The Role of Domestic Factors

Education and Health

Education: increasing knowledge & skills

Health

Social benefits: greater participation in society socially and politically

Prevention of the spread of diseases

Contraceptive for women: lowers birth and death rates

subsidised to make it affordable for all

Benefits

Complements physical capital

Attracts FDI

Increases labour productivity, labour mobility, lifetime earnings

Increases healthcare and nutrition

Availability of immunisation

Clean water and sanitation

Training of doctors and nurses

The Use of Appropriate Technology

"Appropriate": simple to operate, needs manpower to operate

Increases employment and income, reduces poverty

Capital equipment should improve productivity whilst complimenting labour input

(capital-intensive technology) "jobless growth": growth that does not improve living standards

For consumption: solar cookers, pot-in-pot refrigerator

Allows children/girls to go to school

Access to Credit & Micro-credit

Empowerment of Women

Increased well-being, health, and education for children (more aware of its importance)

Improved quantity & quality of workforce

Slows population growth rate

Greater income levels, better contribution to family

Income Distribution

Improved income distribution

Increase in demand for locally produced G&S

Derived demand for labour: increase in employment and income per head

Increase in actual and potential output

High income inequality

Poor have low level of savings (ref. poverty cycle)

Rich dominate economy and politics, policies may benefit them alone

Capital flight (rich move money into other countries)

Rich consume many foreigner produced goods, domestic producers and economy does not benefit

Microcredit

Very small loans to those in poverty to spur entrepreneurship

Caters to those who ...

lack collateral

lack credit worthiness

unstable employment/educational standing

How it works: group of potential borrowers form an association to borrow > less likely to default, higher weight

Eg. Grameen Bank, Bangladesh. Payback rate >98%, 96% of recipients were women

Benefits

High repayment rates, increase in income, break out of poverty cycle

Higher investment, economic development

Gender empowerment

Reduces income inequality

Increase actual and potential output

Controversies

substitutes anti-poverty policies. does not help to achieve provision of education and healthcare (should be affordable, not loaned)

May contribute to growth of informal sector (loans not regulated)

extremely poor & unskilled may be harmed when they take up the loan

Interest rates are higher than conventional bank loans

Difficult access to credit in ELDCs

lack/inefficiency of banks

Cannot obtain loans to start businesses (low incomes/no savings)

no social protection, exploitative conditions

Eg. Tractor vs bullock. Bullock is cheaper and uses more labour.

However, it is hard to engage in R&D of tech in ELDCs (lack of resources, few incentives and small markets)