4.9 Barriers to Economic Growth & Development (DP IB Economics: HL): Flashcards
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- FrontPoverty Traps
Define the poverty trap.
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Cards in this collection (25)
Define the poverty trap.
The poverty trap is a self-reinforcing cycle in which poverty is caused by a lack of both economic growth and human development.
What do low wages represent within the poverty cycle?
Low wages represent the intersection of economic growth and human development and are the major cause of poverty.
Low levels of education and healthcare lead to low levels of human , which reduces productivity.
Low levels of education and healthcare lead to low levels of human capital, which reduces productivity.
True or False?
In the poverty cycle, low productivity leads to low wages, continuing the cycle.
True.
Low productivity results in low wages, and the cycle continues.
Give two causes of low wages in a developing economy.
Low wages usually result from unemployment, informal employment, a lack of skills, or a primary-sector-based economy.
Define human capital.
Human capital is the education, skills and health of a workforce; low levels of it reduce productivity.
On the growth side of the poverty cycle, why is saving low?
Because with low wage levels any money is spent on necessities, making it much harder to save.
True or False?
Low levels of human capital increase a country's productivity.
False.
Low education and healthcare lead to low human capital, which reduces productivity.
How do low savings lead to low investment in the poverty cycle?
Savings drive investment because banks lend savings to firms, so low savings leave banks with less money available for investment.
Low levels of investment hold back productivity and lead to low economic .
Low levels of investment hold back productivity and lead to low economic growth.
Why are education and healthcare often inaccessible in poor countries?
Because they cost money, and with lower wage levels they are not accessible.
Why is dependency on the primary sector a barrier to development?
Primary products have a low income elasticity of demand and little added value, so export earnings are limited and prices can be volatile.
Define capital flight.
Capital flight occurs when money or assets rapidly leave a country, for example due to political upheaval, sanctions or war, reducing funds available for investment.
Primary products tend to have a very low income of demand, so demand rises less than proportionally as world income grows.
Primary products tend to have a very low income elasticity of demand, so demand rises less than proportionally as world income grows.
True or False?
A larger informal economy increases a government's tax revenue.
False.
Workers in the informal economy are not taxed, so a large informal economy reduces tax revenue for infrastructure and public goods.
How does indebtedness act as a barrier to growth?
High borrowing from bodies like the IMF raises repayments, reducing the money available for investment and public goods.
Why do landlocked countries face a barrier to growth?
Landlocked countries find it harder and more expensive to import and export goods, since shipping freight is much cheaper than air freight.
Define the institutional framework.
The institutional framework refers to the functions of government, including the legal system, law enforcement, banking, tax structures and property rights.
A tax system redistributes income from higher earners to lower earners and reduces income inequality.
A strong legal system builds confidence and certainty, which attracts overseas investment and makes business easier to conduct.
A tax system redistributes income from higher earners to lower earners and reduces income inequality.
A progressive tax system redistributes income from higher earners to lower earners and reduces income inequality.
How does a lack of good governance harm development?
Poor governance leads to inefficient use of resources, and corruption diverts or siphons off funds intended for investment.
True or False?
Gender inequality can lower a country's economic growth.
True.
Gender inequality raises income inequality and reduces the incentive for women to work, causing a loss of productivity.
How can good infrastructure support economic development?
Good infrastructure reduces business costs and attracts foreign direct investment.
Why is understanding a country's context vital when evaluating barriers to growth?
Because each country is unique and faces a different combination of barriers, so context determines which are most significant.
Give a real-world example of a barrier limiting a country's development.
Malawi is landlocked with agriculture at 30% of GDP, so its higher export costs reduce profits and limit growth.
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