Transcript Obstacles to Growth

OBSTACLES TO
ECONOMIC
GROWTH
Obstacles to Economic Growth
Economists know far more about what
blocks economic growth and
development than what helps it.
Yet we still don’t have a complete set of
answers.
OBSTACLES TO
ECONOMIC
GROWTH
OBSTACLES
I
POLITICAL
II
SOCIAL
III
ECONOMIC
POLITICAL OBSTACLES
• POLITICAL INSTABILITY
• CORRUPTION
• GOOD ECONOMICS AS BAD POLITICS
SOCIAL OBSTACLES
• LACK OF ADMINISTRATIVE SKILLS
• LACK OF ENTREPRENEURS
• RAPID POPULATION GROWTH
ECONOMIC OBSTACLES
• DISTORTING EFFECTS OF
COLONIALISM/PAST HISTORY
• FOREIGN AID
• THE CURRENT WORLD TRADE
SYSTEM
POLITICAL BARRIERS
POLITICAL INSTABILITY
Lack of an orderly system of government
results in people only wanting to invest in
the short run, not the long run.
POLITICAL BARRIERS
CORRUPTION
Corruption raises the costs of doing
business, but in an unpredictable fashion.
POLITICAL BARRIERS
GOOD ECONOMICS AS BAD POLITICS
Often, long term development means
painful, short term adjustments, such as
massive layoffs.
It is hard to persuade people to accept
short term deprivation in exchange for
long term growth.
POLITICAL BARRIERS
GOOD ECONOMICS AS BAD POLITICS
People with power and connections will
block change, even if that means the
country remains underdeveloped.
The poor and powerless can vote, or riot
or act to slow down changes.
INCREASES IN PER CAPITA
REAL GDP
Per Capita Real GDP is defined as:
Real GDP
Population
Increases in Per Capita Real GDP
Increases in Per Capita Real GDP would be
seen as an increase in that number.
It is really a very crude measure of economic
growth.
II. WHAT DETERMINES
ECONOMIC GROWTH?
What Determines Economic
Growth?
While economists know far more about what
determines economic growth, we still
don’t have a complete set of answers.
Neither do the people in Washington, or those
who are busy exporting any quick fix
solution.
What is Economic Development?
Usually when economists talk about
economic growth, what they really mean
is ECONOMIC DEVELOPMENT.
Economic growth and economic development
are not the same!
What is Economic Development?
Economic development is harder to define and
measure.
ECONOMIC DEVELOPMENT is defined as:
a self- sustaining transformation of the
economy and society.
Economic Growth vs. Economic
Development
You can’t have economic development
without economic growth.
But you can have economic growth without
economic development.
An economy can expand, without any
technological or social changes.
THE IMPORTANCE OF THE
FACTORS OF
PRODUCTION:
LABOR, CAPITAL, LAND
LABOR
Labor is defined as:
The total physical and mental effort
expended by people in the production of
goods and services.
LABOR
LABOR is the most important determinant
for economic growth and development.
It is not just the size of the labor force that
matters.
The quality of the labor force is more
important.
LABOR
When we talk about quality of a labor force,
we mean the level of education.
The more highly educated a labor force is, the
more likely a country will be able to
develop.
The key here is universal primary education,
which is more important than number of
college students.
CAPITAL
We define capital as:
Human made products used to produce
other products.
CAPITAL
The ability of a country to grow, but
especially to develop, depends upon its
ability to purchase or create capital goods.
But the ability to obtain capital goods depends
upon the ability to obtain money to buy or
produce them.
CAPITAL AND
THE POVERTY TRAP
Poor countries have to obtain money to buy or
to develop capital goods.
But because they are poor, they have little
savings to do either.
LAND
Land is defined as:
All types of natural resources.
LAND
We have learned that an abundance of
natural resources is not a necessary
condition for economic growth.
East Asia is the outstanding example of this.