Question

2. What factors explain the lack of growth in many low-income countries? 3. If AE <GDP, what is the change in inventories and what are the ramifications for production, employment and GDP?

Answer 1

ANSWER-2)

The factors that determines the lack of growth in the low-income nations are discussed as below:

--Poor infrastructure: Infrastructure includes vital services and facilities such as good water systems, telecommunications, airports roads, sewage treatment, etc. The dearth of any of these facilities mostly can negatively affect the process to achieve economic growth. For example if the road conditions are bad in a developing nation like India, Pakistan, Srilanka it is obvious that the goods cannot be transported from one nation to another, and additionally if the communication systems are poor or does not even exist, then the ability to organize economic activity in developing nation becomes seriously limited

--Human capital inadequacies: Many developing countries lack the human capital infrastructure needed to develop a workforce that could support a more modern economy. For example in many in developing economies, the return on human capital development is uncertain in comparison to the immediate return from employment on the land. Thus, there is little incentive for continuance in full-time education

-- Absence of credit markets: There is a lack of credit markets in many developing economies, and it is a hindrance to both lenders and borrowers. Credit markets generally fail to form because of the higher level of risks associated with lending in developing countries. This is one of the main causes for the importance of micro-finance initiatives commonly found across Pakistan, India, and some parts of Africa.

--Corruption, poor governance, impact of civil war: Corruption, conflict, and poor governance can have severely damage the effects on a nation's growth rate and development potential. For example, high levels of corruption and bureaucratic delays can have negative impact by inhibiting inward investment; and damage the inhibition of direct foreign investment into an economy

--Population issues: A large size of population in countries like India lowers the per capita income. In developing countries the number of consumers relative to producers increases, and thus the rapid growth of population of a state retards the economic growth.

--Insufficient provision of education: Education plays a vital role as a human capital investment that enhances future legitimate work opportunities. As there is a clear linkage between education, poverty reduction and sustainability, thus a lack of provision of education will not support the growth. For example: Countries like India have insufficient provision of education and as a result there earnings are less and create vicious circle of poverty and hinder economic growth

--Insufficient provision of healthcare: Poor healthcare results in less productivity, less income and less development in the developing nations

-- Primary product dependency: Countries like India and Pakistan are overdependence on primary products; and as a result faces the consequences of adverse terms of trade and ultimately lower level of economic growth