Reasons for Differences in Development (Cambridge International IGCSE Economics)
Causes of Differences in Development
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5.4.1· Causes and impacts of differences in income; productivity; population growth; size of primary, secondary and tertiary sectors; saving and investment; education; and healthcare.
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Economic development is the sustainable increase in living standards for a country, typically characterised by increases in life span, education levels, and income
- Two indicators used to compare development are the real GDP and the Human Development Index (see: 5.1.1 Indicators of Living Standards)
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Countries are all at different points of development and economists distinguish between them using different criteria
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E.g. HDI has five categories of development based on the HDI score
- Low human development (<0.550)
- Medium human development (0.550–0.699)
- High human development (0.700–0.799)
- Very high human development (>0.800)
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There are numerous reasons for these differences including differences in income, productivity, population growth, size of primary, secondary and tertiary sectors, saving and investment, education and healthcare
Causes of Differences in Development
| Factor | Explanation |
|---|---|
| Differences in income | - Countries with a higher GDP/capita tend to be more developed - Even with high GDP/capita, there may be significant inequality in the distribution of income resulting in poor living standards for many |
| Differences in productivity | - Differences in skills result in difference in productivity - Higher levels of productivity are rewarded with higher wages, which leads to a better standard of living |
| Differences in population growth | - More densely populated countries or cities face more challenges - A larger population can mean higher tax revenues for the government but at the same time, government expenditure on services is spread across more people - Poorer economies are characterised by less government spending/capita |
| Differences in economic sector sizes | - Economies with a larger proportion of secondary and tertiary activity tend to be more developed due to the wages associated with each sector - Primary sector workers are usually paid low wages due to the unskilled nature of the job and the fact that raw materials often generate the lowest profits in the production chain - Secondary sector workers add value to the raw materials and these products sell for higher profits. Therefore wages tend to be higher than primary sector wages - Tertiary sector workers are paid the highest. Their jobs often require highly valued skills that take years to acquire and the products they sell or services they provide can be complex and expensive e.g. artificial intelligence coders |
| Differences in saving and investment | - Higher savings result in higher investment and economic growth. It is believed that as economies develop, savings increase - Increased savings → increased investment → higher capital stock → higher economic growth → increased savings - If the dependency ratio is high it means there is less money available for savings and investment |
| Differences in education | - These directly influence the level of skill in an economy - Improved skills results in higher productivity and wages |
| Differences in healthcare | - The level of health directly impacts productivity of labour - Productivity influences output and income - Developed economies tend to have healthy workforces - The less developed the economy, the more sickness and disease there is |
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