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Limits to Growth

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Introduction

´╗┐Primary product dependency ? Comparative advantage ? means exports one g/s, imports everything else, so very dependent on one commodity, e.g. Zambia almost 100% dependent on copper. A natural disaster could ruin whole crop, e.g. earthquake ruined much of Chilean wine industry. ? Structural distortion Developed countries pose further problems as they will only import raw materials, and choose to manufacture these themselves. E.g., CAP mean dumping and developing countries cannot compete. Therefore; developing countries cannot process them (e.g. value added) and move into secondary sector. They lose the job chain that would normally result. Primary sector is not very productive (Lewis model). ...read more.

Middle

Therefore difficult to attract FDI; this presents an obstacle to development. Jeffrey Sachs says landlocked countries e.g. S-S Africa at a disadvantage, e.g. high in mountains, lack of navigable rivers. Means harder to trade and CoP much higher. Transport is 14% of exports in landlocked countries. Savings gap ?Already in a poverty trap, low GDP per capita means little saving by individuals? Harrod-Domar suggests this means they cannot invest, preventing economic growth from occurring. Corruption and war ? bribery, extortion, diversion of resources by government ? this is an inefficient allocation of resources and restrains development. Government officials embezzle money rather than spend it on public services or investment. ...read more.

Conclusion

Labour becomes more expensive, so higher CoP, and can attract less FDI. Sub-Saharan Africa has 2/3 of the world?s AIDS sufferers. Resources diverted from growth to treating AIDS. Education - a huge investment in human capital through education has allowed China to shift out its PPF. Countries with little education investment and low school enrolment are likely to have low productivity and little economic growth. It will mean more FDI in the future as firms will not have to train workers. Debt servicing - LEDCs borrowed in 1980s. Since then, fall in value of their currency, compared to $, so have to pay back more; oil prices have increased. Capital flight ? companies and individuals place cash, buy shares and assets abroad, contributing to savings gap, and reduces tax to government. Fact file on Mexico, Page ...read more.

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