Obstacles to Economic Development

1
Obstacles toEconomic Development

• Chapter 17 Section 2

2
Objectives

• What are the obstacles to economic development?
• How is the population growth rate calculated?
• What is the dependency ratio?
• What is a criticism of the concept of the vicious
  circle of poverty?

3
Question

• What are some obstacles to economic development?

4
Rapid Population Growth
Population Growth Rate
Death Rate
Birth Rate
-

Which has a higher population growth rate?
Higher Developed Countries
Less Developed Countries
0.5 to 1
2 to 3
5
Why is the population growth rate larger in
less-developed countries?
(Population Growth Rate Birthrate Death Rate)
1. Higher Birthrate 2. Death Rate has declined
with medical advances
6
Does a high population growth rate make a country
poor?

• No, we cannot say that population increases
  always cause poverty.
• A high population growth rate does lead to
• Lower per-capita statistics
• Population density
• But, these are not absolutes.
• Japan is more densely populated than India.
• Yet, Japan has a higher per-capita income.

7

• Dependency Ratio
• Number of children (under age 15) plus the
  elderly (age 65) divided by the total population

Children (under 15)
Elderly (65)

Dependency Ratio

Population
Rapid population growth can lead to a high
dependency ratio which over-burdens the
productive working-age population.
8
Low Saving Rate

• Vicious Circle of Poverty
• The idea that countries are poor because they do
  not save and buy capital goods,
• but they cannot save and buy capital goods
  because they are poor.

9
Cultural Differences

• 1. Status Quo
• that which exists now
• the existing state of affairs (comfort)
• 2. Change is dangerous
• 3. Good or bad fortune relies on fate or
  spirits
• 4. Rigid social mobility

10
Political Instability and Government Seizure of
Private Property

• People are not willing to invest their money in
  places where the risk of losing it is high.
• Fear of government officials being ousted
• Fear of government overtaking their business

11
High Tax Rates

• Economist Alvin Rabushka
• Studied countries between 1960-1982
• Low tax rates average to high growth rate in
  per-capita income (3.7)
• High tax rates low growth rate in per-capita
  income (0.7)

12
Economic Reasoning

• Thomas Malthus (1766-1834)
• Population increased geometrically (1, 2, 4, 8,
  16, 32, 64, 128)
• Food supply increased arithmetically (1, 2, 3,
  4, 5, 6, 7, 8, 9, 10).
• Population will outgrow the food supply
• Evidence does not support Malthus.
• What is bad today will be worse tomorrow if
  something is not done.

13

• Malthus could not predict
• Major technological changes in agriculture
• Increased subsistence levels
• Urbanization
• Fewer children

14
Correcting Malthus

• With an increase in population,
• Demand for oil, for example, increases
• Price increases
• People cut back on the purchase of oil
• Entrepreneurs look for additional supplies of oil
• Entrepreneurs look for substitutes for oil
  (alternative energy sources)

15
Assessment

• What are the obstacles to economic development?
• How is the population growth rate calculated?
• What is the dependency ratio?
• What is a criticism of the concept of the vicious
  circle of poverty?