Development Economics

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Micro credit

"extension of very small loans to poor borrowers who lack steady employment etc."

- designed to support entrepreneurship and alleviate poverty

- to empower women

- to uplift communities

strengths:

means of escaping poverty trap

improvement of physical and social well being

improved standard of living

create employment opportunities

limitations:

may cause gov't to feel unneeded so that it wont help out

no appropriate business experience

businesses likely to remain small- no significant dent in overall poverty

information doesn't reach target population --> corruption and mis-management

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Economic growth and development

growth: driven by improvements in productivity (producing more g/s with the same FoPs)

development: increase in standard of living, from low-income economy to high-income

Sources of economic growth in LEDCs

natural factors

improving quality and quantity of human and physical capital

development and use of appropriate technology

improving institutional factors

Characteristics in LEDCs

low standards of living

low GDP/capita

low incomes

poor health

inadequate education

low levels of productivity

high rate of population growth

high birth rates

high levels of unemployment

dependence on agricultural production

imperfect markets

Sources of economic development

Education leads to more gender equality

better health care

improved quality of workforce --> increased productivity

better infrastructure

political stability

Poverty trap:

low economic growth --> low income --> low savings --> low investment

low income --> low levels of education and healthcare --> low levels of human capital --> low productivity

To escape:

must be given sufficient aid

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International development goals

erradicating extreme poverty and hunger

achieving universal primary education

promoting gender equality

reducing child mortality

Foreign direct investment (FDI)

- direct investment into production in a country by a company in another

. to take advantage of cheaper wages

Why expand to LEDCs?

natural resources that the countries can't make use of (lack of investment/technology)

less production requirements (lower cost of production)

cheap abundant labor

Benefits:

helps economic development

transfer of technology

employee training (human capital development)

Disadvantages:

loss of power by host country

chance of rise in inflation

dependancy

possible losses

exploitation of labor and natural resources

capital intensive technology limits benefits to host country

profits sent back to investing country