Explain the key issues in relation to the developing nations concerning the consequences of economic growthTo begin, it is extremely expedient and beneficial if meticulous definitions and what processes of the topic at hand are given. In this second LDC essay, the main focus is on the Consequences of Economic Growth. While a country may grow wealthier therefore, during the growth of its real productivity, it does not essentially mean that it will expand.
Economic Growth on the other hand, occurs where there is an increase in the productive potential of the economy and is best calculated by the boost in a country’s real level of output over a period of time, for example the increase in the actual Gross Domestic Product.Economic growth is caused by improvements in the quantity and quality of the factors of production that a country has available: Land, Labour, Capital and Enterprise. On the contrary economic decline may take place if the quantity and quality of any of the factors of production falls as each one of the factors rely heavily on each other. Growth is obviously a good thing. This is the set view of economic growth, as it tends to be treated as the main “stepping stone” of economic policy for both developed and developing countries. However, it may not always be supreme. Possible costs and consequences of growth can include the following key aspects.
The major problems have been required to be defeated by following the model of sustainable development; “economic growth that can continue over the long-term without non-renewable resources being used up”1, which many economies now aims for. On the right, a basic diagram of economic growth presenting the actual output, the ideal output, and the projected output. The distribution of wealth within a country is mainly concentrated on the affluent and economically strong and thus economic growth inflates income distribution, especially in poorer countries and effects crime rates and social behaviour.1 http://textbooks.triplealearning.
co.uk/mod/glossary/view.php (Triple A online Textbook)The distribution of wealth within a country is primarily concerted on the rich and economically strong and thus economic growth inflates income distribution, especially in poorer countries and effects crime rates and social behaviour. “Rio has one of the highest crime rates in Brazil, exacerbated by high inequality in incomes” 1. Figure 2, the bar graph on the right, labels the recent estimates of the Gini Coefficient2 in selected “unequal” countries. The graph indicators shows, the lower the number out of 60, the more equal the distribution of income throughout the eight South American countries.Figure 2 shows hat both in developing and developed countries inequality exists. From the graph it could be understood that inequality exists around the world and is not concentrated on the poorer nations.
One aspect of income distribution is the progression of the tax system, designed so that people on the higher incomes pay a higher proportion of their income tax, in which the money will be redistributed to the poor. For many developing countries this is not the case and this form of redistribution might not occur. “Rapid economic expansion is also creating growing imbalances that threaten to undermine financial stability and continued growth.” 4In addition to negative externalities, income distribution, and lack of sustainability in an economically developing country, the loss of non-renewable resources outcomes show the more they want to produce, the more resources they need to do that.
The faster these resources become utilized, the less time they will last.The Loss of land is another vital consequence as increased output puts further pressure on the available land. This may gradually corrode the available countryside. “Lifestyle changes are seen as the push for growth has in many areas put a great deal of pressure on individuals, especially in lower developed countries.” 4 This may have consequences in terms of family and community life in many economies. To further outline the grand consequences of economic growth and what their effect are on the society, three particular factors which must be addressed in significant detail as before were only in simplistic summaries, are positive and negative externalities, income distribution, and finally sustainability.
EXTERNALITIES:Externalities are costs such as negative externalities or benefit for instance positive externalities, which are not revealed in free market prices. “Externalities are sometimes referred to as ‘by-products’, ‘spillover effects’, or ‘side-effects’, as the generator of the externality, either producers or consumers, otherwise both, impose costs or benefits on others who are not responsible for initiating the effect.” 1 In practice, the most important externalities are those which affect the environment, and it is these which have received widespread adverse publicity in recent years, and which have prompted the rise of ‘green’ pressure groups and political parties. The key feature of an externality is that it is initiated and practised, not through the operation of the price system, but externally from the market.Another negative externality from growth could be soil erosion and degradation.
There are also the issues of water scarcity, pollution and waste disposal. All of these challenges face countries in the developed world but those experiencing the challenges of economic development in the lower economically developed countries have to balance their desires to grow against the possible problems that might arise. The reduction in biodiversity and atmospherical changes in the environment need to be addressed as to see whether economically rising nations are trying to impose laws on preventing negative consequences from growth, such like, environmental degradation.LDC’s must focus on goals such as extending property rights and force private conglomerates to pay more to the problems they cause, such as pollution of environment.
Or another example could be subsidising non-polluting methods of production, and award permits to pollute to a certain extent before buying another tradable permit.However for every problem, there is always a solution within the problem. Perhaps a few suggestions for economic developing countries to follow in achieving their goals of avoiding any negative consequences in their rapid pace of economic growth.
To achieve goals like the ones addressed above, solutions can be involving local communities in their own development to propagate efficient economic growth. So externalities need to be taken into account when considering economic growth but, for many developing countries, “there will be a significant opportunity cost if they try to grow while minimising externalities, because this requires investment and perhaps reform, both of these being expensive.” 21 http://textbooks.triplealearning.co.uk/mod/glossary/view.php (Triple A online Textbook)2 “http://www.economist.
com/world/la/displayStory.cfm?story_id=2193852.” (The Economist, Inequality in South America, January 8th 2006)INCOME DISTRIBUTION:As economies grow and develop income distribution is likely to amplify. As economies grow, they tend to reward the economically strong rather than the weak.
The wealthy get stronger while the poor get poorer. In most developed economies, progressive tax systems and social security systems exist to “help those at the bottom of the economic pile to varying degrees”. 1 However, many developing economies do not have the institutional framework they need to do this. They may not have a sufficient tax base to collect enough tax to help the least well off and so income distribution will often worsen considerably during the process of development.In most countries, the taxation system is designed so that people on higher incomes pay a higher proportion of their income as tax.
In this way, “income gets redistributed from rich to underprivileged, and there is some protection for the poor”.2 In considering the distribution of income, a primary concern may be partly with the “bottom end”. 3 Particularly in an economically developing society in which the distribution of income is unstable, it is the main concern people are falling into poverty.
Take the classic comparison of Zimbabwe and Indonesia, the date indicates that in Zimbabwe, some 36% of the population “receive incomes that leave them below the UNDP’s poverty line of $1 per day, whereas in Indonesia, a more respectable 7% live below that line.” 4Source: WDRIt is vital to remember, that the production of economic goods and effectively achieving progressive growth also involves the production of economic negative externalities, such as pollution. Especially developing nations tend to demote environmental contemplations and other negative flaws. This can be caused for arguing, especially in rising economically developed nations, that being more careful with the environment can limit the rate of economic growth and believing that more is better.1 “Income Distribution”, 25(1), September 2004 (Economic Review)2 “Income Distribution”, 25(1), September 2004 (Economic Review3″http://search.ft.com/ftArticle?queryText=Consequences+of+Growth;y=12;aje=true;x=11;id=070302000822 (Financial Times Report – Romania, “Rapid Growth puts Strain on Stability, March 2nd 2007)4 “Economic Review, Development Profiles (April, 2006)5 “Process of distributing income, in this scale, the more to 100, the more unequal distribution”SUSTAINABILITY:Many economies now aim for sustainable economic growth as stated before.
This means that they are attempting to grow today without damaging the prospects for development for future generations. Some doubt if this is really possible but to achieve it means investing more in such courses of action as:* Recycling* Using alternative methods and resources to generate power etc* Admitting to both social costs and benefits and accepting that someone has to pay the true cost of resource allocation.Achieving these goals and achievements may mean leaning on developing ways of:* Extending property rights – This means extending ownership of resources to allow people to protect the environment and other resources more effectively.* “Taxing the polluter” 1 – if a tax is imposed that is equal to the external cost of an activity this should ensure that resources are allocated in the interests of society.* Issuing permits to pollute (tradable permits) – These allow companies to pollute a certain amount, but if they exceed their limit, they have to buy more permits.
Companies who under-use their permits can sell them. This effectively taxes poorly performing companies and subsidises companies using best practice.Conservation and the protection of biodiversity is one such issue. If species or ecosystems are destroyed, the world may lose resources that have not been yet discovered.
For example if an area of Brazilian rainforest is cleared for timer or some other use, and this destroys a rare fauna, the society will never know whether the plant could have been medically valuable. It is difficult to put a value on this sort of unknown resource.Economic growth is of the essence, a fundamental aspect for every developing nation, because after all when it comes down to the basics, “growth is good”, and is treated as the “holy grail” as a set view of economic growth. There is no qualm that people want to enjoy a better standard of living. In addition, Economic growth is the very aspect that enables us to enjoy a comfortable standard of living.
Despite the fact that one must keep in mind the favourable consequences of economic growth such as: employment, opportunities for investment and the heights of new significant political and communal dimensions.Economic Growth however, brings about negative consequences such as: inequality of income, negative externalities, such as acidic rain, loss of non-renewable resources, loss of land and lifestyle changes. Many developing nations have a propensity to lack the dominant political outline to control the negative economic externalities, believing that dominating these; will limit the rate of economic growth. Sustainability has become the new format for economists, in regard to developing nations, however the problem lies on the fact of the blindness of economical affluent nations, who tend to ignore the concept of the LDC’s, that more is better.1 http://textbooks.triplealearning.co.uk/file.php/75/mod5_notes/page_22.htm1 Jackline Wahba, “Keeping up with the Joneses”, 22(1), September 2004 (Economic Review)2 “http://www.economist.com/world/la/displayStory.cfm?story_id=2193852.” (The Economist, November 3rd 2006)3″http://search.ft.com/ftArticle?queryText=Consequences+of+Growth&y=12&aje=true&x=11&id=070302000822 ( Financial Times Report – Romania, “Rapid Growth puts Strain on Stability, March 2nd 2007)4″http://search.ft.com/ftArticle?queryText=Consequences+of+Growth&y=12&aje=true&x=11&id=070302000822 ( Financial Times Report – Romania, “Rapid Growth puts Strain on Stability, March 2nd 2007)