UNIT THREE

DEVELOPMENT PROBLEMS AND

FACTORS AFFECTING DEVELOPMENT
 INTRODUCTION
• Development problems are the barriers or challenges that hinder
the economic, social, and environmental progress within a country
or community.
• These problems prevent a nation from achieving sustainable
growth, improving people’s living standards, and ensuring
equitable distribution of resources. The most common economic
problems are poverty, inequality, unemployment and
underemployment, inflation and etc
• Development is influenced by a combination of economic, social,
political, cultural, and environmental factors. These factors
determine how fast or slow a country or a region can grow and
improve people’s living standards.
• This chapter deals with economic development problems and
economic and non economic factors that affect development.
 3.1 Development Problems
• Development Problems are issues that hinder a society’s ability to
improve living standards, provides social services, create jobs and
reduce poverty .
• There are many development barriers which are hindering
development progress across the world specially in LDCs.
• The most common economic development problems are:
– Poverty
– Inequality
– Unemployment and underemployment
– Inflation
 3.1.1 Poverty
Poverty Definitions and Measurements
Poverty is defined from different approaches
1. Income Poverty approach
 Poverty is having income or consumption below a certain standard,
usually known as poverty line.
• Absolute definitions of poverty are based on income (or
consumption) in relation to a specific living standard or minimum
income level (poverty line) deemed necessary to meet basic needs.
2. Basic Needs approach
• Basic needs are defined as minimum quantities of such things as
food, clothing, shelter, water and sanitation, access to basic
education and health services and security to prevent ill health,
undernourishment, or under and unemployment
• The deprivation of these basic needs are considered as the
poverty.
• The national poverty lines based on the cost of basic needs (CBN)
approach is used to measure the poverty rate.
 Types of Poverty (Relative pov and Absolute pov)
1. Relative poverty
Poverty is a state of having welfare level (income or
expenditures) less than others.
Thus, relatively poor are those whose incomes are low compared
to others even if they secure adequate level of survival. So
relative poverty is a global phenomena found in every
community and every nation reflecting the existence of
inequalities
It is recognized as a problem when the difference between the
richest and the poorest is intolerable.
Relative poverty is occurred when households receive 50%
less than average household incomes, so they do have some
money but still not enough money to afford anything above
the basic need.
 Relative poverty…
• This type of poverty is, on the other hand, changeable depending
on the economic growth of the country.
– Relative poverty is sometimes described as “relative
deficiency” because the people falling under this category are
not living in total poverty, but they are not enjoying the same
standard of life as everyone else in the country
– Relative poverty can also be permanent, meaning that certain
families have absolutely no chance of enjoying the same
standards of living as other people in the same society
currently have access to. They are basically “trapped” in a low
relative income box
• Measuring relative poverty involves separating the population in
to various income categories and then subjectively labeling the
lowest percentage of the population as the poor (households
receive 50% less than average household incomes).
 Assume there are 10 HHs with average income of 300,
250, 150 600, 700, 200, 500, 100, 800, 400
 To determine relative poverty line,
– first find median by arranging these data from the
lowest to the largest as 100, 150, 200, 250, 300,400,
500, 600, 700 , 800
300+400
– Then calculate Median= = 350 ( average HHs
2
incomes)
– Relative poverty= 50% of median= 0.5* 350=175
– From the above data 100 and 150 are households
receive 50% less than average household incomes
2
– Relative poverty rate= = *100 = 20%
10
 Measuring relative poverty has some weaknesses:
 It lacks clarity whether it is an indicator of poverty.
 It is entirely dependent on value judgments/subjectivity
 It always assumes a constant percent of the population in the
bottom as poor even if the living standard for the whole
population have improved over time
• 2. Absolute poverty
• Absolute poverty is the inability to secure the minimum basic
needs for human survival.
• Absolute poverty is measured by defining a poverty line.
 A Poverty Line is a minimum level of income, consumption or
access to goods and services necessary for an individual
survival. So those who don’t have these are said to be living
below the poverty line
 Absolute Poverty…
• There are many common ways of defining poverty line.
 a. Direct calorie(unit of food energy) intake method which
defines poverty as consumption below the minimum calorie
intake/below requirement. However, this method doesn’t take into
account non-food requirements and cost of getting the basic
caloric requirement.
 So measuring poverty line by calorie intake is unlikely to reveal
the extent of impoverishment
 b. Basic needs methods is the most commonly used method.
– It involves basic necessities like the prices of food stuffs containing
minimum nutrient level, costs of clothing and shelter (non-food
requirements). Basic Need Method is expressed as
Z = Cf + Cnf, where Z is poverty line
Cf is the minimum cost of food items
Cnf is minimum cost of non- food items
 Absolute Poverty…
• Absolute poverty line is a minimum income ( for food and non food
in this case) required to meet basic needs

• For example , assume minimum cost of food item is 1400 per

month by local currency and minimum cost of non- food is 1300per
month by local currency in the hypothetical country. Calculate
poverty line (Z)
• Z = Cf + Cnf
=1300+1400= 2700,
• Thus Poverty line is 2700.
• So the HH that receive below 2700 in this country are considered as
they are in absolute poverty.
 Absolute Poverty…
• After poverty line is determined Poverty headcount ratio is
calculated to determine % of people earning less than poverty
line

• By considering 2700 as the poverty line calculate poverty

headcount ratio, if 6 million people out of 20 million get
below 2700 birr/ month.
𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝 𝑖𝑖𝑖𝑖 𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝 𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙
• headcount ratio= x 100
𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝
6000000
= x 100 = 60/2 = 30%
20000000
• This implies 30% of total popn in that country is in absolute
 The causes of poverty
It is divided into two parts. These are
i. the structural causes
ii. the behavioral or cultural causes
 Structural Causes of Poverty
 Structural causes of poverty are systemic or institutional factors
within economy, society, or political system that create or
maintain inequality (external causes). According to the view of
structural cause, poverty is existed as a result of factors rooted in
structure such as
 racial and gender discrimination in markets and institutions;
 the profit motive and consequent low wages; and
 the failure to invest sufficiently in education, health care, and
social insurance (unequal access to resources, education, or
employment). All of these factors reduce opportunity and increase
economic insecurity
 Examples
 Economic inequality, unemployment, poor education system,
 land ownership pattern (feudalism), political instability and
corruption,
 discrimination and social exclusion, global unequal trade relation
 Behavioral or Cultural Causes of Poverty
 Behavioral or cultural causes of poverty are related to attitudes,
values, and behaviors of individual or communities that limit their
participation in economic and social activities (internal causes).
 Poverty results from of individual or community attitudes and
habits that limit economic advancement
 Main features of behavioral or cultural causes of poverty
 Focuses on personal or group behavior and cultural pattern
 Suggests poverty can be reinforced by habits or mindsets passed from
one generation to another.
 Examples of behavioral or cultural causes of poverty
 Lack of motivation or work ethic, low value placed on education,
early marriage, dependency culture on aid or gov’t support, resistance
to change ( fear of new ideas and technology), and social habits like
drug abuse, alcoholism can keep individuals or community trapped in
poverty
 Challenges of Poverty Reduction
• Challenges of poverty reduction refers to various obstacles and factors
that hinder efforts to decrease the number of people living in poverty
and improve their living standard. Here are some of them are
– Unemployment and underemployment– lead to low and irregular income
– Low education and skill levels- keeps people trapped in low paying work
– Inequality- economic, gender, and regional inequalities prevent access
to opportunities and resource
– Political instability and conflict- wars and insecurity destroy
livelihoods and discourage investment.
– Climate Extremes
– Poverty and Environmental degradation (Poverty-env’t nexus)
– Rapid Population growth in the developing countries (DCs)
• The linkage of poverty with climate extremes, Environmental
degradation and Rapid Population growth are elaborated as follows
 Poverty and Climate Extremes
• Extreme climate refers to the occurrence of an excessive value of
the climatic (weather) elements below or above the normal
thresholds over a specific geographic area and time (e.g.
excessively low or high temperatures, rainfall, flooding, droughts,
hail storms, heat waves, tornadoes, etc.).
• Extreme climates damage livelihood assets (water, livestock, and
crops) as well as the capacity of people to access financial
resources, and health and education services.
• When the events happen frequently and repeatedly; households
face difficulties in coping with the shocks. In such cases, people
fall into an endless poverty vicious cycle which can be referred
to as a poverty trap – meaning people lack the necessary
resources to escape from poverty. This is because the extreme
climatic shocks cause both ‘ex-post’ and ‘ex-ante’ impacts on the
‘incidence’ of poverty.
 Poverty and Climate extremes…
• Climate extremes and poverty levels have distinct geography.
• the highest levels of extreme poverty prevail
– in SSA, South and Southeast Asia experiencing large annual
temperatures and rainfalls
– in North Africa, South Africa, and the Mediterranean region-
show increasing temperatures but decreasing rainfalls,
– in South and East Asia- increasing annual rainfalls.
• Many of the mentioned regions experience higher poverty levels.
Unlikely the stable annual climates, tropical areas are observed
experiencing the largest comparative extreme climatic changes
and thus identified as climate change ‘hot-spots’
• Recent studies on extreme climate & poverty linkages indicated that:
– Extreme weather accompanying climate change is increasing and
will probably pose more calamities in the 2030s. Similar hazards,
particularly those connected to drought and famine, could be
significant sources of poverty during the mentioned time,
– With no rigorous action, there will be nearly 325 million
exceedingly poor people living in 49 countries greatly vulnerable
to natural hazards and climate extremes in the 2030s (e.g. SSA &
South Asia),
– Disaster risk control should be the basic element of poverty-
lessening efforts. This has to focus also on caring for livelihoods
in addition to saving of lives,
– Future development goals should embrace targets on disasters and
climate change.
• Bangladesh, DRC, Ethiopia, Kenya, Madagascar, Nepal,
Nigeria, Pakistan, South Sudan, Sudan, and Uganda.
– are at most at risk of disaster-induced poverty
• Benin, Central African Republic (CAR), Chad, Gambia,
Guinea Bissau, Haiti, Liberia, Mali, North Korea, and
Zimbabwe). Niger, Somalia, and Yemen
– will have a great percentage of people in poverty, high
multi-hazard exposure, and inadequate capacity to
minimize the impacts
• Afghanistan, Cameroon, Myanmar, and Papua New Guinea
– bear high experience to hazard and moderate poverty (with
nearly10% of their populations and/or one million people
<1.25 USD per day poverty line)and limited disaster
management capacity.
• Poverty and Environmental degradation (Poverty-env’t nexus)
– A set of mutually reinforcing relationships between poverty and
environmental harm has been identified as the poverty-environment
nexus.
– the link between poverty and environmental degradation is
considered a “vicious cycle,” when poverty leads many
impoverished people to overexploit and degrade the resources on
which they rely to exist day to day. This results in environmental
degradation, which exacerbates the scope and depth of poverty.
• In less developed countries, rising poverty leads impoverished
people to overuse and destroy the natural resources on which they
rely to exist day to day. As a result, both the poor and the
environment’s position may deteriorate further.
• To address sustainable development, the optimal balance between
environmental preservation and poverty reduction for the poor’s
benefit as well as long term env’tal sustainability must be achieved.
• Therefore, addressing the issue of poverty requires a good
understating of the interactions of the poor with their environment.
• Poverty-environment mainstreaming, hence aims at achieving the
best balance between environmental preservation and poverty
reduction for the benefit of the poor and long-term environmental
sustainability.
• Poverty and rapid population growth rates in the DCs
– The highest population growth rates in the DCs were
experienced from 1960 to 1990. Yet, population growth rates
have been falling in all countries for the last 20 years.
Nevertheless, the highest population growth is predicted to
happen in the DCs.
– This will probably worsen the poverty levels in those countries.
From the DCs, sub-Saharan Africa (SSA) will face the most
rapid rate of population growth in the coming decades coming.
– Most rapid population increases during the coming decades are
also assumed to occur in urban areas (in cities & towns) of the
DCs. The increased urban population often comes with more
challenges and prospects.
 3.1.2 Inequality
• ’Economic inequality refers to unjust economic variables
distribution among individuals in a group, among groups in a
population, or among countries.
• Economic inequality measures the inequality between a percentage
of population and the percentage of resources (such as income)
received by that population.
• Spatial variation of economic inequality is the differences in the
level of income, wealth, and access to resource across d/t
geographical area- such as b/n countries, regions, cities, or even
neighborhoods within the same city.
– At Global scale- d/ces b/n developed and developing countries. It
reflects historical colonization, trade patterns, and globalization
– At national or regional scale- economic disparities b/n urban and rural
– At local or intra urban scale- income d/ces within a city (wealth
suburbs vs inner city slums). Often related to housing, education, and
job accessibility
 Inequality…
• There are two views about causes of economic inequality
1. Inequality of opportunities is concerned with ensuring a
common starting place. It includes unequal access to
employment or education. For eg
• Unequal access to education and skills
• Gov’t policies that favor certain regions
• Natural resource distribution ( some regions are resource rich)
2. Inequality of outcomes occurs when individuals do not possess
the same level of material wealth or overall living economic
conditions. It is concerned with the finish line
Inequality in the level of income, educational attainment, health
status and so on. For eg
– d/ces in infrastructure and investment
– Historical and colonial legacies influencing development
patterns
 Inequality…
• The available evidence on trends in global economic inequality
comes mainly from two types of studies. Namely:
a) Convergence hypothesis
b) Divergent hypothesis
• Convergence hypothesis (called inter-country inequality ) have been
concerned with empirically testing the catching up .
• This states that economic inequalities b/n regions or countries will
decrease overtime as poorer areas grow faster than more developed
ones.
• Three main arguments have been advanced in support of the
convergence hypothesis.
– 1st poorer economies have greater potential to because they can
simply adopt and exploit existing technologies, skills, and
investment from richer ones (technological transfer mechanism)
 Inequality…
– 2nd diminishing returns to inputs factor. This implies less
developed economies have an advantage of low production cost
because of low labor wage and the price of other factor input.
Capital mobility (mov’t of capital to cheaper labor higher
returns) is the key mechanism
– 3rd , the shift of large amounts of labor from farm to industry
boosts labor productivity (human capital dev’t mechanism by
education and training).
• As less developed nations catch up the income b/n rich and poor
areas narrows- this is known as economic convergence
• Theoretical basis rooted in neoclassical growth theory (Robert
Solow Model)
• Eg some East Asian countries (South Korea and Singapore) have
rapidly caught up wit western economies- showing convergence
 Divergent hypothesis
• Divergent hypothesis argues that economic inequalities tends
to widen over time as richer regions or countries grow faster
than poorer ones. The following are some of the evidences
– Rich have more resources, technology and market access
allowing them to grow faster and exacerbating inequality
– The growing skill premiums are related with expanding
income inequalities in advanced nations, whereas financial
deepening is associated with rising inequality in developing
countries.
• Eg the growing income gap b/n Sub Saharan Africa and
Western Europe illustrates global divergence
• Within countries like Brazil or India wealthy urban centers
(Sao polo, and Mumbai) grow faster than rural areas
 Divergent hypothesis….
• Key Mechanisms of divergent hypothesis
– Cumulative causation (Gunnar Myrdal)- growth attract more
investment and talent , reinforcing regional advantage
– Core periphery model (Friedmann)- the core area develop
rapidly, while peripheral lag behind
– Unequal access education, infrastructure and market limits
growth in poor regions
– Globalization may favor already developed economies
 Spatial extent of economic inequality
• Measures of inequality based on GINI coefficients of gross and net
incomes have increased substantially since 1990 in most of the
developed world.
• Inequality, on average,
– has remained stable in developing countries,
– However, there are large disparities across developing countries,
• Asia and Eastern Europe experiencing marked increases in
inequality, and
• countries in Latin America exhibiting notable declines
• Economic disparity in Africa was quite modest
– wasn't a significant barrier to reducing poverty until recently.
– Mostly because they are all generally impoverished.
– However, inequality in Sub-Saharan Africa was among the
greatest in the world..
 Causes of economic inequality b/n developed and
developing countries
• Economic inequality b/n developed and developing nations was
shaped by global processes such as colonization, trade systems,
industrialization and globalization.
• Colonial exploitation – served economic interest of te colonizers and
led to underdevelopment in colonized nations
• Unequal terms of Trade – caused
– trade imbalance in developing (import exceeds export) because
of dominant agricultural product export
– positive trade balance in developed (export exceeds import)
because of dominant industrial product export
• Slave trade and forced labor- transatlantic slave trade displaced
millions of Africa ( loss of labor), providing free labor plantation in
America and fueling industrial growth in Europe
 Causes of economic inequality b/n developed and developing countries…

• Globalization and uneven integration – uneven benefits and profit

outflow
• Unequal Industrialization- created technological gap by
– Giving technological and productivity for Europe and North
America
– Dependence of developing nation on primary exports
• Neocolonialism and dependence – continued economic dependence
on former colonies reinforced global economic structure
• Capital and technology gap b/n developed and developing nations
• Political and Institutional weakness in developing nation- due to
colonial borders, ethnic divisions and weak institution left by
colonial rule
 Policies to overcome poverty and income inequality
• Policies used to reduce poverty and income inequality include
– credit for the poor, universal primary education,
– employment programs, rural development schemes,
– progressive income taxes, food subsidies,
– health programs, family planning, food research,
– Inducements to migration, income transfers,
– affirmative action programs, targeting programs for the poorest
groups.
• Designing “safety nets” is essential for protecting poor people
during economic adjustment and stabilization programs.
• Accelerating economic growth through stable macroeconomic
policies is perhaps the most satisfactory political approach to
reducing poverty and dampening distributional conflict.
 Policies to overcome poverty and income inequality…
• A number of newly industrializing Asian countries, such as
South Korea, Taiwan, Malaysia, and Thailand, have decreased
poverty a great deal through rapid economic growth;
• Ultimately, however, the success of these policies depends on
a government with the political will to attack poverty.
– Taiwan’s and South Korea’s stress on land reform,
education, and labor-intensive manufacturing, and
– Indonesia’s emphasis on rural development have
succeeded in increasing the income shares of the poorest
segments of their populations.
 3.1.3 Unemployment
• Unemployment is the condition where individuals who
are capable and willing to work at the prevailing wage
rate cannot find jobs..
• Unemployment is the state of being without any work
both for educated and uneducated person for earning
one’s livelihood
• It is a situation where someone of working age is not
able to get a job but would like to be in full time
employment.
• In development Geography, unemployment is studied
in relation to spatial patterns of employment, regional
disparities, and economic structure
 Unemployment…
• Unemployment is measured by unemployment rate
• The unemployment rate is affected by changes in the number of
unemployed people (the numerator), which can result from
cyclical factors, such as the number of people who become
unemployed because of an economic downturn, or more
structural factors in the economy. The unemployment rate is also
affected by changes in the size of the labour force (the
denominator).
• The participation rate expresses the labour force as a percentage
of the working-age population. The working-age population
includes Australian residents aged 15 years and over (with some
exceptions, such as permanent defence force members).
𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓
• The participation rate= × 100
𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊 𝑎𝑎𝑎𝑎𝑎𝑎 𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝
• Eg Find Participation rate if there are 13.3 million people in the
labor force and, if the working-age population is 20.0 million
people?.
 Types of unemployment
• What are the main types of unemployment?
• There are three main types of unemployment –cyclical,
structural, frictional, seasonal and hidden unemployment .
1. Cyclical Unemployment is caused by economic downturn, .i.e
an increase of cyclical Unemployment suggest the economy is
operating below its potential
• Developing countries are often more vulnerable to this type of
unemployment due to weak economic resilience
• medium term in nature (one to 12 months)
• Policies that stimulate aggregate demand, such as expansionary
monetary policy, can help reduce this type of unemployment
 2. Structural unemployment
• It occurs when there is a mismatch between the available jobs
and the workers skill.
• Common in developing countries where economies transition
from agriculture to industry or services
• Structural unemployment is
– tends to be longer lasting than other types of unemployment
– exists even when economic conditions are good.
– best addressed through policies that focus on skills and the
supply of labor
3 Seasonal unemployment
• occurs at different points over the year because of seasonal
patterns that affect jobs.
• Related to agricultural and tourism cycles
• Common in rural developing regions dependent on seasonal
activities
 4 . Frictional Unemployment
• It occurs when people move between jobs in the labor market,
as well as when people transition into and out of the labor force.
• It is shorter term (less than one month) unemployment during
job transition .
• Businesses spend time searching for suitable candidates to fill
job vacancies. As a result, people looking for jobs are not
matched immediately with vacancies and may experience a
period of temporary unemployment.
• More visible in urban areas where labor mobility is higher
• 5 Hidden (Disguised) unemployment occurs when people
are not counted as unemployed in the formal labor market
statistics, but would probably work if they had the chance.
 Spatial Dimension of Unemployment
• Urban vs Rural- urban area often face youth and educated
unemployment, while rural areas experience disguised and
seasonal unemployment
• Core-periphery regions with developed industries have more
job opportunities , while peripheral areas lag behind
• Global scale- developing countries experience higher
unemployment due to limited industrialization and informal
economies
Causes of Unemployment in Developing context
• Dependence on primary sectors
• Low industrialization and diversification
• Rapid population growth
• Inadequate education and skill mismatch
• Poor infrastructure and investment inequality
• Rural urban migration and informal labor market expansion
 Implication of Unemployment for development
• It increases poverty and inequality
• Leads to Rural urban migration and urban slums
• Reduce productivity and economic growth
• Causes social unrest and political instability
• Promotes brain drain
Development strategy to reduce Unemployment
• Rural development and agricultural modernization
• industrialization and small and medium scale enterprise
support
• Vocational and technical education
• infrastructure investment in lagging regions
• Promotion of labor intensive industries
• Policies for inclusive and sustainable economic growth
 3.1.4 Inflation
• Inflation can be defined as a sustained or continuous rise in the
general price level or, alternatively, as a sustained or
continuous fall in the value of money.
• Several things should be noted about this definition.
– First, inflation refers to the movement in the general level of prices. It
does not refer to changes in one price relative to other prices. These
changes are common even when the overall level of prices is stable.
– Second, the prices are those of goods and services, not assets.
– Third, the rise in the price level must be somewhat substantial and
continue over a period longer than a day, week, or month.
• Price level is the buying power of money. It is the state of the
economy by looking how much people can buy with the same
dollar of currency.
 Causes of inflation
• Major causes of inflation are
1. Demand-pull inflation:- aggregate demand growing faster than
aggregate supply ( growing too rapid) . It is the overall amount of
money and/or people have to spend quicker than economy’s
production.
2. Cost push inflation:- occurs as a result of the increase in the cost of
production. For example, If the raw materials used to create a product
increase in price, the price for final good rises as producers pass their
costs on to consumers.
3. Devaluation:- increasing costs of imported goods and also boost to
domestic demand
4. Rising wages :- higher wages increases firms costs and increase
consumers’ disposal income to spend more
5. Expectation of inflation :- high inflation expectation causes workers
to demand wage increase and firms to push up prices
 Effects of inflation
• It erodes purchasing power
– Inflation is a decrease in the purchasing power of currency due to rise
in prices across the economy.
• Encourages spending
• Causes more inflation
• Raises cost of borrowing
• Reduces employment and growth
• Weakens or strengthens currency.
 3.2 Factors affecting Development
• Development is a broad and multidimensional process that
goes beyond simply increasing a country’s income or
economic output.
• It involves improving the quality of life, expanding
opportunities, and ensuring sustainable growth for individuals
and communities.
• To understand why some countries progress faster than the
others, it is important to examine the various conditions tat
influence development.
• These conditions are generally grouped into
a) Economic factors
b) Non economic factors
 Factors affecting development…
• a. Economic factors – such as resources, technology, capital
and infrastructure- directly impact production, income, and
employment.
• They form financial and material foundation upon wic
development is built
• b. Non economic factors- Social, cultural, environmental,
geographical, and political factors that shape human behavior,
governance, stability and overall societal well being.
• Every strong economic performance cannot be sustained
without supportive social and political structure.
• Together, these factors explains the complex nature of
development and why achieving long term progress requires
more tan just economic growth- it demands improvements in
peoples social conditions, institutions and environment
 3.1.1 Economical factors
• The main economic factors in economic growth are traditionally
land, labor, and capital. These economic factors of production
are classified as the physical capital (KP) (Capital), natural
capital (KN) (Labor), and human capital (KH) (labor)
– all contribute to human well-being through supporting the
production of goods and services.
• Capital (Physical Capital) (KP) consists of machinery, equipment,
factory buildings, tools and other investment goods that are used in
production;
– investment in industry, agriculture, services and
infrastructure(roads, electricity, water supply and ICT networks )
improves production, trade , and quality of life.
– Investment in infrastructure and technology accelerates
development.
 Economical factors…
• Land (KN) includes all natural resources (minerals, water, fertile
land, forests) and the environment.
– KN is also used for material & energy inputs into production process.
– It is also, acts as a "sink“ and "ecological services" for waste
emissions from the economic process.
– Countries naturally rich in coal and oil have good potential of
productivity
– Land and its natural resource support agriculture, mining, energy
• However, natural resource endowment offer great opportunities for
achieving high levels of growth if properly managed. For instance,
many resource-abundant countries such as Congo (DRC) remained in
terrible situation /poor.
– Others like Nigeria, also did not make rapid economic progress
due to poor management of their natural resources.
 Economical factors…
– historically, resource-poor economies often overtake
resource-rich economies in economic growth.
 In the 17thc, resource-poor Netherlands overtake Spain,
despite the overflow of gold and silver from the Spanish
colonies.
 In the19th c and 20thc, resource-poor countries such as
Switzerland and Japan surged ahead of resource rich
economies such as Russia.
In the past thirty years, the world’s star performers have
been the resource-poor NICs of East Asia like Korea,
Taiwan, Hong Kong, Singapore while many resource-rich
economies such as the oil-rich countries of Mexico,
Nigeria, and Venezuela, have gone bankrupt
 Economical factors…

 Labor (KH ) is the knowledge, skills, and experience a worker has

acquired. It includes the human skills (labor force quality)
necessary for advanced production processes, research and
development activities.
 Labor: Productivity levels determine output and growth.
 skilled, educated and healthy workers contribute more to
economic growth
 Low skills or poor health reduce productivity
 Economical factors…
 In his diaries, Lee Kuan Yew, the founding father of Singapore
(1959-1991), described his thinking as follows:
I thought then that wealth depended mainly on the possession
of territory and natural resources, whether fertile land ..., or
valuable minerals, or oil and gas. It was only after I had been
in office for some years that I recognized ... that the decisive
factors were the people, their natural abilities, education and
training.
 The debt cycle is an economic factor highly affecting
development.
– Many developing countries are heavily indebted. The
interest rates have been increased to levels which are near
impossible for developing countries to meet.
– In this way, debts continue to accumulate, and the money
which could be spent on infrastructure and healthcare is
spent on repaying debts
 Economic factors…
 The process of globalization
– Enhances global economic integration.
– Promotes cultural exchange and spread of ideas.
– Influences labor movement, technology transfer, and
development patterns
 The free market system of international trade:
– adversely affected the economies of developing countries through
the introduction of reduced protective tariffs and increased
exclusionary trading blocs.
 Global trade (Tariff)
– Tariffs influence export and import costs.
– Affect competitiveness of developing economies.
– Shape global market access and economic development.
 3.2.2 Non economic factors
[Link] Social factors
 Investment on basic infrastructure such as hospitals,
schools and welfare services
 Investment on the control of population growth (eg
provision of contraceptive in developing countries)
 Equitable provision of social services contribute to economic
development as follows
 Education improves workforce skills.
 Health services increase productivity.
 Population structure influences labor supply.
 Social stability supports investment
 [Link] Cultural Factors
 As far as culture is concerned, the culture of a society can be
a major impetus for economic development.
 Work ethic and attitudes toward innovation affect progress.
 Norms around gender roles influence workforce
participation.
 Trust and cooperation enhance economic activity.

[Link] Environmental Factors

• Climate affects agriculture and livelihood.
• Natural disasters slow development.
• Resource availability supports industrial growth.
• Environmental degradation reduces long-term progress.
 [Link] Geographical Factors
a. Loss of the access to the sea /Landlocked countries
 Land locked countries (LLCs) have less economic opportunities
than countries with coastlines. Geographical remoteness and
dependence on neighboring and coastal countries for trade and
transport systems negatively affect development as follows
– No direct access to sea increases transport and shipping costs.
– Dependence on neighboring countries for port access.
– Delays in trade due to border procedures.
– Reduced attractiveness for foreign investment.
– Challenges in exporting goods competitively.
 b. Conflict over Transboundary rivers (Geo-political factor)
• Transboundary Rivers are watercourses shared by two or more
countries. The most common geo-political importance of rivers are:
– Rivers serves as boundaries
– Rivers are the source of water for irrigation and human
consumption, recently for the industrial processes
– Rivers are used for navigation
– Rivers Erosion and deposition of sediments and their
importance
• Unfair utilization of transboundary rivers
– Unequal allocation reduces water available for agriculture.
– Limits hydropower production and energy reliability.
– Affects irrigation, food security, and economic planning.
– Causes political tensions and slows regional cooperation.
 3. 2.2.5 Political Factors
• Poor governance and corruption reduce resource efficiency.
• Political instability discourages both local and foreign
investment.
• Conflicts disrupt trade routes and economic activities.
• Weak institutions slow policy implementation.