Economic development as a branch of economics deals with the economic development of low-income countries. Its focus is not only on ways of promoting economic growth, structural change and economic development but also on increasing of the potential of the citizens for example through education, workplace condition and health through private or public channels. Dwells mostly on improving the standards of living of the people. It also involves formulation of methods and theories that help in the formulation of policies and practices that can be implemented by governments either domestically or internationally. Economic development is best displayed by qualitative and quantitative change in the economy resulting in improvement of a nation in terms of political, social and economic well-being of its citizens.
Most the developing countries are mainly from Asia and Africa, these countries are the ones which are trying to employ various economic development policies and strategies so as to improve their economy but are faced by various major factors including: post-colonization effects; mismanagement of resources due to imperfections in the market; low rate of investments and savings; the demonstration effect; rapidly growing population; various social and political obstacles to growth such as political instability, unequal distribution of income and corruption; poverty cycles; ineffective tax structures; international trade barriers and international financial barriers (Todaro, Michael, Stephen and Smith 76).
Most of the developing countries were once colonized by other nations. This largely explains the reason of their lagging behind in the developing of their economies and widespread poverty. Colonist used to exploit the colonies by using their resources for their own gain. These countries supplied raw materials at low prices to the colonies and after the finished goods have been processed, the colonies are sold the goods at higher prices, hence developing the economies of the colonists only (Todaro, Michael, Stephen and Smith 99). Hence the masters did not concentrate in the development of the economies of the colonies but their own countries.
Another obstacle many developing countries face is the mismanaging of resources due to market imperfections. Factors of production are not as mobile as they should be limiting production. Markets also face price rigidities, lack of specialization and ignorance leading to market imperfection hence widespread misuse of resources as the market is not performing under full capability. Perfect mobile resources and perfect markets lead to efficiency in the market hence full maximization of resources as there are production efficiencies (Todaro, Michael, Stephen and Smith 106).
Low investment and saving rates implies that there is low capital formation in the countries. This leads to low productivity as capital-man ratio is low, this in turn results to low per capita income and national income. In developing countries 5-8% of national income is saved unlike in developed countries where 15-20% of the countries national income is reserved for saving.
Demonstration effect in a country result to increase in the propensity to consume which in turn reduces the propensity to save and invest. In developing countries, people have a tendency to consume all their monies leaving little or none to save. This has adverse effects in the economy as it results in low capital hence reduces the productivity levels of the country.
The rapid population growth is experienced by most developing countries due to the high levels of birthrates. This has greatly affected their rate of economic growth, as any increase in income or national output is devoured by the increase in population, hence, keeping per capita income at its low, hence hindering economic development.
Corruption is highly practiced in most developing countries. Those charged with governance are soliciting public funds meant for development of the state for their own selfish interest. These results in wastage of the taxpayers’ money hence no economic development as such funds could have been used for improvement of infrastructures which still lie in their depleted conditions. Political instability in most of the developing countries is hindering economic development as most of the funds are directed to the maintenance of security (Todaro, Michael, Stephen and Smith 121). Political instability scares away investors who would have injected capital into the country leading to increased production, increasing per capita income.
The poverty cycles experienced in most developing countries contribute greatly to hindrance of economic development. When the population of a country is mostly comprised of the poor as compared to the rich, this leads to reduction of per capita income of the country as whole hence minimizing the chances of economic growth. For example in Bangladesh, 80% of the people are considered to be living below the poverty line. This unequal distribution of income is heavily affecting most of the developing countries as the rich remain rich and the poor become poorer.
Ineffective tax structures have led to collection of minimal revenue by the local authorities and the government the government is forced to use other fiscal strategies such as raising tariffs and printing money which reduces the incomes of those in the rural areas further increasing the unequal distribution of income. Little revenue limits the government in the development of infrastructure such better health, schools and roads limiting economic development.
International trade barriers are as a result of overdependence on primary products and adverse terms of trade. Developing countries as a result have a narrow range of products to serve as exports hence a deficit in their terms of trade as there is always a higher outflow of capital as compared to inflow. Protectionism in trade also affects most of the developing countries as the developing imposes policies that favour their terms of trade in respect to the already suffering developing countries.
All of these obstructions can be overcome by government intervention, government can employ the relevant economic development policies necessary to steer the country into the positive direction. This can be done by import substitution where the government lays down policies to promote the domestic market by creating barriers of trade to the foreign products for a period of time to allow development of the domestic industry (Todaro, Michael, Stephen and Smith 122). For the case of japan, import substitution lead to the development of the motor industry and the consumer electronic industry.
Promotion of tourism as well is one of the major activities that most countries are carrying out to ensure increased per capita income of the country. As most of the developing countries have various tourist attraction sites, promotion of this industry by the government can lead to economic development of the country greatly.
Appropriate tax systems can be adapted by the central government to answer on the distribution of labour as well on the maximization of revenue to the central government. This in turn will create more revenue for various projects including development of various infrastructures and also increase per capita income as the incomes of the poor are not excessively taxed.
Introduction of incentives and promotion of investment from foreigners would greatly improve our economy as a whole. This is increase the capita income of a country increasing productivity levels as well as income of the country. This increases the economy of a nation as whole. Implementation of anti-corruption laws and strict punishment to offenders to curb the offenders will minimize the chances of soliciting of public funds used for improvement of the country’s infrastructure.
Implementation some of the policies could as well lead to negative impacts von the economy. Policies formulated to correct the tax system may lead to further diminishing of the economy. They may be meant to increase revenue collection by the government but in the end, end up decreasing the per capita income as the poor have been made poorer as a result of imposing of greater taxation to the poor.
Increasing of saving and investments policy may results in high inflation rates in the country, stabilizing the country’s economy. Such policies implemented as corrective measures may turn out to be hazardous to the economy hence careful analysis should be taken before any decision is made regarding the economy. As seen from the few examples, it can be concluded that any of the corrective strategies can also prove to be hazardous if not well and carefully implemented.
In Nigeria, the discovering of crude oil lead it being the primary export, this led to the neglecting of the other industries limiting economic development. In due time the volatility of the international oil prices affected led to decline of oil prices implying that Nigeria inflow of capital had to reduce. This has called for awakening of the other industries which it had completely neglected, putting Nigeria in a financial crisis in the early 2000s. This has greatly affected the county’s development plans.
Nigeria is also faced by major inter clans wars, affecting the political stability of the country, limiting foreign direct investment and productivity by the locals as well. These major wars have greatly affected the country’s economic development plans as resources are being diverted towards containing of the situations in the country while the funds could be used for major reconstruction of the economy.
The Nigeria’s economy faces widespread tax evasion problems. This has resulted in reduced revenues for development in the country, slowing down economic development. Its agricultural industry has not kept up with the rapid increase of population in the country, slowing down economic development.
In 1949, China was continuously invaded by foreigners, revolutions were rampant and also restorations and multiple civil wars left the nation with a delicate economy. After independence, great effort was made towards promoting economic growth and various industries were created. Tight budget control of money supply and budget resulted to the reduction of inflation and promotion of the industry. The upcoming of the private sectors greatly impacted positively to the development of the economy. Currently, china is the second largest economy in the world after implementation of the various developing policies. Its socialist market economy is the fastest –growing major market.
Since 1949-1991, India’s economy was established on mixed economy, combining socialism and capitalism. It used import-substituting and intervention policies that failed to take advantage of post-world war two expansion of trade. This model combined to widespread inefficiency and corruption and poor implementation lead to great decline of India’s economy. 1999, it adopted a free market and liberal principles and introduced its economy to international trade. Following the reforms by the prime minister and strong focus on the developing of national infrastructure, the country’s growth in the economy increased a rapid rate with large increases observed in the per-capita incomes.
As seen, major economies of the world were built from scratch implying that with the right policies and resources all third world countries have the potential to develop in the near future.
Todaro, Michael P, and Stephen C. Smith. Economic Development. Harlow: Addison-Wesley, 2009. Print.