Domestic Factors Economic Development Presented by Mattay Botcheff

Domestic Factors & Economic Development Presented by: Mattay Botcheff

Overview Institutional factors affecting development Institutions – the structure that humans impose on human interaction, and therefore define the incentives that determine the choices that individuals make that shape the performance of societies and economies over time

Economic Benefits of Strong Educational Standards Committee for Economic Development: https: //www. youtube. com/watch? v=0 h 1 RHa. LY-x 0

Education Improve the well-being of society External benefits More efficient work-force People can communicate effectively Results in debate and discussion May lead to social change Improve the role of women in society Correlation between women’s education and child survival rates and fertility rates Political, economic and social participation and leadership of women

Benefits of Education “Girls and boys who learn to read, write and count will provide a better future for their families and countries. With improved education, so many other areas are positively affected. In short, education has the power to make the world a better place. ” Global Partnership for Education Study https: //www. globalpartnership. org/education/the-benefits-ofeducation

PISA PISA: http: //www. oecd. org/pisa/ About PISA: http: //www. oecd. org/pisa/aboutpisa/

Why Education Matters: http: //blogs. worldbank. org/educatio n/why-education-matters-economicdevelopment Video: 2 minutes

Education Improve levels of health People can become informed about hazards and opportunities Diseases (HIV), sanitation, diets Primary education enrollment ratio in almost all parts of the world is above 90% 73 million children (of primary school age) do not attend primary school Provision of education requires vast funding Major differences (urban vs rural areas) Family economic conditions (children working at home or on the farm) Secondary school enrollment is even lower

Education and Wealth An Overview of the Connection between Education and Wealth Federal Reserve Bank of St. Louis Study (6 minute video): https: //www. stlouisfed. org/on-the-economy/2015/july/educationcorrelation-wealth-income-video

“WHO's primary role is to direct international health within the United Nations' system and to lead partners in global health responses. ”

Health Care Greater levels of health care improve economic development Strong correlation between healthcare and life expectancy Spending higher proportion of GDP on healthcare results in higher life expectancy Progress in many developing countries: Training doctors and nurses Building hospitals Safe water and sanitation Immunizations Worldwide: Infant mortality rates have fallen Life expectancy has increased Maternal mortality rates have decreased

Universal Health Care

Infrastructure The essential facilities and services, such as roads, airports, sewage treatment, water systems, railways, telephone, and other utilities that are necessary for economic activity Improves the well-being of society

US Growth Opportunity in Infrastructure Mc. Kinsey Ideas for US economic growth: https: //www. mckinsey. com/Videos/video? vid=26063 46500001&plyrid=Hk. OJq. CPWdb&aid=367502 C 4281 E-4 ED 3 -8963 -50 DDC 555 DDC 9 Highways and Transportation infrastructure proposal: https: //www. youtube. com/watch? v=5 u. E 3 Vywvte. A FDR on New Deal (1930): http: //www. history. com/speeches/franklin-d-roosevelt -on-new-deal-programs

Politically-Stable Countries attract more FDI & aid Savings and profits remain within country Citizens have more input in running the country Government planning is more structured and long-term Law is more enforceable

Political Instability causes uncertainty and economic breakdown Sudan – civil wars Ethnic, religious and border conflicts Afghanistan, Algeria, Cote d’Ivoire, Democratic Republic of Congo, India, Indonesia, Iraq, Israel, Russia, Rwanda, Somalia, Turkey Loss of life, damage to infrastructure, loss of investment

Lack of Corruption Dishonest exploitation of power for personal gain Prevalent when: Lack of government accountability to the people Large spending on capital investment projects Accounting practices are not well controlled Government officials are not well paid No political elections Weak legal structure Lack of freedom of speech

Types of Corruption Bribery Extortion Fraud Patronage Influence paddling Nepotism

Effects of Corruption Government doesn’t serve the wishes of the electorate Ineffective legal system – incentive to act illegally Unfair allocation of resources – inefficient producers Increased cost of doing business – lost time and money on bribes Mistrust in economy – loss of FDI

Effects of Corruption Increased risk of doing business – contracts not honored Diverted public investment into capital projects (healthcare and education) Regulations would not always be enforced – construction and the environment Capital flight of money from corruption (lower investment)

Legal System An honest and fully functioning legal system Create and enforce contracts Property rights Basket of legal rights Own assets (land, buildings) Benefit from assets (renting) Sell assets Exclude others from the use of assets If a person cannot guarantee those rights, there is no incentive to improve assets

Financial System Financial institutions are essential to economic growth and development Financial markets – institutions where lending and borrowing is carried out Dual financial markets in the developing world “official” financial markets small and dominated by foreign commercial banks Lend to foreign businesses and large, established local manufacturers Unofficial financial markets Illegal and unregulated High-interest rate lending to the desperate and poor

Credit Saving is necessary to provide investment funds Impediments to saving: High levels of poverty Lack of safety & of high rates of return Alternatives to savings: Capital flight Purchases of livestock Financial services are needed for poor people to manage, grow assets and then invest in development

Micro-Finance No access for impoverished people to credit due to lack of collateral and steady cash flow Difficult to start business Micro-credit – small loans Originated in the developing world Opportunity International (1972), ACCION International (1973), FINCA (1985), The SEEP Network (1985) Used to start small-scale businesses – knitting, sewing, woodworking, etc. women have used such loans – to gain economic independence, which improves their children’s education and health

Taxation Provides governments with the means to provide public services, such as education and healthcare Tax collection is difficult in developing countries Tax exemptions and corruption 3% of population pay income tax (vs. 60 -80% in developed countries) Low corporate tax revenues Little corporate activity Large tax exemptions (to attract investment)

Taxation Export, import and customs duties (major source of tax revenues) Useful only if country is involved in trade WTO free trade rules might limit tariffs and tax revenues Overall, inefficiency, lack of information and corruption Large informal markets Poorly paid Low job security Poor working conditions No social care

The Use of Appropriate Technology that is appropriate for use with existing factor endowments Production and consumption Developing countries: Typically, modernize and industrialize output Surplus of labor Should utilize capital equipment, which is cheap to make and uses labor Example: Universal nut sheller (in production) Example: solar cooker (consumption)

Universal Nut Sheller

Solar Cooker

The Empowerment of Women In developing countries, the role of women is subservient to that of men Education empowers women Positive externalities: Improved well-being of families (children’s health, hygiene and diet) Children’s education improves Quality work force Extra income Career, education and social involvement of women result in smaller families

Income Distribution Gap between rich and poor is greater in developing countries Barrier to growth and development Low levels of savings (low investment, low growth) Politics dominated by the rich (serve their own needs) Capital flight Consumption of imports (by the rich)

Questions & Answers

Summary Institutional factors affecting development

Source: Economics by Jocelyn Blink & Ian Dorton More Resources: For current Economics issues related to our course, please visit: https: //twitter. com/Matt. Botcheff/