© john tribe 13 economic development and regeneration

© John Tribe

13 Economic Development and

Regeneration

© John Tribe

Learning outcomes

• By studying this section students will be able to:– define and explain economic growth– review critically the concept of economic growth– understand the determinants of economic growth– evaluate appropriate growth strategies for developed

and developing countries– evaluate the role of the sector in regeneration

strategies– evaluate the contribution of the sector to growth

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Meaning and measurement of economic growth

• Economic growth is defined as the increase in real output per capita of a country.

• The most commonly used measure of output is GNP.

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Growth Rates 1990 – 2001 (average % annual change in GNP)

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GNP per capita (1998, $)

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Problems of measurement

• First there are the problems associated with collecting national income data.

• Second some apparent changes in growth may in fact stem from currency movements against the dollar.

• Third, over a period of time the labour force may work fewer hours in a week.

• Fourth, GNP per capita figures are an average. They may disguise the fact that there are large differences in incomes of the population.

• Finally, economic activity which contributes to GNP has some unwanted side-effects in the form of pollution.

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The causes of economic growth• Land• Labour

– It is the quality of the labour force that is important in increasing productivity

• Capital– Investment in new plant, machines and other capital

enables labour productivity and GNP to rise.

• Technology– Improved technology can increase growth by

reducing production costs and creating new products for the market.

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Beijing, China, 1990

• Lack of capital combined with large population means that labour force has low productivity

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Promoting growth– Interventionists believe the government should play a

key role in funding appropriate education and training, R&D and investing in projects and infrastructure.

– Free marketeers advocate market liberalization and ‘supply side’ policies, e.g:

• reducing government expenditure to release resources for the private sector

• reducing taxes to increase incentives• reducing trade union power to encourage flexible labour

markets• reducing welfare payments to encourage individual

enterprise• encouraging risk and entrepreneurship and privatisation• encouraging competition through deregulation • reducing red tape

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Economic growth in developing countries

• Stages of development– Advanced Economies– Countries in Transition– Developing Countries

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Advanced Economies

• High income per head• Highly formalised

markets• Eg souvenir shops:

– Top picture in Capri, Italy

– Bottom picture in Nepal

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Countries in Transition

• Prague, Czech Republic in transition from communist to market economy

• Considerable investment in increasing capacity at Prague airport

• Importance of tourism to prosperity of Prague

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Developing Countries

• Zimbabwe, 1998• Subsistence

agriculture• Low

mechanisation

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Characteristics

• The low standards of living enjoyed by developing countries (DCs) are characterized by low per capita GNP and by a range of other indicators. These include – high levels of mortality– low levels of literacy, medical care and food

consumption.

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Barriers to Growth• high population growth• low incomes: This leads to low

savings, leading to low investment, leading to low incomes (low rate of capital formation)

• an undeveloped financial sector.

• absence of welfare system: This can lead to over population where children are seen as a financial insurance for old age

• low levels of training and education:

• existence of a large subsistence sector: This can mean that taxation is difficult.

• few resources• dependence on raw material

exports• employment centred on the

agricultural sector of economy• traditional (non-

entrepreneurial) culture• foreign currency shortages• poor terms of trade (exports

cheap, imports expensive)• international debt

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Main sources of investment funds

• domestic savings (but these are often low because of low incomes)

• government investment funded through taxes or borrowing (but governments often have a low tax base because of low incomes and subsistence economies and high foreign debt repayments

• private foreign investment• overseas aid

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Strategies for development

• import substitution (producing goods that are currently imported)

• export-led growth (producing goods and services where a local cost or other advantage can be established) – leisure and tourism can be important elements in this strategy

• population control• education and training projects• infrastructure projects

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Regeneration

• Regeneration is the term used to describe the process of economic redevelopment generally in an area that has suffered decline because of structural changes in the economy. – Urban Regeneration– Rural Regeneration

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Rural regeneration• Gites de France:

Bringing tourism to rural areas of France suffering from depopulation

• Rural Diversification in Finland: A farmer provides boat trips for tourists.

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Review of key terms 1• Economic growth =

– the increase in real output per capita.

• Per capita = – per person.

• Net investment = – gross investment – depreciation.

• Productivity = – output per employee.

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Review of key terms 2• DC =

– developing country.

• Import substitution = – producing goods that are currently imported.

• Infrastructure = – social capital such as roads and railways.

• Joint venture = – overseas and domestic investment

partnership.

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