DP Economics HL 4.9 Barriers to Economic Growth and Economic Development

DP Economics HL 4.9 Barriers to Economic Growth and Economic Development - Full notes

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DP Economics HL | 4.9 Barriers to Economic Growth and Economic Development

DP ECONOMICS · UNIT 4: THE GLOBAL ECONOMY

4.9

Barriers to Economic Growth and Economic Development

Full notes for HL · IB-style

Contents

1	Why some countries remain poor
2	The poverty cycle and low human capital
3	Economic barriers: trade, commodities, infrastructure and finance
4	Institutional and political barriers
5	Social, geographic and environmental barriers
6	Interactions between barriers
7	The poverty cycle
8	Low human capital
9	Inadequate infrastructure
10	Dependence on primary commodities
11	The resource curse
12	Weak institutions and corruption
13	Lack of access to credit
14	Informal economy
15	Population growth and demographics
16	Geography and climate
17	Gender inequality as a barrier
18	Debt and capital flight
19	Mixed review: worked problems
20	Additional exam-style practice
21	Interacting barriers
22	Case study: Botswana
23	Common misconceptions and links
24	Exam-style question with markscheme
25	Check your understanding
26	Summary and topic map

These are full teaching notes. Read each section in order, try the Think about it question before you read on, and do every Quick check before moving to the next section.

Before you start

Rate yourself on each statement now, and again after you've worked through the notes. Shade R (not yet), A (getting there) or G (confident).

I can…	R	A	G
explain the poverty cycle (poverty trap)
explain how low human capital limits development
explain economic barriers: dependence on primary commodities, volatile prices, low YED, limited access to markets, poor infrastructure, lack of finance and debt
explain institutional barriers: weak property rights, corruption, poor governance, informal economy
explain social, geographic and environmental barriers: gender inequality, conflict, landlocked geography, climate vulnerability
explain how barriers interact

There is no additional HL content in 4.9. SL and HL students study the same material.

Guiding questions

Why have some countries stayed poor for decades while others grew rich within a generation? Is poverty mainly about geography, institutions or policy?

How this topic is examined

4.9 links closely with 4.10. Paper 1 essays often ask you to explain two barriers to development and evaluate strategies to overcome them. Paper 2 texts describe a specific country, and you must identify the barriers it faces.

Strong answers explain the mechanism of each barrier (how it prevents growth or development) and use specific country examples, rather than listing barriers.

Command term	What the examiner wants
Define	the precise meaning, ideally in the IB wording, in one or two sentences
Draw / Sketch	a fully labelled diagram with every axis, curve, equilibrium and change labelled
Explain	a causal chain linked to economic theory, usually supported by a diagram
Analyse	break a situation into its parts and trace the effects of each
Evaluate / Discuss	weigh up arguments, question assumptions and reach a justified conclusion using real-world examples

How to use these notes

Each section teaches one part of the syllabus in full. You'll see these boxes throughout; each has one job:

Box	What it's for
Think about it	a question to get you thinking before a section; the answer comes in the section
Key point	the one idea you must not forget
Common mistake	an error examiners see every year, and how to avoid it
In the real world	where the economics shows up outside the classroom
Try this	something quick you can do yourself to test the idea
Worked example	full solutions with IB-style marks (M1 method, A1 answer, R1 reasoning)
Quick check	short questions to test yourself at the end of each section

1 Why some countries remain poor

Development needs investment, institutions and opportunities; poverty undermines all three.

Think about it

South Korea and Ghana had similar incomes per person in the 1960s. Today South Korea is many times richer. What might explain the difference?

Development requires investment in physical capital (machines, infrastructure), human capital (education and health), and the institutions that allow markets and governments to work. Many low-income countries face barriers that make each of these hard to achieve. This topic explains the main barriers and how they reinforce each other.

2 The poverty cycle and low human capital

Poverty causes the conditions that keep people poor.

The poverty cycle (or poverty trap) describes how poverty perpetuates itself. Low incomes mean low savings, because households must spend almost everything on necessities. Low savings mean low investment in physical and human capital. Low investment means low productivity, which keeps incomes low. The cycle repeats across generations unless something breaks it.

Figure 1. The poverty cycle: low incomes lead to low savings, low investment and low productivity, which keep incomes low.

Low human capital is one of the most important barriers. When children receive little or poor-quality education, or are malnourished, they grow into adults with low productivity and low earnings. Poor health reduces the number of working days and the ability to learn. Families in poverty may need children to work rather than attend school, especially girls. Without skills, workers cannot move into higher-productivity sectors such as manufacturing and services.

In the real world

Children who are stunted by malnutrition in their first two years of life earn significantly less as adults, according to long-term studies in Guatemala and elsewhere: early health has lifelong economic effects.

Quick check

1. Describe the poverty cycle.

2. How does poor health reduce development?

Answers: 1. low income, low savings, low investment, low productivity, low income 2. fewer working days, lower learning and productivity

3 Economic barriers: trade, commodities, infrastructure and finance

Specialization in the wrong goods and lack of capital hold countries back.

3.1 Dependence on primary commodities

Many low-income countries depend on exports of a few primary commodities: crops (coffee, cocoa, cotton) or minerals (copper, oil). This creates several problems.

Price volatility. Commodity demand and supply are both price inelastic, so small shifts cause large price swings (2.5 and 2.6). Export earnings and government revenue rise and fall unpredictably, making planning and investment difficult.

Low income elasticity of demand. As world incomes rise, demand for commodities grows slowly compared with manufactured goods and services, so commodity exporters' earnings grow slowly and their terms of trade tend to deteriorate over time.

The 'resource curse'. Countries rich in natural resources, especially oil and minerals, have often grown more slowly than resource-poor countries. Resource wealth can encourage corruption and conflict, an overvalued currency that harms other exports (the 'Dutch disease'), and neglect of other sectors.

3.2 Limited access to international markets

Rich countries' trade barriers, especially agricultural subsidies and tariffs on processed goods ('tariff escalation'), make it hard for developing countries to export or move up the value chain. High transport costs, particularly for landlocked countries, add to the problem.

3.3 Poor infrastructure

Unreliable electricity, poor roads, weak ports and limited internet access raise costs for firms and isolate rural areas from markets. Firms in many low-income countries lose a significant share of sales to power outages.

3.4 Lack of finance and the burden of debt

Many people, especially the poor and women, lack access to formal credit because they have no collateral or credit history, so they cannot invest in businesses or education. Weak banking systems and low savings limit domestic investment.

High foreign debt can be a major barrier. Debt servicing (interest and repayments) diverts government revenue away from health, education and infrastructure. When debt is in foreign currency, a depreciation makes it heavier. Several countries have faced debt crises since 2020.

Barrier	Mechanism	Example
Commodity dependence	volatile prices, low YED, declining terms of trade	Zambia and copper
Resource curse	corruption, Dutch disease, neglect of other sectors	oil exporters with weak institutions
Trade barriers abroad	limited market access, tariff escalation	EU and US farm subsidies
Poor infrastructure	high costs, isolation	power outages
Lack of credit	no collateral; no investment	rural smallholders
Debt	debt service crowds out social spending	debt crises after 2020

Quick check

1. Why do commodity prices fluctuate so much?

2. What is the resource curse?

3. How does foreign debt limit development?

Answers: 1. inelastic demand and supply 2. resource wealth associated with slower growth, corruption, Dutch disease 3. debt service diverts spending from health and education

4 Institutional and political barriers

Institutions set the rules that make investment worthwhile.

Economists such as Daron Acemoglu and James Robinson argue that institutions are the most important explanation of long-run differences in income. Inclusive institutions protect property rights, enforce contracts, uphold the rule of law and allow broad participation; extractive institutions concentrate power and wealth in a small elite.

Weak property rights and legal systems. If people cannot prove they own land or a business, they cannot use it as collateral for a loan, and they have less incentive to invest because it might be taken from them.

Corruption. Bribes raise the cost of doing business, divert public money away from services, discourage foreign investment and reduce trust in government.

Poor governance and political instability. Frequent changes of government, coups and weak public administration create uncertainty that deters investment.

A large informal economy. Much economic activity in low-income countries takes place outside the formal sector. Informal firms pay little tax, so government revenue is low; workers lack legal protection; and firms struggle to grow because they cannot access formal credit.

Quick check

1. Why do weak property rights reduce investment?

2. Give two effects of corruption on development.

Answers: 1. no collateral and risk of losing assets 2. higher business costs; diverted public money; less FDI

5 Social, geographic and environmental barriers

People, place and climate also matter.

Gender inequality. When girls receive less education and women have fewer economic opportunities, half of a country's potential human capital is underused. Educating girls raises productivity, improves children's health and lowers fertility rates.

Conflict. Wars and civil conflict destroy infrastructure and capital, kill and displace people, divert spending to the military and deter investment.

Geography. Landlocked countries face higher transport costs to reach world markets. Tropical climates may bring diseases such as malaria that reduce productivity.

Climate vulnerability. Droughts, floods and storms, increasing with climate change, destroy crops and infrastructure in countries least able to adapt.

Rapid population growth can mean that GDP must grow quickly just to keep income per head constant, and puts pressure on schools and health services.

In the real world

Landlocked developing countries, such as Malawi, Chad and Bolivia, pay on average much higher transport costs for trade than coastal countries, and the UN treats them as a group facing special challenges.

6 Interactions between barriers

Barriers reinforce each other, which is why development is hard.

Barriers rarely operate alone. Commodity dependence brings volatile revenue, which weakens public services and human capital. Resource wealth can fuel corruption and conflict, which deter investment and destroy infrastructure. Poverty pushes people to overuse natural resources, worsening environmental vulnerability. Debt crowds out spending on education and health.

Because barriers interact, successful development strategies usually tackle several at once, and the best starting point differs from country to country.

Key point

Explain each barrier as a mechanism: what it prevents (saving, investment, human capital, trade, good policy) and how that keeps incomes low.

7 The poverty cycle

A self-reinforcing trap.

Low incomes lead to low savings, low investment in physical and human capital, low productivity and therefore low incomes again. Breaking the cycle requires external injections (aid, FDI, remittances) or policies that raise productivity.

WORKED EXAMPLE 1 Poverty trap (exam level)

Explain how low savings can trap a country in poverty.

Solution

Low incomes mean little savingR1

Little investment; productivity stays low; incomes remain lowR1

8 Low human capital

Health and education gaps.

Poor health (malnutrition, disease) and limited education reduce productivity and limit adoption of technology. Diseases such as malaria reduce labour supply and school attendance.

Quick check

1. How can malaria act as a barrier to development?

Answers: 1. reduces worker productivity and school attendance; raises health costs

9 Inadequate infrastructure

Roads, power, water.

Poor transport, unreliable electricity, and limited water and internet access raise costs for firms, limit market access and discourage investment.

WORKED EXAMPLE 2 Infrastructure (standard)

Explain how unreliable electricity limits growth.

Solution

Firms face production interruptions and higher costs (generators)R1

Discourages investment and reduces productivityR1

10 Dependence on primary commodities

Volatile export earnings.

Countries relying on a few primary exports face volatile prices, low YED (slow demand growth) and possibly declining terms of trade. Commodity price falls reduce export earnings, government revenue and growth.

WORKED EXAMPLE 3 Terms of trade (exam level)

Export prices index falls from 100 to 85 while import prices index rises to 105. Calculate the terms of trade index.

Solution

85/105 × 100M1

= 81: terms of trade have worsenedA1 R1

11 The resource curse

Riches that harm.

Countries with abundant natural resources sometimes grow more slowly: resource wealth can cause Dutch disease (currency appreciation harming other exports), corruption, conflict and volatile revenues.

Quick check

1. What is Dutch disease?

Answers: 1. resource exports cause appreciation, making other sectors uncompetitive

12 Weak institutions and corruption

Rules of the game.

Weak property rights, corruption, political instability and ineffective legal systems discourage investment and divert resources to rent-seeking. Strong institutions are linked to long-run prosperity.

WORKED EXAMPLE 4 Corruption (standard)

Explain how corruption reduces investment.

Solution

Raises costs and uncertainty for firmsR1

Resources diverted from productive usesR1

13 Lack of access to credit

Financial exclusion.

Many poor people lack access to banks and credit because they have no collateral or formal identification. Without credit they cannot invest in businesses, education or farm improvements. Microfinance and mobile banking help.

In the real world

M-Pesa, launched in Kenya in 2007, allows payments and savings by mobile phone and has been credited with lifting about 2% of Kenyan households out of poverty.

Quick check

1. How can mobile banking support development?

Answers: 1. provides safe savings and payments without bank branches

14 Informal economy

Outside the system.

Large informal sectors mean low tax revenue, lack of worker protections, difficulty accessing credit and limited growth of firms.

Quick check

1. Why does a large informal economy limit government revenue?

Answers: 1. informal activity is not taxed

15 Population growth and demographics

Dependency.

Rapid population growth can strain resources and services and lead to high youth dependency ratios. A falling birth rate can create a 'demographic dividend' when the working-age share rises.

WORKED EXAMPLE 5 Dependency ratio (standard)

A country has 40 million under 15, 5 million over 65 and 55 million aged 15–64. Calculate the dependency ratio.

Solution

(40 + 5)/55 × 100M1

= 81.8A1

16 Geography and climate

Natural disadvantages.

Landlocked countries face higher trade costs; tropical climates may bring more disease and agricultural challenges; vulnerability to natural disasters disrupts growth. Climate change worsens many of these risks.

Quick check

1. Why do landlocked countries face higher trade costs?

Answers: 1. goods must cross other countries to reach ports

17 Gender inequality as a barrier

Underused potential.

Barriers to women's education, property ownership and employment reduce productivity and growth. Closing gender gaps can raise GDP significantly.

Quick check

1. Give one way gender inequality limits growth.

Answers: 1. half the population's skills are underused

18 Debt and capital flight

Lost resources.

High foreign debt servicing diverts revenue from development spending. Capital flight (wealthy residents moving money abroad) reduces domestic investment.

Quick check

1. How does high debt servicing limit development?

Answers: 1. less revenue for health, education and infrastructure

19 Mixed review: worked problems

Bringing the ideas together.

WORKED EXAMPLE 6 Mixed problem (exam level)

Explain how dependence on a single primary export and weak institutions can together limit development.

Solution

Volatile export earnings and revenuesR1

Resource wealth captured by elites; corruption reduces investmentR1

20 Additional exam-style practice

Paper 1 and Paper 2.

WORKED EXAMPLE 7 Paper 1 part (b) (exam level)

Using real-world examples, discuss the main barriers to economic development. [15]

Solution

Range of barriers explainedR1 R1

Real-world examplesR1

Prioritization and interaction of barriers; judgementR1 R1

21 Interacting barriers

Why development is hard.

Barriers often reinforce each other: poor health reduces education, weak institutions discourage investment in infrastructure, and conflict destroys capital. Policies must address several barriers at once.

Quick check

1. Give an example of two barriers reinforcing each other.

Answers: 1. poor infrastructure limits access to schools and clinics

22 Case study: Botswana

Avoiding the resource curse.

Botswana used diamond revenues to invest in education, health and infrastructure, supported by relatively strong institutions, achieving one of the fastest growth rates in the world from the 1960s.

Quick check

1. Why did Botswana avoid the resource curse?

Answers: 1. strong institutions and prudent use of diamond revenues

23 Common misconceptions and links

Students often think…	Actually…
poverty is caused only by low income	it is reinforced by human capital, institutions and geography
natural resources always help development	the resource curse shows they can hinder it
more aid always solves poverty	barriers such as institutions and conflict limit its effect

How 4.9 connects to the rest of the course

Topic	Connection
2.5 and 2.6 Elasticity	commodity price volatility
4.1 Terms of trade	declining terms of trade for commodities
4.8 Measuring development	identifying deprivation
4.10 Development strategies	how to overcome barriers

24 Exam-style question with markscheme

Try this under exam conditions (about 18 minutes) before reading the markscheme.

Figure 2. World copper prices.

Text A. Copper makes up about 70% of Zambia's exports. In 2020 Zambia defaulted on its foreign debt. Over half of the population lives below the poverty line, and many rural areas lack electricity and roads.

(a) Describe the trend in copper prices. [2]

(b) Explain how dependence on copper can be a barrier to development. [4]

(d) Explain one other barrier to development referred to in Text A. [3]

Markscheme

Part	Answer	Marks
(a)	fluctuated; fell then rose sharply in 2021	A1
	overall rise with volatility	A1
(b)	price volatility makes export earnings unstable	R1
	government revenue unpredictable	R1
	low YED / declining terms of trade	R1
	neglect of other sectors / Dutch disease	R1
(c)	debt service diverts revenue	R1
	less spending on health and education	R1
	default reduces access to finance	R1
(d)	poor infrastructure (electricity, roads)	A1
	higher costs; isolation of rural areas	R1 R1

Examiner's comments. In (b), the best answers explained the mechanisms rather than listing problems. In (d), only barriers referred to in the text earned marks.

25 Check your understanding

Section A: multiple choice

1. The poverty cycle links low incomes with

A. low savings and low investment B. high savings C. high productivity D. high exports

2. Primary commodity prices are volatile because

A. demand is elastic B. supply is perfectly elastic C. demand and supply are price inelastic D. they are subsidised

3. The resource curse refers to

A. a lack of natural resources B. resource-rich countries often growing slowly C. high tariffs D. low inflation

4. Weak property rights reduce development because

A. they raise investment B. they reduce corruption C. they increase exports D. people cannot use assets as collateral and fear losing them

5. A landlocked country faces

A. lower tariffs B. higher transport costs C. more tourism D. lower costs

6. Debt servicing limits development by

A. diverting revenue from social spending B. increasing aid C. lowering interest rates D. raising exports

Section B: structured

7. Explain the poverty cycle. [4]

8. Explain two institutional barriers to development. [4]

9. Evaluate the claim that institutions are the most important barrier to development. [8]

Answers

1. A 2. C 3. B 4. D 5. B 6. A

7. Low income, low saving, low investment, low productivity, low income; across generations.

8. e.g. corruption (higher costs, diverted funds); weak property rights (no collateral, insecurity).

9. Institutions shape incentives and investment (Acemoglu and Robinson); but geography, commodities, human capital and debt also matter; barriers interact; judgement with examples.

26 Summary and topic map

Idea	Remember
Poverty cycle	low income, savings, investment, productivity
Human capital	education, health, nutrition
Commodities	volatility, low YED, terms of trade, resource curse
Market access and infrastructure	trade barriers abroad; poor roads and power
Finance and debt	no credit; debt service
Institutions	property rights, corruption, governance, informal economy
Social and geographic	gender, conflict, landlocked, climate

Before the exam, make sure you…

•explain each barrier as a mechanism
•use a specific country example
•show how barriers interact
•link barriers to strategies in 4.10

Barriers to Development on one page

Cover this page with a sheet of paper and try to rebuild it from memory. Whatever you can't recall is what to revise next.

Figure 3. Topic map for Barriers to Development.

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