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)