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DOMESTIC FACTORS AND ECONOMIC DEVELOPMENT (Legal System (Property Rights…
DOMESTIC FACTORS AND ECONOMIC DEVELOPMENT
Financial system, credits, micro finance
Financial markets:
The institutions where lending and borrowing is carried out
Dual financial markets in developing countries
Official markets
Dominated by foreign commercial markets
Restrict lending to foreign businesses and large manufacturing local businesses
Unofficial markets
Illegal, not legally controlled
Higher interest rates for desperate, poor people
Low levels of saving in developing countries
Less chance in escaping poverty cycle through investments
Difficult to start businesses
Micro-finance
To enable poor people to start very small scale businesses
the provision of financial services, such as small loans and saving accounts
Micro credit
Provisions of small loans to individuals who have no access to traditional sources
Allows a majority of women to receive income
Better education prospects for children
Infrastructure
The essential facilities and services such as roads, airports, sewage treatments, water systems, railways and other utilities that are necessary for economic activity
Improved infrastructure leads to greater economic development
Better roads and public transport
Easier access to school and markets
Higher level of productivity
Political stability
Countries with stable politics
Attract FDI and aid
Citizens able to voice out on the running of the countries
Better government planning
Enforcable laws implemented
More structured and long term
Higher standards of living
War between countries
High levels of poverty
High death rate
Damage to infrastructure
Loss of investment and aid
Corruption:
the dishonest exploitation of power for personal gain
Factors causing corruption
Official accounting practices not well formulated
G not accountable to the people
Lack in freedom of speech
Weak legal structure
Political elections not well controlled
Government officials not well paid
Large amounts spent on large scale projects
Effects of corruption
Reduces effectiveness of legal system
Wishes of people not noticed
Unfair allocation of resources
Increases costs of businesses
Firms reduces trust in economy
Monetary gains from corruption moved out of country
Taxation
Need to
Finance necessary public services
Improve infrastructure
Problems in collecting
Low corporate tax revenues
Relatively little corporate activity
Offered larger tax incentives
Encourage domestic corporate activity
Attract FDI
Export, imports, custom duties as main source of tax in developing countries
Must be heavily involved in trade
Result of tax exemptions and inefficient administration
<3% in developing countries
60% to 80% in developed countries
Lacks transparency, corruption
Size of informal market
Unrecorded economic activities
Lower tax revenues
Difficult to promote economic growth and development objectives
Unprotected rights for workers in the market
Productivity tends to be low
Larger in developing countries
Income distribution
Income gap between poor and rich relatively large in developing and developed countries
Factors affecting
Low levels of savings
Low investment
Low growth
Domination of the rich in politics and economy
Lack of policies on pro-poor growth
High income inequality
Movements of funds out of the country
Capital flight
Education
Education is the process of facilitating learning, or the acquisition of knowledge, skills, values, beliefs, and habits.
Provides external benefits and promises social change in a community
Improves women's role in society
Women involved in social, economic and political developments
Improves levels of health
Society better informed about healthcare and hazards
Better literacy rate and labour quality
Problems
Requires vast funding
Large disparities in provision of education
Urban areas receive better education than rural areas
Family economic conditions
Low income households cannot afford education; children are forced to work at early age
Healthcare
the set of services provided by a country or an organization for the treatment of the physically and the mentally ill
When govt allocate more on healthcare, life expectancy rate increase
Benefits
Higher life expectancy
Lower mortality rate
Better quality and bigger workforce size
Needs of society are fulfilled
Methods
Improving access to safe water
Better sanitation
Availability of essential immunisations
More hospitals and clinics
Better training of health officers
Legal System
a procedure or process for interpreting and enforcing the law
An honest and fully functional legal system essential for development
Property Rights (Basket of legal rights)
Allows people to own and benefit from private property
includes
Right to own assets
Right to establish use of assets
Right to benefit from assets
Right to sell assets
Right to exclude others from using or taking over our assets
Without guaranteed ownership of property
no incentive to improve property
No enforceable property rights
leads to
reduced investment and growth
Empowerment of Women
Improves family well-being
Women better informed on healthcare
Improves education of children
women passes on knowledge and education to children
Improves workforce quality over time
better growth and development
Women can earn more income
increases household income
more GDP growth
greater increase in family health levels
More control over contraception
later marriages
smaller families
lower population growth rate
Use of Appropriate Technology
Technology that is appropriate for use with existing factor endowments
Production
Developing countries: appropriate technology must utilize labour surplus
Makes use of abundant labour supply
Equipments requiring manpower or handled by workers
Provides greater employment than automated systems
Consumption
Technology from cheap and available resources
Does not harm environment
Eases consumer's daily activities
e.g. solar cooker