8.2.2

Factors Influencing Growth & Development

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Economic Growth vs Economic Development

There are a number of key differences between economic growth and development.

Illustrative background for Economic growthIllustrative background for Economic growth ?? "content

Economic growth

  • Economic growth is measured by an increase in real GDP.
  • While this allows for higher real incomes, which means people can afford a higher standard of living, it is very important for economists to realise that an increase in real GDP does not equate to economic development, although it may contribute.
  • Supporting research & development is viewed as a huge supporter of economic growth. South Korea has grown rapidly since 1992 and its R&D has been up to 3.5% of GDP.
Illustrative background for Economic developmentIllustrative background for Economic development ?? "content

Economic development

  • The United Nations (UN) defines development as "the expansion of people’s freedom to live long, healthy and creative lives; to advance other goals they have reason to value; and to engage actively in shaping development equitably and sustainably on a shared planet.”

Common Characteristics of Less-Developed Economies

Less-developed economies often have certain characteristics which stop them from developing faster:

Illustrative background for Low investment and savingsIllustrative background for Low investment and savings ?? "content

Low investment and savings

  • Increasing the quality or quantity of physical capital can increase the productivity of an economy.
  • A country or business needs to save money to invest the savings in capital. If a country does not save, then investment in physical capital will be lower.
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Command economy and corruption

  • In some low-income countries, which are less economically developed, there are:
    • Command economies, where the price mechanism (or invisible hand) does not allocate resources.
    • Corruption and infighting, where resources and investment are not directed to the place where it is intended.
  • For example, the Democratic Republic of Congo is resource-rich, but politics seems to have slowed economic development.
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Lack of education

  • Education is sometimes called the accumulation of human capital.
  • High levels of education can make the labour force more productive and increase the output of an economy.
Illustrative background for Loans and borrowingIllustrative background for Loans and borrowing ?? "content

Loans and borrowing

  • If households or businesses cannot borrow money (get access to capital), then they won't be able to invest in houses, capital (like machinery) or inventory. This will harm economic growth and development.

Jump to other topics

1Introduction to Markets

2Market Failure

3The UK Macroeconomy

4The UK Economy - Policies

5Business Behaviour

6Market Structures

7A Global Perspective

8Finance & Inequality

9Examples of Global Policy

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