Kabarak University

School of education humanities and social sciences

Education arts

Group ten members:

mercy Cherotich eda/mg/2260/09/22

Emmanuel kipkoech bett eda/mg/3252/09/22

Melvin kipsumbai eda/mg/3194/09/22

Diana Chepkorir eda/mg/2532/09/22

Year three semester one

Econ 219 Economic development

Date of submission 27/6/2024

To:Ms Emmy kipsang

Task:

1. Explain SEVEN economic factors of economic growth

2. “The vicious circles of poverty stems from the fact that in underdeveloped

Countries total productivity is low due to deficiency of capital, Market

Imperfections, economic backwardness and underdevelopment” Discuss

3.Explain the reasons why the data on per capita national incomes in underdeveloped countries
and their comparison with the per capita incomes of advanced countries are often inaccurate,
misleading and unreliable.

4. Discuss the basic requirements for economic development

5. Discuss the role of education in women empowerment

6. Explain the repercussions of too much dependence on exports of primary products by

underdeveloped countries.
 7. Explain the five stages of economic growth as pointed out by Rostow and its applicability to
developing countries
8.Explain characteristics of economic growth as pointed out by kuznets in developing countries

1.Explain seven economic factors of economic growth

1.Human Capital: A skilled and educated workforce is fundamental for innovation and productivity.
Investments in education, healthcare, and training programs enhance the capabilities of the labor force,
leading to a more efficient and adaptable economy .

2.Physical Capital: This refers to the stock of machinery, buildings, infrastructure, and other tangible
assets used in production. Increasing physical capital allows for greater production capacity and
efficiency. This can be achieved through investments in infrastructure, machinery, and technology .

3.Technological Advancement: Innovation and technological progress drive economic growth by

creating new products, improving production processes, and increasing efficiency. This can lead to cost
reductions, new markets, and a wider variety of goods and services .

4.Entrepreneurship: Entrepreneurs are the driving force behind innovation and business creation. They
identify opportunities, take risks, and invest resources to create new businesses and drive economic
activity .

5.Investment: Investments in physical capital, human capital, and research and development are crucial
for long-term economic growth. These investments increase productivity, innovation, and the capacity
of the economy to produce goods and services .

6.Stable Institutions and Property Rights: A strong legal system and secure property rights provide a
stable environment for businesses to invest and operate. This fosters trust, encourages risk-taking, and
facilitates long-term planning, all of which contribute to economic growth .

7.Natural Resources: While not the sole driver, access to natural resources can play a role in economic
growth, particularly in the early stages of development. Extractive industries and resource-based
production can provide a foundation for further economic development .

2."The vicious circles of poverty stems from the fact that in underdeveloped Countries total
productivity is low due to deficiency of capital, Market Imperfections, economic backwardness and
underdevelopment” Discuss

.The concept of the vicious circle of poverty suggests that poverty is self-perpetuating, trapping
individuals and communities in a continuous state of deprivation. This phenomenon is particularly
evident in underdeveloped countries where several interrelated factors contribute to and sustain low
productivity and economic stagnation. These factors include a deficiency of capital, market
imperfections, economic backwardness, and general underdevelopment.

Deficiency of Capital:
Low Savings and Investment: In underdeveloped countries, low-income levels result in limited savings,
which restricts the amount of capital available for investment in productive activities. Without sufficient
investment, it becomes challenging to improve infrastructure, technology, and education, all of which
are critical for economic growth.

Limited Access to Credit: Financial institutions in these regions often have limited reach, and the lack of
collateral among the poor makes it difficult for them to secure loans. This further constrains their ability
to invest in business ventures or improve their productivity.

Market Imperfections:

Information Asymmetry: Poor access to information and technology leads to inefficiencies in markets.
Farmers, for example, might not have access to market prices or improved farming techniques, resulting
in lower productivity and income.

Monopolies and Oligopolies: In some underdeveloped countries, markets may be dominated by a few
large firms, limiting competition. This can lead to higher prices and lower-quality goods and services,
which disproportionately affects the poor who have limited resources.

Underdeveloped Infrastructure: Poor infrastructure, such as roads, electricity, and communication

networks, hinders market integration and increases transaction costs, making it difficult for businesses
to operate efficiently and for products to reach broader markets.

Economic Backwardness:

Low Levels of Education and Skills: Underdeveloped countries often have inadequate educational
systems, leading to a workforce with low levels of skills and productivity. This limits their ability to
engage in more sophisticated and higher-paying economic activities.

Traditional Agricultural Practices: Many underdeveloped economies rely heavily on agriculture, often
using outdated methods that yield low productivity. This dependence on low-yield agriculture
perpetuates low income and poverty.

Underdevelopment:

Lack of Industrialization: Underdeveloped countries often lack a diversified industrial base. This limits
job creation in higher value-added sectors, confining large portions of the population to low-wage, low-
productivity jobs.

Health Challenges: Poor health care systems lead to high disease prevalence, reducing the workforce's
productivity and increasing absenteeism. Health challenges are both a cause and consequence of
poverty.

Breaking the Vicious Circle

Addressing the vicious circle of poverty requires multifaceted interventions:

Investment in Human Capital: Improving education and health services to enhance the productivity of
the workforce.

Infrastructure Development: Building and upgrading infrastructure to reduce transaction costs and
integrate markets.

Financial Inclusion: Expanding access to credit and financial services to stimulate investment.

Market Reforms: Enhancing market efficiencies by reducing monopolistic practices, improving access to
information, and fostering competitive markets.

Technological Adoption: Promoting the use of modern technologies in agriculture and other sectors to
increase productivity.

By tackling these issues, underdeveloped countries can create a more conducive environment for
sustainable economic growth, thereby breaking the cycle of poverty and fostering development.

3.Explain the reasons why the data on per capita national incomes in underdeveloped countries and
their comparison with the per capita incomes of advanced countries are often inaccurate, misleading
and unreliable.

Comparing per capita national incomes between underdeveloped and advanced countries often yields
inaccurate, misleading, and unreliable results due to several inherent challenges and discrepancies in
data collection, measurement, and interpretation. Here are the primary reasons for these issues:

1.Differences in Data Collection Methods:

Statistical Capacity: Underdeveloped countries often lack the institutional capacity and resources to
collect accurate and comprehensive economic data. This can result in incomplete or outdated
information.

Informal Economy: A significant portion of economic activity in underdeveloped countries occurs in the
informal sector, which is not captured by official statistics. This leads to underestimation of actual
income levels.

2.Currency and Exchange Rate Fluctuations:

Exchange Rate Variability: The exchange rates used to convert local currency incomes to a common
currency like the US dollar can fluctuate widely, often reflecting short-term market conditions rather
than long-term economic fundamentals.

Purchasing Power Parity (PPP): Comparing incomes using nominal exchange rates does not account for
differences in the cost of living between countries. PPP adjustments attempt to address this, but these
adjustments are complex and not always accurate.

3.Price Level Differences:

.Cost of Living Variations: Prices of goods and services can vary greatly between countries. The same
nominal income can have very different purchasing powers in different economies. Per capita income
comparisons often fail to reflect these disparities.

Non-Traded Goods and Services: Many goods and services, especially those locally produced and
consumed, are not traded internationally. Their prices are influenced by local factors and do not align
with international price levels, complicating comparisons.

4.Quality and Scope of Economic Activities:

Sectoral Composition: Advanced economies typically have a higher proportion of their GDP coming from
high-value-added sectors like services and manufacturing, while underdeveloped countries might rely
more on agriculture and low-value-added activities. This structural difference affects per capita income
figures.

Quality of Output: The quality of goods and services produced can vary significantly, and higher per
capita income in advanced countries often reflects not just higher quantities but also higher-quality
outputs.

5.Measurement Issues:

GDP Estimation Techniques: The methods used to estimate GDP can vary, with some countries using
more sophisticated techniques than others. Inconsistent methodologies can lead to inaccurate
comparisons.

Income Distribution: Per capita income is an average measure and does not reflect income distribution
within a country. High levels of income inequality can distort the perception of well-being that per capita
income provides.

6.Data Timeliness and Reliability:

Outdated Data: Economic data from underdeveloped countries are often collected less frequently and
may be outdated by the time they are published.

Political and Social Factors: Data may be manipulated or reported inaccurately due to political pressures
or instability, further reducing reliability.

Addressing the Issues

To improve the accuracy and reliability of per capita income comparisons:

Enhancing Statistical Capacity: Providing technical and financial support to underdeveloped countries to
improve their data collection and processing capabilities.

Using PPP Adjustments: Where possible, using purchasing power parity adjustments to better reflect the
relative cost of living and real income levels.
Incorporating Informal Economy: Developing methods to estimate the size and contribution of the
informal sector more accurately.

Considering Non-Income Indicators: Complementing income data with other indicators of well-being,
such as health, education, and life expectancy, to provide a more holistic view of development.

By addressing these issues, we can achieve more meaningful and reliable comparisons of economic well-
being across countries.

4.Discuss the basic requirements for economic development

1. Human Capital Development:

A skilled and educated workforce is essential for innovation, productivity, and adaptability. Investments
in quality education, healthcare, and training programs enhance human capital, leading to a more
efficient and competitive economy .

2. Physical Capital Investment:

Physical capital refers to the infrastructure, machinery, buildings, and other tangible assets used in
production. Increasing physical capital allows for greater production capacity and efficiency. This can be
achieved through investments in infrastructure development, modern machinery, and technological
advancements .

3. Technological Innovation:

Innovation and technological progress are key drivers of economic development. New products,
improved production processes, and increased efficiency contribute to economic expansion.
Technological advancements can also lead to cost reductions, open up new markets, and create a wider
variety of goods and services .

4. Entrepreneurial Spirit:

Entrepreneurs are the catalysts for innovation and business creation. They identify opportunities, take
calculated risks, and invest resources to create new businesses that drive economic activity and job
creation .

5. Investment in Growth:

Investments in physical capital, human capital, and research and development (R&D) are crucial for
long-term economic development. These investments increase productivity, fuel innovation, and expand
the capacity of the economy to produce goods and services .

6. Stable Institutions and Property Rights:

A strong legal system that enforces contracts and protects property rights fosters a stable environment
for businesses to invest and operate with confidence. This environment encourages risk-taking,
facilitates long-term planning, and builds trust, all of which contribute to economic development .

7. Efficient and Fair Market System:

A well-functioning market system allows for the efficient allocation of resources and fosters
competition. This competition drives innovation, improves product quality, and keeps prices in check,
ultimately benefiting consumers and businesses alike.

8. Openness to Trade and Investment:

Engaging in international trade and attracting foreign investment exposes domestic businesses to new
ideas, technologies, and competition. This can lead to increased efficiency, innovation, and access to
new markets, all contributing to economic development .

9. Sustainable Practices:

Economic development should be achieved in a way that protects the environment and ensures the
long-term viability of resources. Sustainable practices, such as renewable energy and resource
conservation, contribute to long-term economic growth and well-being .

10. Social Equity and Inclusion:

Broad-based economic development requires participation from all segments of society. Investments in
social programs that address poverty, inequality, and discrimination can create a more level playing field
and unlock the full economic potential of a nation's population .

5.Discuss the role of education in women empowerment

1.Economic Empowerment: Education increases a woman's chances of securing better-paying jobs and
achieving financial independence. Studies show a positive correlation between educational attainment
and women's earnings potential [1]. This financial security allows them greater control over their lives
and fosters better decision-making for their

2. Social and Political Participation: Education equips women with the skills and confidence to
participate actively in their communities and political spheres. They can critically analyze situations,
advocate for their rights, and challenge discriminatory practices.

3. Improved Health Outcomes: Educated women are more likely to make informed choices regarding
their health and well-being. They tend to have better access to healthcare services, practice preventive
measures, and raise healthier families .

4. Decision-Making Power: Education empowers women to make informed decisions about their lives,
from choosing their careers and partners to managing finances and raising children.
5. Breaking Gender Stereotypes: Education challenges traditional gender roles and promotes a more
equitable society. It allows women to pursue careers traditionally held by men and redefine their
societal contributions.

6. Intergenerational Impact: Educated mothers are more likely to ensure their children, both girls and
boys, receive an education, perpetuating the cycle of empowerment .

7. Leadership Potential: Education equips women with the necessary skills and knowledge to take on
leadership roles in various sectors, fostering a more inclusive and diverse society.

8. Increased Self-Esteem: Education fosters a sense of self-worth and confidence in women. The ability
to learn, contribute, and be recognized allows them to break free from limitations imposed by society.

9. Combating Violence: Education empowers women to identify and challenge gender-based violence.
They become aware of their rights and can seek help from relevant resources.

10. Overall Development: Women's education contributes significantly to a nation's overall

development by creating a more skilled workforce, promoting social justice, and fostering economic
growth.

In conclusion, education is the cornerstone of women's empowerment. By investing in girls' education,

we pave the way for a more just, equitable, and prosperous world for all.

6.Explain the repercussions of too much dependence on exports of primary products by underdeveloped
countries

1.Vulnerability to price swings: The global market for commodities is volatile. If the price of a country's
main export drops, their entire economy suffers. This makes it hard to plan for the future and invest in
development.

2.Limited job creation: Extracting raw materials often doesn't require a lot of workers, and the jobs it
does create tend to be low-skilled. This means less opportunity for people to improve their lives.

3.Dutch Disease: When a country sees a big boom in resource extraction, it can make their currency
stronger. This can hurt other industries, like manufacturing, because their exports become more
expensive.

4.Environmental damage: Mining, logging, and intensive farming can harm the environment, leading to
deforestation, soil erosion, and pollution. This can hurt people's health and limit future economic
options.

5.Unequal benefits: The profits from resource extraction often flow to a small number of wealthy
corporations or individuals, rather than being spread throughout the country. This can worsen income
inequality.
6.Lack of diversification: An economy focused on one or two primary products is fragile. If there's a
change in demand or a new discovery makes those resources less valuable, the whole country can
suffer.

7.Slow technological progress: There's less incentive to invest in research and development when your
income relies on what you dig out of the ground or grow on a farm. This can make it hard to develop
new industries in the future.

8.Dependence on foreign powers: Countries that rely on exporting resources often end up depending
on foreign companies for investment and technology. This can limit their control over their own
economies.

By diversifying their economies and moving away from a dependence on raw materials, underdeveloped
countries can create a more stable and prosperous future for their people

7..Explain the five stages of economic growth as pointed out by Rostow and its applicability to
developing countries

1.Traditional Society: This stage is characterized by subsistence agriculture, limited technology based on
pre-modern science, and a social structure that resists change. Developing countries might exhibit
elements of this stage, with a large rural population and limited industrial base.

2.Preconditions for Take-Off: Here, we see the beginnings of change. There's a shift towards commercial
agriculture, development of infrastructure like transportation networks, and a growing emphasis on
education. Developing countries aiming for growth often focus on these aspects.

3.Take-Off: This is the critical stage of rapid economic growth, often spurred by a leading sector like
textiles or manufacturing. Investment surges, and new technologies are adopted. Developing countries
experiencing a growth spurt might be in this phase.

4.Drive to Maturity: The economy continues to diversify beyond the leading sector. Heavy industries and
advanced technologies are developed. Developing countries that have achieved some level of
industrialization might be working towards this stage.

5.Age of High Mass Consumption: This final stage features a high standard of living with widespread
consumption of durable goods. While some developed nations exhibit this, it's not necessarily the
ultimate goal for all developing countries.

Applicability to Developing Countries:

Rostow's model provides a general framework, but it's not without criticism. Here's why:

Linear View: The model suggests a rigid, linear progression, which isn't always the case. Developing
countries might experience some stages simultaneously or even regress due to political or social
instability.
Focus on Western Model: The model has been critiqued for being too focused on the Western
development path, neglecting the unique challenges and opportunities faced by developing countries.

Ignores External Factors: The model doesn't fully account for external factors like trade policies, foreign
investment, and global economic trends, which can significantly impact development.

Despite these limitations, Rostow's model offers valuable insights for developing countries:

Importance of Preconditions: It highlights the need for investments in education, infrastructure, and a
supportive environment for entrepreneurship before achieving rapid economic growth.

Focus on Leading Sectors: Identifying and nurturing leading sectors can provide the initial push for
development.

Need for Diversification: The model emphasizes the importance of moving beyond dependence on a
single sector for long-term sustainable growth.

Developing countries can adapt Rostow's ideas to their specific circumstances, focusing on build

8.Explain characteristics of economic growth as pointed out by kuznets in developing countries

1. High Rate of Per Capita Output and Population:

Per capita output refers to the average income (GDP) per person in a nation. Modern economic growth
is characterized by a significant and sustained increase in this metric. People generally become
wealthier.

Population often grows alongside economic expansion. This can be due to factors like improved
healthcare and living standards, leading to lower mortality rates. However, Kuznets didn't necessarily
consider high population growth a positive aspect of modern economic growth.

2. The Rise of Productivity:

Modern economies experience a significant increase in factor productivity. This measures how efficiently
an economy uses resources (labor, capital, etc.) to produce goods and services. Technological
advancements, better infrastructure, and improved management practices all contribute to rising
productivity.

3. High Rate of Structural Transformation:

This refers to a major shift in the composition of an economy as it develops.

The agricultural sector shrinks in relative importance. People move from farms to cities for industrial and
service-based jobs.

The service sector expands significantly. This includes industries like finance, healthcare, and education,
which become a larger part of the total economic output.
4. High Rate of Social and Ideological Transformation:

Economic growth often triggers significant social and ideological changes:

Urbanization: As people move to cities for jobs, there's rapid growth of urban centers. This can lead to
changes in social structures and lifestyles.

Social mobility: Traditional social hierarchies may loosen, and new social classes might emerge based on
wealth or occupation.

Ideological shifts: Values and beliefs surrounding work, wealth distribution, and social welfare might
evolve.

5. High Rate of International Economic Outreach:

Modern economies are not isolated. They actively participate in the global market through:

Increased international trade: Countries import and export goods and services at a much larger scale.
This fosters competition, innovation, and economic growth.

Greater global interconnectedness: Communication, transportation, and financial flows become more
integrated across borders.

6. Limited Spread of Economic Growth (Not High Rate):

Kuznets observed that economic growth wasn't evenly distributed across the globe. While some
countries experienced rapid development, others lagged behind. This has remained a challenge in the
modern world, with concerns about income inequality between nations.

References :

Jeffrey Sachs' book "The End of Poverty" (2005) explores various themes related to underdevelopment.

Sachs, J. D., & Warner, A. M. (1997). Natural resource abundance and economic growth

Barro, R. J. (1991). Economic growth in a cross section of countries

Aghion, P., & Howitt, P. (1992). A model of growth through creative destruction
Pettway, R. (1988). Rostow's stages of growth reconsidered

Landes, D. S. (1998). The wealth and poverty of nations:

Rostow, W. W. (1960). The stages of economic growth:

Ranis, G., & Stewart, F. (2008). In praise of vicious circles.

Stiglitz, J. E. (1989). The role of information for economic development.

Lewis, W. A. (1954). Economic development with unlimited supplies of labour.

Bordo, M. D., & Obstfeld, M. (2014). Is PPP a useful concept for the era of globalization?.