- Economic development is the sustainable increase in living standards for a country, typically characterised by increases in life span, education levels, & income
- Countries are all at different points of development & economists distinguish between them using different criteria
- E.g. HDI has five categories of development based on the HDI score
- Low human development (<0.550)
- Medium human development (0.550–0.699)
- High human development (0.700–0.799)
- Very high human development (>0.800)
- There are numerous reasons for these differences including differences in income, productivity, population growth, size of primary, secondary & tertiary sectors, saving & investment, education & healthcare
Causes of Differences in Development
Factor
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Explanation
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Differences in income
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- Countries with a higher GDP/capita tend to be more developed
- Even with high GDP/capita, there may be significant inequality in the distribution of income resulting in poor living standards for many
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Differences in productivity
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- Differences in skills result in difference in productivity
- Higher levels of productivity are rewarded with higher wages, which leads to a better standard of living
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Differences in population growth
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- More densely populated countries or cities face more challenges
- A larger population can mean higher tax revenues for the government but at the same time, government expenditure on services is spread across more people
- Poorer economies are characterised by less government spending/capita
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Differences in economic sector sizes
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- Economies with a larger proportion of secondary & tertiary activity tend to be more developed due to the wages associated with each sector
- Primary sector workers are usually paid low wages due to the unskilled nature of the job & the fact that raw materials often generate the lowest profits in the production chain
- Secondary sector workers add value to the raw materials & these products sell for higher profits. Therefore wages tend to be higher than primary sector wages
- Tertiary sector workers are paid the highest. Their jobs often require highly valued skills that take years to acquire & the products they sell or services they provide can be complex & expensive e.g. artificial intelligence coders
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Differences in saving & investment
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- Higher savings result in higher investment & economic growth. It is believed that as economies develop, savings increase
- Increased savings → increased investment → higher capital stock → higher economic growth → increased savings
- If the dependency ratio is high it means there is less money available for savings & investment
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Differences in education
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- These directly influence the level of skill in an economy
- Improved skills results in higher productivity & wages
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Differences in healthcare
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- The level of health directly impacts productivity of labour
- Productivity influences output & income
- Developed economies tend to have healthy workforces
- The less developed the economy, the more sickness & disease there is
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