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The Sources of Economic Development

The Sources of Economic Development

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Published by ClassOf1.com
"The basic factors that limit a poor nation’s economic growth includes:
• Capital Formation
• Human Resources and Entrepreneurial Ability Capital
• Social Overhead Capital "
"The basic factors that limit a poor nation’s economic growth includes:
• Capital Formation
• Human Resources and Entrepreneurial Ability Capital
• Social Overhead Capital "

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Published by: ClassOf1.com on Aug 08, 2013
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11/23/2013

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conomics
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The Homework solutions from Classof1 are intended to help students understand the approach to solving the problem and not forsubmitting the same in lieu of their academic submissions for grades.
Subect: Macroeconomics
 
The Sources of Economic Development
The basic
factors that limit a poor nation’s economic growth includes:
 
 
Capital Formation.
A low level of output in developing nations is due to insufficientquantities of necessary inputs. Developing nations have diverse resource endowments
Congo,for instance, is abundant in natural resources, while Bangladesh is resource-poor. Almost alldeveloping nations have a scarcity of capital relative to other resources, especially labor. Thesmall stock of physical capital (factories, machinery, farm equipment, and other productive
capital) constrains labor’s productivity and holds back national output.
 
 Human Resources and Entrepreneurial Ability Capital 
is not the only factor of production required to produce output. Labor is equally important. First of all, to be productive,the workforce must be healthy. Disease today is the leading threat to development in much of the world. In 2009, more than 1 million people died of malaria, almost all of them in Africa. TheGates Foundation has targeted malaria eradication as one of its key goals in the next decade.HIV/AIDS was still responsible for more than 2 million deaths in 2009, again mostly in Africa,and has left Africa with more than 14 million AIDS orphans. Iron deficiency and parasites sapthe strength of many workers in the developing world.
 
 Social Overhead Capital 
Anyone who has spent time in a developing nation knows how difficult it can be to carry on everyday life. Problems with water supplies, poor roads, andfrequent electrical power outages
in the few areas where electricity is available
and oftenineffective mosquito and pest control make life and commerce difficult. In any economy,developing or otherwise, the government plays an investment role. In a developing economy,the government must create a basic infrastructure
roads, power generation, and irrigationsystems.Such projects, referred to as social overhead capital, often cannot successfully be undertaken by the private sector. Many of these projects operate with economies of scale, which means they 
 
 *
The Homework solutions from Classof1 are intended to help students understand the approach to solving the problem and not forsubmitting the same in lieu of their academic submissions for grades.
Subect: Macroeconomics
 
can be efficient only if they are very large, perhaps too large for any private company or group of companies to carry out. In other cases, the benefits from a development project, whileextraordinarily valuable, cannot be easily bought and sold. The availability of clean air andpotable water are two examples. Here government must play its role before the private sectorcan proceed.For exampl
e, some observers have recently argued that India’s growth prospects are being
limited by its poor rail transport system. Goods from Singapore to India move easily over waterin less than a day, but they can take weeks to move from port cities to supply factories in theinterior. China, by contrast, spent the bulk of its stimulus money in the 2008
2009 periodstrying to build new transportation networks in part because the government understood how key this social overhead capital was to economic growth.

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