Economic Development - Notes

Factors that determine the level of economic development:

1. Quality & quantity of Factors of Production
   
   
   
   1. Capital
   
   
   2. Entrepreneurship – Singapore devoid of many natural resources but became a logistics hub
   
   
   3. Land – Malaysian rubber trees; Singapore’s natural harbour
   
   
   4. Labour – China (emerged into the global economy because of its huge supply of cheap labour that developed into a manufacturing hub)
   
   
   5. Government decisions & governance
      
      
      
      1. Corruption – hinders economic activity and growth
      
      
      2. Gangs & unrest – decreases economic activity (e.g. Nigeria gangs in Lohas create a protection racket under the pretence of ‘labour unions’ to extort money from bike-taxis, roadside traders…)
      
      
      3. Not clearly defined property rights & legislation
      
      
      
      
   
   
   
   

- (a.), (b.) and (c.) create allocative inefficiency which is very bad for developing countries as it disrupts the market, decreases economic activity and creates deadweight loss. [Graph]

1. Infrastructure


2. Strength of institution
   
   
   
   1. Legal system; Established property rights – greater incentive to set up businesses
   
   
   2. Politics (e.g. emerging economies: India’s democratic (short-term policies) vs China’s communist party (increased political stability; allows more time for policies to be seen through and long-term aims to be made))
   
   
   3. Natural factors
   
   
   
   

Sources of economic development:

• Land quality

- Better planning for land use; fertilization/ irrigation of the area for primary industries

• Land quantity

- Land reclamation (Singapore); build upwards (Hong Kong)

• Resources

- E.g. Natural harbor – Singapore; Oil discovery – Dubai, Brazil; Gold deposits – South Africa

1. Human factors

• Quantity of human capital

- Baby boom; Immigration

• Quality of human capital

- Education/ training; health awareness/ promotion; attract skilled migrants

1. Physical capital & technology

• Build more infrastructure (e.g. schools, hospitals, roads, housing)


• Invest more in capital such as machinery, factories etc.


• Promote saving & investment (e.g. by offering government assistance; loans; grants; subsidies; lowering interest rates)

Capital widening: More people have access to capital – Ratio of capital: per worker doesn’t change.

Capital deepening: Each worker has access to more capital.

1. Institutional factors

• Adequate banking system

- Money stays in the country, which allows banks to provide loans to firms and start-up companies, which drives investment (unlike Nigeria where all money earned is sent abroad to safeguard its value)

• Structure of legal system with established property rights

- Encourages entrepreneurship and businesses to start-up

• Reliable infrastructure

- Most importantly telecommunications and the internet – needed for most business transactions nowadays

- Transport networks – mobility of labour, raw materials, capital… etc.

• Education system


• Political stability

- E.g. China (stable, one party rule – allows the government to make long-term goals and plans for sustainable development of the country )vs India (democratic leadership – where politicians focus more on getting re-elected and tend to implement short-term policies)