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Phases of Economic
Development
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A La Kuznets
- Proposed by Simon Kuznets.
- The existence of a pattern or
behavior, between economic
growth and environmental
degradation, consistent with the
environmental Kuznets curve
(EKC) hypothesis.
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Kuznets Master title style
Curve

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• The to edit Master
environmental titlecurve
Kuznets stylesuggests that economic
development initially leads to a deterioration in the environment,
but after a certain level of economic growth, a society begins to
improve its relationship with the environment and levels of
environmental degradation reduces.
• From a very simplistic viewpoint, it can suggest that economic
growth is good for the environment.
• However, critics argue there is no guarantee that economic growth
will lead to an improved environment – in fact, the opposite is often
the case. At the least, it requires a very targeted policy and
attitudes to make sure that economic growth is compatible with an
improving environment.
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Justification Master
Environmental
title style Kuznets curve
1. Empirical evidence of declining pollution levels with economic growth. Studies found that
higher economic growth in the US led to increased use of cars, but at the same time – due to
regulation, levels of air pollution (in particular sulphur dioxide levels declined).
2. Spare income with growth. With higher rates of economic growth, people have more
discretionary income after paying for basic necessities; therefore, they are more amenable to
paying higher prices in return for better environmental standards.
3. Focus on living standards as opposed to real GDP. Traditional economic theory
concentrates on increasing real GDP and rates of economic growth. But there is a growing
awareness the link between economic growth and living standards can be weak. Focusing on
living standards can become politically popular.
4. Improved technology. The primary driving force behind long-term economic growth is
improved technology and higher productivity. With higher productivity, we can see higher
output, with less raw materials used. For example, since the 1950s, the technology of car use
has significantly improved fuel efficiency. In the 1950s, many cars had very low miles per
gallon. In recent years, car manufacturers have made strides in reducing fuel consumption and
have started to develop hybrid technology. 5 5
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5. Solar and renewable energy. A good example of how improved technology has
reduced for environmental damage is the progress in solar technology. In
recent years, the cost of solar energy has significantly fallen – raising the prospect of
clean technology.
6. De-industrialisation. Initially, economic development leads to shifting from farming to
manufacturing. This leads to greater environmental degradation. However, increased
productivity and rising real incomes see a third shift from industrial to the service sector.
An economy like the UK has seen industrialisation shrink as a share of the economy.
The service sector usually has a lower environmental impact than manufacturing.
7. Role of government regulation. Economic growth and development usually see a
growth in the size of government as a share of GDP. The government are able to
implement taxes and regulations in an attempt to solve environmental externalities
which harm health and living standards.
8. Diminishing marginal utility of income. Rising income has a diminishing marginal
utility. The benefit from your first £10,000 annual income is very high. But, if income
rises from £90,000- £100,000 the gain is very limited in comparison. Having a very high
salary is of little consolation if you live with environmental degradation (e.g. congestion,
pollution and ill health). Therefore a rational person who is seeing rising incomes will
begin to place greater stress on improving other aspects of living standards. 6 6
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Limitations Kuznets
title
Environmental
style Curve
• Empirical evidence is mixed. There is no guarantee that economic growth
will see a decline in pollutants.
• Pollution is not simply a function of income, but many factors. For example,
the effectiveness of government regulation, the development of the
economy, population levels.
• Global pollution. Many developed economies have seen a reduction in
industry and growth in service sector, but they are still importing goods from
developing countries. In that sense, they are exporting environmental
degradation. Pollution may reduce in the UK, US, but countries who export to
these countries are seeing higher levels of environmental degradation. One
example is with regard to deforestation. Higher income countries tend to stop
the process of deforestation, but at the same time, they still import meat and
furniture from countries who are creating farmland out of forests. 7 7
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• N-Shaped. Some economists argue that there is a degree of
reduced environmental degradation post-industrialisation.
But, if the economy continues to expand, then inevitably
some resources will continue to be used in greater measure.
There is no guarantee that long-term levels of environmental
degradation will continue to fall.
• Countries with the highest GDP have highest levels of CO2
emission. For example, US has CO2 emissions of 17.564
tonnes per capita. Ethiopia has by comparison 0.075 tonnes
per capita. China’s CO2 emissions have increased from
1,500 million tonnes in 1981 to 8,000 million tonnes in 2009.
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CONCLUSION

• The link between levels of income


and environmental degradation is
quite weak. It is possible economic
growth will be compatible with an
improved environment, but it
requires a very deliberate set of
policies and willingness to produce
energy and goods in most
environmentally friendly way. 9 9
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Human Capital
Based
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- Is a measure of the economic value of


an employee’s skill set.
- Refers to the knowledge, skill sets and
motivation that people have, which
provide economic value.
- It could be invested in through
education, training and enhanced
benefits that lead to an improvement in
the quality and level of production
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• Human Capital is a measure of the skills, education, capacity and
attributes of labour which influence their productive capacity and
earning potential.
According to the OECD, human capital is defined as:
“the knowledge, skills, competencies and other attributes embodied
in individuals or groups of individuals acquired during their life and
used to produce goods, services or ideas in market circumstances”.
• Individual human capital – the skills and abilities of individual
workers
• Human capital of the economy – The aggregate human capital of an
economy, which will be determined by national educational
standards. 12 12
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Factors edit determine
Master title
human
style capital
• Skills and qualifications
• Education levels
• Work experience
• Social skills – communication
• Intelligence
• Emotional intelligence
• Judgement
• Personality – hard working, harmonious in an office
• Habits and personality traits
• Creativity. Ability to innovate new working practices/products.
• Fame and brand image of an individual. e.g. celebrities paid to endorse a product.
• Geography – Social peer pressure of local environment can affect expectations
and attitudes. 13 13
How to increase human capital
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• Specialisation and division of labour. Specialisation allows workers to concentrate on
specific tasks and increased specialisation of skills. (Though specialisation can also lead
to boring, repetitive jobs and limited skill development of workers.)
• Education. Basic education to improve literacy and numeracy has an important
implication for a basis of human capital.
• Vocational training. Direct training for skills related to jobs, electrician, plumbing
nursing. A skilled profession requires particular vocational training.
• A climate of creativity. An education which enables children to think outside the box
can increase human capital in a way that ‘rote learning’ and an impressive accumulation
of facts may not.
• Infrastructure. The infrastructure of an economy will influence human capital. Good
transport, communication, availability of mobile phones and the internet are very
important for the development of human capital in developing economies.
• Competitiveness. An economy dominated by state monopolies is likely to curtail
individual creativity and entrepreneurs. An environment which encourages self-
employment and the creation of business enables greater use of potential human capital
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in an economy.
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Importance humantitle
capital
style
• Structural unemployment. Individuals whose human capital is inappropriate for modern employers
may struggle to gain employment. A major issue in modern economies is that rapid deindustrialisation
has left many manual workers, struggling to thrive in a very different labour market.
• Quality of employment. In the modern economy, there is increasing divergence between low-skilled,
low-paid temporary jobs (gig economy). High-skilled and creative workers have increased
opportunities for self-employment or good employment contracts.
• Economic growth and productivity. Long-term economic growth depends increasingly on
improvements in human capital. Better educated, innovative and creative workforce can help increase
labour productivity and economic growth.
• Human capital flight. An era of globalisation and greater movement of workers has enabled skilled
workers to move from low-income countries to higher income countries. This can have adverse effects
for developing economies who lose their best human capital.
• Limited raw materials. Economic growth in countries with limited natural resources, e.g. Japan,
Taiwan and South East Asia. Rely on high-skilled, innovative workforce adding value to raw materials
in the manufacturing process.
• Sustainability ”what we leave to future generations; whether we leave enough resources, of all kinds,
to provide them with the opportunities at least as large as the ones we have had ourselves” (UN, 2012) 15 15
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Post Demographic
Transitions
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• The Post Demographic Transition Model is based on
historical population trends of two demographic
characteristics – birth rate and death rate – to suggest that a
country’s total population growth rate cycles through stages
as that country develops economically. Each stage is
characterized by a specific relationship between birth rate
(number of annual births per one thousand people) and
death rate (number of annual deaths per one thousand
people).
• As these rates change in relation to each other, their
produced impact greatly affects a country’s total population.
Within the model, a country will progress over time from one
stage to the next as certain social and economic forces act
upon the birth and death rates. Every country can be placed
within the DTM, but not every stage of the model has a
country that meets its specific definition. For example, there
are currently no countries in Stage 1, nor are there any
countries in Stage 5, but the potential is there for movement 17 17
in the future.
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InClick
Stage to editapplied
1 which Master titleofstyle
to most the world before the Industrial Revolution, both
birth rates and death rates are high. As a result, population size remains fairly
constant but can have major swings with events such as wars or pandemics.
In Stage 2, the introduction of modern medicine lowers death rates, especially among
children, while birth rates remain high; the result is rapid population growth. Many of
the least developed countries today are in Stage 2.
In Stage 3, birth rates gradually decrease, usually as a result of improved economic
conditions, an increase in women’s status, and access to contraception. Population
growth continues, but at a lower rate. Most developing countries are in Stage 3.
In Stage 4, birth and death rates are both low, stabilizing the population. These
countries tend to have stronger economies, higher levels of education, better
healthcare, a higher proportion of working women, and a fertility rate hovering around
two children per woman. Most developed countries are in Stage 4.
A possible Stage 5 would include countries in which fertility rates have fallen
significantly below replacement level (2 children) and the elderly population is greater
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than the youthful population.
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Limitations the Demographic
title style Transition Model

• Like any model, there will be outliers and


exceptions to the rule and the Demographic
Transition Model is no different. Additionally,
there are things the DTM cannot reveal: the
impact of other demographic variables such as
migration, are not considered, nor does the
model predict how long a country will be in each
stage. But even so, the relationship between
birth rate and death rate is an important concept
when discussing population and any patterns,
such as those provided by the DTM, that aid in
understanding are helpful. 20 20
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Thank You

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