The role of domestic factors

These include:
The role of appropriate technology
Banking, credit and micro-finance
The empowerment of women
Income distribution
Infrastructure
Education and health - human capital plays a very important role in economic
growth:
there is a general view around the world that education and health are
fundamental human rights
education and health are merit goods with positive externalities
Elementary education and universal literacy contributes towards a countrys
economic growth
There is therefore strong arguments in favour of governments intervening to
provide education and health care services

The role of appropriate technology AT

AT are technologies that are well-suited to particular economic, geographical,
ecological and climate conditions.
Labour - developing countries have relatively large quantities of labour while
physical capital is scarce and costly to acquire therefore these countries
have different needs in terms of kinds of capital goods and technology that
make use of their abundant labour and that are relatively simple to produce,
maintain and operate.
Capital - replacing people in developing countries with capital equipment
results in higher unemployment plus they may not not how to use the
equipment properly and may not be able to afford to maintain it (or there
may be erratic electricity supplies for running capital equipment)
Climate - many technologies developed in rich countries are inappropriate
for developing countries due to differing climatic, geographic and ecological
conditions

Banking, credit and microcredit

Banking services and credit are very important to economic growth and
development in the following ways:
they provide an incentive for people to save because they offer a return
(interest) on their savings
they provide businesses and farmers with credit to open, run and expand
their businesses/farms
they provide consumers with credit that can be used for investments in
human capital (education and training)
access to credit can help to alleviate poverty as it is the only way poor
people can get themselves out of the poverty trap
These are small loans to people who do not ordinarily have access to credit.
Micro-credit schemes may become a substitute for urgently needed
government anti-poverty policies
Micro-credit schemes contribute to the growth of the informal sector
Some extremely poor and highly unskilled people may be harmed by microcredit because they dont have the necessary skills to establish businesses
Interest rates in micro-credit schemes can be very high

Empowerment of women
Many countries have serious gender inequalities between men and women
(girls and boys) in terms of control of resources and access to opportunities these are the result of discrimination against girls and women. Some of the
consequences of this are:
women and girls face higher mortality (death) rates than men and boys
girls do not get the same opportunities to access education and health as
boys do
lower levels of education and skills mean many women cannot access jobs
requiring skills
inequalities in inheritance rights means that property usually passes on to
men
women face restrictions in accessing credit as they do not have any
collateral (property) to use for loans
womens incomes are on average substantially lower than mens, due to
lower levels of education and skills and discrimination against women in the
workplace
Positive externalities of empowering women include:

 improvements in child health and nutrition and lower child mortality

improvements in educational achievement of children
quality of human resources improves if women have increased education
and health as they lead to more educated and healthy children
lower fertility (birth) rates as women will be able to work outside the home
and earn incomes which means they would probably marry later and have
less children (as seen in the developed world)

Income distribution and economic growth

Economists agree that highly unequal distributions of income are a barrier to
growth and development because
they lead to lower overall savings as it is the middle classes that save the
most (not the most wealthy or the poorest)
the poor are unable to access credit as they have no collateral
high income inequalities means that there is less demand for locally
produced goods as rich people prefer to buy imports
if the wealth is concentrated in the hands of a few then they will control
policies on growth and development which could favour the wealthy rather
than the poor
highly unequal income distributions could lead to political instability due to
social dissatisfaction and unrest
Infrastructure (power, water, telecommunications, roads, dams, transport etc)
Infrastructure development represents 20% of total investments in
developing countries.
it helps with increasing productivity and lower costs of production as good
roads, railways etc saves time and effort in transporting goods and services
availability of infrastructure facilitates modernisation and diversification of
the economy and provides essential services for maintaining a basic
standard of living (water, sanitation, sewerage systems)
transport systems promote health and education as people from remote
areas are able to access them
easy access to water means that women and children dont have to spend a
lot of time fetching water from rivers/streams etc
access to electricity results in less pollution from burning wood and less
environmental damage from chopping trees down
Most developing countries are performing very badly with infrastructure
development for a number of reasons:

 problems with financing as many poor countries have to provide the

services below cost to ensure everyone has access
inadequate maintenance and poor quality due to lack of revenues
limited access to the poor due to lack of revenue which means services
cannot be provided in slum areas or very remote areas
misallocation of resources - spending money on resources that are not being
fully utilised
neglect of the environment - badly built or badly designed irrigation, roads,
dams etc

The role of international trade barriers

These include:
Over-specialisation
Price volatility of primary products
Inability to access international markets: trade protection
Over-specialisation
Developing countries, especially the lower-income ones, tend to specialise in
the production and export of only a few goods - usually primary commodities
(eg. bananas, soy, coffee, tobacco etc).
Commodity products that are exported are subject to fluctuating world
prices that developing countries have no control over
Countries that specialise in primary products are missing out on addingvalue to goods through production which means that they arent able to
charge higher prices for value-added products
The ability to add value to products creates job opportunities and provides
workers with new skills and firms with new technology
Price volatility of primary products
Prices of primary products fluctuate more than prices of manufactured
products because they have low PEDs and PESs.
As prices fluctuate, so do farmers incomes, along with agricultural
investment, employment and wages of agricultural workers
When the product is also exported, fluctuating export prices affect the
countrys earnings and balance of payments and hence their ability to
import

Inability to access international markets: trade protection

Developed countries impose higher tariffs (taxes) on imports from
developing countries than on imports from each other
Developed countries use tariff barriers to discourage the development of
manufacturing and diversification into higher value-added activities through
charging higher tariffs on manufactured goods than they do on primary raw
materials
Developing countries impose high tariff barriers on trade with each other,
sometimes even higher than those imposed by developed countries
Agricultural trade and rich country subsidies means that developing
countries are unable to export their products to those countries as they cant
compete with the subsidised prices

Negative consequences of subsidies in developed countries

The EU and the USA subsidise their farmers (either pay them money to grow
their crops or set minimum prices for their crops). This results in:
a global misallocation of resources
global inefficiency
lower export earnings for developing countries
increased poverty among affected farmers
Other non-tariff barriers
These include:
technical regulations
testing and certification
labelling and packaging requirements
customs and administrative procedures
sanitary measures including food safety and quality standards
Many developing countries find it difficult to comply with these standards and
so are unable to export their products to the countries setting these standards.
Trade strategies for economic growth and development
These include:
Import substitution - a growth and trade strategy where a country begins to
manufacture simple consumer goods for the domestic market. This is

known as industrialisation (moving from mainly primary industries to

secondary industries).
Export promotion - a growth and trade strategy where a country attempts to
achieve economic growth by expanding its exports
Trade liberalisation - the elimination of trade barriers to achieve free trade