Aid. Aid is the voluntary transfer of resources from one country to another. A donor country gives a recipient country aid. Aid could be a grant or a loan on concessionary terms. Aid could be tied or untied. Aid could be bilateral or multilateral. Capital Flight....
A country could invest in its tourist sector to develop its economy.
Fair trade guarantees that farmers receive a fair price, that is, a price that is above market equilibrium. Farmers must meet certain conditions like not using child labour and avoiding environmental degradation.
Both the International Monetary Fund (IMF) and World Bank (a.k.a. the International Bank for Reconstruction and Development – IBRD) were created in 1944 in Bretton Woods to aid world macroeconomic stability and economic growth. Since 1944, the roles of the IMF and...
Microfinance is the provision of micro-credit (small loans) to the extremely poor in LDCs. Maybe banks do not exist, asymmetric information means banks do not want to lend money, the poor have no collateral or loan sharks operate in informal markets. The poor do not...
Aid is the voluntary transfer of resources from one country to another. A donor country gives a recipient country aid. Aid could be a grant, so the recipient does not repay it. Aid could also be a loan on concessionary terms, that is, at less than the...
A country’s foreign debt could be cancelled to help it develop. The Jubilee 2000 movement push for debt reduction or cancellation for LDCs.
A multinational company (MNC) is a firm operating in more than one country. MNCs aim to produce internationally to make more profit, enter new markets, exploit economies of scale, attack foreign firms in overseas markets, access cheap resources/labour, receive tax...
Maybe the most important factor in the development of an LDC is investment in human capital. Human capital includes the education, skills and health of workers. An improvement in human capital directly impacts on development as it affects the income, health, living...
Begin with a dual sector economy with a rural traditional subsistence sector and an urban modern capitalist sector. Assume for simplicity that the subsistence sector is the agriculture sector and the capitalist sector is the industrial sector. The Lewis model posits...
LDCs mostly specialize in producing and exporting primary commodities (because this is their comparative advantage), but this may cause declining terms of trade (ToT). The ToT are the price of a county’s exports relative to the price of its imports: Recent empirical...
An LDC has many routes to help itself grow and develop including: - Harrod-Domar model. - Lewis model. - Human capital investment. - Multinational companies. - Aid. - Debt relief. - International Monetary Fund and World Bank. - Microfinance. - Tourism. - Fair...
Assuming savings equals investment, economic growth will increase if the economy raises its rate of saving. If people save more, banks have more money to lend, firms can borrow more so investment increases. An LDC government could develop its financial and legal...
Human capital includes the education, skills and health of workers. An economy with poor human capital will likely suffer lower economic growth and development because: 1) Low Labour Productivity. A low level of education means workers have limited skills and, due to...
An economy’s infrastructure includes roads, railways, ports, utilities (electricity, water and gas) and telecommunications. A poor infrastructure harms development because: 1) Lower Productivity. As the quality of an economy’s roads, railways, airports and ports...
An LDC in a state of civil war will remain poor because: 1) Social Capital. Social capital is damaged because a civil war means the LDC’s citizens are fighting, they do not trust each other and there is social fragmentation. 2) Physical Capital. Physical capital is...
Corruption is the abuse of public power for private gain. Corruption acts as a major constraint on development because: 1) Resources Allocated Inefficiently. A corrupt government will accept bribes from the rich elite and thus make decisions that benefit themselves...
LDCs may not have enough foreign currency reserves to grow and develop, that is, they suffer from a foreign exchange gap. Maybe export revenues are low because of declining terms of trade, debt servicing or capital flight. A foreign exchange gap constrains development...
Capital flight occurs when investors lose confidence in an economy so domestic and/or foreign agents rapidly pull their money out of the economy. The economy suffers a rapid, dramatic and large outflow of capital. Maybe investors believe the economy will suffer lower...
An economy’s development may be restricted by an unsustainable amount of foreign debt because: 1) Opportunity Cost. A large foreign debt in terms of GDP means the country must pay a high rate of interest (debt service), so funds are diverted away from spending on the...
Primary commodities include wheat, sugar cane, cocoa and bananas. LDCs that are dependent on producing and exporting primary commodities encounter many problems: 1) Lower Revenue. As primary commodities have an inelastic price elasticity of supply, a demand shock...
Most LDCs’ birth rates are significantly higher than their death rates, so their population growth is rapid. A high population growth has many negative impacts on economic development: 1) Food Shortages. Malthus posits that food supply only increases arithmetically...
Development economics studies how economies develop from less developed countries (LDCs) to high income countries (HICs). Across the planet there are developed and developing countries. HICs are typically characterized by high GDP per capita, high living standards and...
Many factors constrain the economic growth and development of LDCs including: - Poverty cycle. - Population. - Poor human capital. - Poor infrastructure. - Civil war. - Corruption. - Foreign exchange gap. - Foreign debt. - Capital flight. - Primary product dependency....