Political and social barriers to development
Weak institutional framework
Legal system and property rights
Lack of good governance and corruption
Corruption
= dishonest exploitation of power for personal gain (bribery, extortion, fraud, patronage, influence peddling, nepotism)
Most prevalent when:
- Governments aren't accountable for the people
- Governments spends on large-scale capital projects
- Poorly controlled official accounting practices
- Government officials are paid poorly
- No democracy
- Weak legal structure
- Lack of freedom of speech
Gender Inequality
Consequences of corruption:
- Unfair elections ⮕ not equitable or inclusive
- Less effective legal systems + lower quality government services (eg. parents bribing schools)
- Unfair allocation of resources ⮕ potential market failure
- Bribery increases prices + monetary gains often move out of the country ⮕ reduces average citizen's wellbeing
- Less trust in the economy
- Discourage investment (contracts may not be honored)
- Bad for sustainable development (regulations may not be respected)
Affects vulnerable people in particular!
Improving the welfare of women
Ineffective taxation structure
make education available to girls
Lower tax revenues make it difficult for governments to promote growth and achieve development objectives
Tax exemptions, inefficient or corruption administration and lack of information means that considerably less people pay enough taxes
Ways to improve
In developing countries, corporate tax revenues tend to be low because of relatively little corporate activity
Improved well-being of families
Leads to
In developing countries, tax revenue mainly comes from exports, imports and customs, which are easy to collect but require foreign trade to gain significant tax revenue
Political instability
Improved education of children
There are usually larger informal markets in developing countries and large informal markets mean lower tax revenues
Political stability ⮕ more FDI + money stays in the country
Improved quality of country's workforce
Political instability ⮕ uncertainty, potentially economic breakdown
- caused by eg. civil wars
Improved levels of income of women
Banking system
Lowering of the rate of population growth
Financial services are necessary in order for low-income people to invest in things and for economic growth
Unequal political power and status
Official financial markets are usually small and restrict lending to foreign businesses and establish large local businesses
Politicians develop policies that benefit them
Sometimes desperate people rely on unofficial markets, which are illegal markets who borrow money with very high interest rates
women know about proper hygiene and diet
Lack of democracy ⮕ poorer people's views are not heard
⮕ inequality, not inclusive ⮕ limits economic development
health of children improves
women teach children what they know
women see education as more valuable
more knowledge about contraception
women with education tend to marry later and have smaller families
improved health and education of workers extends the work life
more income for the household
women have more independence from men
educated workers work more productively
provide child care
laws to strengthen women's economic independence
secure and regulated workplaces for women
Weak financial institutions lead to people with investment income to buying assets or investing their money on capital flight (outside the country)
Without property rights there wouldn't be economic growth, common in developing countries
"Basket" of property rights includes
The right to exclude others from using or taking over our assets
The right to sell our assets
The right to benefit from the assets
The right to establish the use of our assets
The right to own assets, such as land or buildings, because then there is incentive to improve that property in fear of the loss of it and waste of investment
Dead capital = assets that can't be easily bought, sold, valued or used as an investment because nobody actually owns them