Barriers to Growth and/or
Economic Development
Poverty Trap/Cycle
• A poverty trap refers to a vicious cycle of poverty and
deprivation which leads to a greater poverty from one
generation to another.
• A poverty trap is created due to a mix of factors, such as access
to education and healthcare, working together to keep an
individual or family in poverty.
Poverty Cycle
In a virtuous cycle, higher
incomes will lead to higher
savings and demand,
enabling and encouraging
more investment, raising
productivity and thus
increasing income.
Source:
http://www.sanandres.esc.edu.ar/secondary/economics%20packs/development
_economics/page_32.htm
Real World
Example Poverty
Dimensions of
Poverty
Health
Education
Standard of living
• Global Multidimensional
Poverty Index
Indicator
Deprived if living in the household where…
Weight
Nutrition
Any adult under 70 years of age or any child for whom there is nutritional
information is undernourished.1
1/6
Child mortality
Any child under the age of 18 years has died in the family in the five-year
period preceding the survey.2,3
1/6
Years of
schooling
No household member aged ‘school entrance age + six4 years or older has
1/6
completed at least six years of schooling.
School
attendance
Any school-aged child is not attending school up to the age at which
he/she would complete class eight.5
1/6
Cooking Fuel
The household cooks with dung, wood, charcoal or coal.
1/18
Sanitation
The household’s sanitation facility is not improved (according to SDG
guidelines) or it is improved but shared with other households.6
1/18
Drinking Water
The household does not have access to improved drinking water
(according to SDG guidelines) or improved drinking water is at least a 30- 1/18
minute walk from home, round trip.7
Electricity
The household has no electricity.8
Housing
At least one of the three housing materials for roof, walls and floor are
inadequate: the floor is of natural materials and/or the roof and/or walls are 1/18
of natural or rudimentary materials.9
Assets
The household does not own more than one of these assets: radio,
television, telephone, computer, animal cart, bicycle, motorbike or
refrigerator, and does not own a car or truck.10
1/18
1
Poverty Trap/Cycle
University of Florida in Gainesville, collected both economic and
disease data from 83 of the most and least developed countries, found
that the root causes of poverty trap was disease.
What do you think of this finding?
The End of Poverty
• Noted economist Jeffrey Sachs has made the case that public
and private investments need to work in concert to eradicate the
poverty trap.
• Sachs proposes that, just like any other start-up, developing
nations should receive the full amount of aid necessary for them
to begin to reverse the poverty trap.
Link to TOK:
Do the developed/developing countries have any moral obligation to help
the Least Developed Countries?
Barriers to Economic Growth and
Development
• Rising economic inequality
• Lack of access to infrastructure and appropriate technology
• Low levels of human capital (lack of access to infrastructure and education)
• Dependence on primary sector production
• Lack of access to international markets
• Informal economy
• Capital flight
• Indebtedness
• Geography
• Tropical climates and endemic diseases.
Rising Economic Inequality
World Inequality Report explains that while over the last two decades
global inequalities between countries have declined, income inequality
has increased within most countries. The average income gap between
the top 10% and bottom 50% of individuals within countries has almost
doubled across that time period
Lack of access to infrastructure and
appropriate technology
Impact of greater access to infrastructure and
appropriate technology on productive
capacity of the economy
Low levels of human capital
(lack of access to infrastructure and
education)
• Education and health are important aspects of the United Nations
Sustainable Development Goals.
• Standard of healthcare and education will determine the quality of
labour. Thus, investments in education and healthcare will shift the
Long Run Aggregate Supply of a country to the right, ceteris paribus.
Dependence on primary sector
production
There are several problems involved in being too dependent on
primary sector production:
• Most of the resources used in the primary sector cannot be sustained
for a long time.
• Primary sector output is susceptible to natural disasters, climate
change, and global warming.
• The current account balance of the developing country can vary at an
alarming speed.
Lack of access to international market
As the more developed countries have grown, they have tended to
trade increasingly with one another, rather than with the poorer
countries.
Informal economy
In the developing world, much of the economic activity takes place in
informal markets. No money is exchanged, and economic activity goes
unrecorded.
Capital Flight
The main reasons for capital flight:
• Political turmoil
• Social unrest and civil conflict
• Economic instability
Indebtedness
Debt-to-GDP is expressed as a
percentage. GDP is a county’s annual
income, and it is usually expected that
the debt of a nation should be less than
100 percent of that GDP figure.
Geography and Climate
Gallup, et al (1999) found that identify geographical regions that
are not conducive to modern economic growth:
• High population density
• Rapid population increase
Institutional & Political Factors
Many developing countries have a poor institutional framework. They may face a range
of barriers to growth. These may include:
• Ineffective taxation structure - may be in the forms of physical problems (e.g.,
accessing the communities in rural areas) or data information problems (e.g., poor
records of the population). This makes it very difficult to collect tax revenue and low
tax revenue makes it difficult to develop the required institutions.
• Lack of property rights - This can prevent economic development which is often
based on ownership of the factors of production so that they can be traded.
Institutional & Political Factors
Many developing countries have a poor institutional framework. They may face a range
of barriers to growth. These may include:
• Political instability
• Corruption
• Unequal political power and status