Before analyzing those barriers that are keeping poor countries poor and limiting even the richest of economies, I want to recognize the United Nations Millennium Development Goals. The UN web site states that "the eight Millennium Development Goals (MDGs) – which range from halving extreme poverty to halting the spread of HIV/AIDS and providing universal primary education, all by the target date of 2015 – form a blueprint agreed to by all the world’s countries and all the world’s leading development institutions." This video, "Make it Happen", provides us with an excellent multimedia introduction to to the MDGs and the eight MDGs are here. Please read them.
What are the barriers to economic growth and economic development?
First, there is often a lack of a proper, well-functioning education system as developing countries lack educational infrastructure and capital and parents lack the incentives to send their children to school (see relevant chapter in William Easterly's The Elusive Quest for Growth). Moreover, the health care system is also missing trained staff, medications, and physical infrastructure leading to increased mortality from diseases and childbirth. Speaking of infrastructure, this term includes all the roads, railways, airports, public services (police, fire, emergency, sewage), communication services (telephones, post) and public utilities (water, electricity, gas) in a country. Imagine how difficult business (or, more generally, day-to-day life!) is in a country where these forms of infrastructure are weak or non-existent!
Institutionally, developing countries often lack clear and well-protected (legally) property rights and general rule of law which makes incentive perverse. Why would an entrepreneur create if his/her creation could be stolen? Furthermore, the financial system of less economically developed countries (LEDCs) tend to also be weak and insufficient which compromising the way savings should occur in a properly functioning economy. In fact, banks here tend to be foreign multi-national corporations (MNCs) which only make funds available for the wealthy, which is a very small percentage of the overall population. Once again, we have perverse incentives with people simply saving their money in cans or places other than banks. There exist in LEDCs more informal / black markets because of these institutional weaknesses. These transactions cannot be monitored (for safety) or taxed (for government revenue) because they are invisible. Moreover, the tax system's tend already to be disordered and failing and do not collect the money needed for proper government provision of goods, services and welfare. This is worsened by the fact that income inequality tends to be very high in developing countries and, thus, redistribution due to a poor tax scheme and personal tax avoidance is very hard to accomplish.
What is corruption? Corruption is NOT having integrity, a term which means doing the right thing when no one is looking. Technically, it is the pursuit of personal gain by those in positions of power through simple thief, money laundering, bribery, extortion, etc. Corruption is wholly toxic to economies. They create perverse incentives, they funnel money away from the mouths and hands of those who need it, they stop the provision of health care and infrastructure. Where is in the worst? Look at this map from Wikipedia from www.transparency.org which measures perceived corruption:
As you can see, the more green, the less corruption is perceived, and the more red, the reverse. Clearly, there appears to be a correlation between how developed a country is and how corrupt it is perceived to be. Check out the web site above for more (compelling) information.
There are a few more barriers to economic growth and economic development. The first is the exploitation by more economically developed countries (MEDCs) of LEDCs in different international organizations (i.e. World Trade Organization) in what's argued to be a "neo-colonization". We do observe MEDCs putting protectionist measures on developing countries' products for reasons mentioned in my previous post on protectionism. LEDCs also tend to focus to heavily on the primary sector and raw materials which are volatile with respect to price. This, in turn, makes their overall economies volatile. These problems all can compel the best and brightest to leave their native countries and seek higher paying, better protected jobs in MEDCs. We call this capital flight. After all, why would you stay in your homeland and make 1/50th of what you could make in Canada or New Zealand or Switzerland? This is especially true in countries whose currency (non-convertible) can't be traded for "hard" currency (convertible), because of the reduced incentive for foreigners to do business. These are just several of many impediments to growth and development that need to be studied to answer one of economics most important questions : How do we lift the poor out of poverty?
What are the barriers to economic growth and economic development?
First, there is often a lack of a proper, well-functioning education system as developing countries lack educational infrastructure and capital and parents lack the incentives to send their children to school (see relevant chapter in William Easterly's The Elusive Quest for Growth). Moreover, the health care system is also missing trained staff, medications, and physical infrastructure leading to increased mortality from diseases and childbirth. Speaking of infrastructure, this term includes all the roads, railways, airports, public services (police, fire, emergency, sewage), communication services (telephones, post) and public utilities (water, electricity, gas) in a country. Imagine how difficult business (or, more generally, day-to-day life!) is in a country where these forms of infrastructure are weak or non-existent!
Institutionally, developing countries often lack clear and well-protected (legally) property rights and general rule of law which makes incentive perverse. Why would an entrepreneur create if his/her creation could be stolen? Furthermore, the financial system of less economically developed countries (LEDCs) tend to also be weak and insufficient which compromising the way savings should occur in a properly functioning economy. In fact, banks here tend to be foreign multi-national corporations (MNCs) which only make funds available for the wealthy, which is a very small percentage of the overall population. Once again, we have perverse incentives with people simply saving their money in cans or places other than banks. There exist in LEDCs more informal / black markets because of these institutional weaknesses. These transactions cannot be monitored (for safety) or taxed (for government revenue) because they are invisible. Moreover, the tax system's tend already to be disordered and failing and do not collect the money needed for proper government provision of goods, services and welfare. This is worsened by the fact that income inequality tends to be very high in developing countries and, thus, redistribution due to a poor tax scheme and personal tax avoidance is very hard to accomplish.
What is corruption? Corruption is NOT having integrity, a term which means doing the right thing when no one is looking. Technically, it is the pursuit of personal gain by those in positions of power through simple thief, money laundering, bribery, extortion, etc. Corruption is wholly toxic to economies. They create perverse incentives, they funnel money away from the mouths and hands of those who need it, they stop the provision of health care and infrastructure. Where is in the worst? Look at this map from Wikipedia from www.transparency.org which measures perceived corruption:
There are a few more barriers to economic growth and economic development. The first is the exploitation by more economically developed countries (MEDCs) of LEDCs in different international organizations (i.e. World Trade Organization) in what's argued to be a "neo-colonization". We do observe MEDCs putting protectionist measures on developing countries' products for reasons mentioned in my previous post on protectionism. LEDCs also tend to focus to heavily on the primary sector and raw materials which are volatile with respect to price. This, in turn, makes their overall economies volatile. These problems all can compel the best and brightest to leave their native countries and seek higher paying, better protected jobs in MEDCs. We call this capital flight. After all, why would you stay in your homeland and make 1/50th of what you could make in Canada or New Zealand or Switzerland? This is especially true in countries whose currency (non-convertible) can't be traded for "hard" currency (convertible), because of the reduced incentive for foreigners to do business. These are just several of many impediments to growth and development that need to be studied to answer one of economics most important questions : How do we lift the poor out of poverty?
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