Barriers to Development 2

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Barriers to Development - Healthcare and Human Capital

There are a host of factors which hold back the development of certain countries.

Poor quality of human capital leads to a lack of productivity and efficiency.
This leads to the cost of production being higher than in other countries and uncompetitive exports.
In 1972, Iraq nationalised the western Iraq National Oil company. It was better to nationalise in 1972 than in 1950 because this gave the Iraqi population 22 years to build up the skills to run oil wells and oil refineries.

Institutional factors include a lack of property rights, a democratic government or an independent legal system.
Property rights are defined as having four main characteristics:
- The right to use the good.
- The right to earn income from the good.
- The right to transfer the good to others.
- The right to enforce property rights (rights of ownership).
By lacking them, or not enforcing them, this discourages entrepreneurship or FDI.

The lack of adequate healthcare causes people to be ill more often and to have lower life expectancy.
Both of these factors cause workers’ productivity to be lower with more absenteeism (staying off work for no good reason).
Poor healthcare also means people try to have larger families as a way to hedge the risk of some children not surviving. This creates an added burden of high population growth and dependants.

Primary product dependency, the volatility of commodity prices, capital flight and debt can all be barriers to development.

Poor quality of human capital leads to a lack of productivity and efficiency.
This leads to the cost of production being higher than other countries and uncompetitive exports.
Often, high skilled labour migrates to other nations to earn higher wages. This can leave developing nations with a labour shortage.

Primary products are commodities like iron ore, oil or agricultural products like coffee, rice and cocoa beans.
Supply in commodities is inelastic. These crops can take years or even millennia (for things like oil) to develop. When demand changes, prices can change by a large amount.
Income from exports can rise if commodity prices rise and exports can decrease rapidly if commodity prices fall.
This uncertainty may deter investment in that country.
It can also create exchange rate volatility which also discourages investment.

If a developing nation has a lot of debts, it will spend some of its tax revenues on interest payments. Developing nations are usually riskier borrowers than developed nations, so they may pay a higher interest rate too.
Debt can reduce a developing nation's government's spending on infrastructure, education and healthcare.
Some people argue for debt relief for developing nations. This would involve cancelling these nation's debts. However, the money from the debt may be embezzled by corrupt individuals and may generate moral hazard, with nations borrowing with no intention of repaying a debt.

The Prebisch-Singer hypothesis claims that, because the demand for primary products doesn't change much with income (they are income inelastic), that rising incomes don't lead to increased demand for primary products, unlike manufacturing and services' products.
Therefore, if incomes rise globally, nations producing primary products won't see much of a change in demand. Nations producing manufacturing goods would because manufactured products are income elastic.
This would suggest that primary products are not a sustainable development strategy for a country.