Export prices rise so locals cannot afford food, leading to unemployment, exaggerated urbanisation and falling living standards. Should enforce redistribution of land, and encourage labour intensive farming to make distribution of income equal.

Lack of infrastructure – transport, telecommunications, energy, water and waste. Therefore difficult to attract FDI; this presents an obstacle to development. Jeffrey Sachs says landlocked countries e.g. S-S Africa at a disadvantage, e.g. high in mountains, lack of navigable rivers. Means harder to trade and CoP much higher. Transport is 14% of exports in landlocked countries.

Savings gap –Already in a poverty trap, low GDP per capita means little saving by individuals– Harrod-Domar suggests this means they cannot invest, preventing economic growth from occurring.

Corruption and war – bribery, extortion, diversion of resources by government – this is an inefficient allocation of resources and restrains development. Government officials embezzle money rather than spend it on public services or investment. This will deter aid. Civil war means government resources are diverted towards arms, e.g. Sudan and DRC, disrupting growth and development, destroying infrastructure and people. War and corruption also deter investment.

Population growth - rapid population growth in poorest countries e.g. Malawi. This means income per capita falls. Malthus said at the end of the 18th C that famine was inevitable because population would increase geometrically, but food production could only increase arithmetically. However, since then technology has disproved this. Poorer countries have high birth rates and slowing death rates.

HIV/AIDS – Reduced working population – the working population suffer, so there is a loss of highly skilled workers. Zambia now loses 2/3 of teachers to AIDS. In Swaziland, life expectancy is just 31. Productivity declines because of illness, tax revenue to government falls. Labour becomes more expensive, so higher CoP, and can attract less FDI. Sub-Saharan Africa has 2/3 of the world’s AIDS sufferers. Resources diverted from growth to treating AIDS.

Education - a huge investment in human capital through education has allowed China to shift out its PPF. Countries with little education investment and low school enrolment are likely to have low productivity and little economic growth. It will mean more FDI in the future as firms will not have to train workers.

Debt servicing - LEDCs borrowed in 1980s. Since then, fall in value of their currency, compared to $, so have to pay back more; oil prices have increased.

Capital flight – companies and individuals place cash, buy shares and assets abroad, contributing to savings gap, and reduces tax to government.