Differences in Development between Countries
Economic Development · 4 question types
Exam Frequency Analysis
Past paper frequency (2018 to 2024)
This topic accounts for approximately 9% of your exam marks.
Reasons for development gaps and the role of trade, aid, and investment come up frequently in Section B; typically 6 to 8 marks.
A developing country can use several internal strategies to raise its living standards. These complement trade and FDI.
Investment in human capital
The single most reliable long-term strategy. Spending on:
- Schooling: primary, secondary, vocational, tertiary.
- Healthcare: primary care, vaccination programmes, sanitation.
- Skills training for the existing workforce.
The returns take decades to fully appear, but the effect on long-run productivity is large.
Discuss: can investing in education help a government achieve its macroeconomic aims?
What comes up: An 8-mark Discuss question asks whether improving education can help a government achieve its macroeconomic aims (growth, low unemployment, low inflation, balance of payments stability). A strong answer covers both sides and offers a judgement.
Write (two sides): For "yes": (1) a more skilled and productive workforce attracts investment, raises output and supports economic growth; (2) lower unemployment results because better-qualified workers find jobs more easily, raising employment and reducing benefit costs; (3) higher productivity can reduce average costs of production, helping to keep inflation low; (4) a better-educated workforce can increase exports of high-value goods and services, supporting balance of payments stability. For "might not": (1) improving education requires heavy government expenditure, which itself raises aggregate demand and could cause inflation; (2) brain drain — educated workers may emigrate to higher-wage countries, reducing the domestic benefit; (3) the gains are long-term, so education does little for short-run unemployment or inflation targets; (4) if education only benefits those from high-income families, it widens inequality without achieving broad macroeconomic improvement.
Watch out: You must address at least two macroeconomic aims explicitly, not just "growth" alone. The mark scheme rewards linking each education effect to a named macroeconomic goal. A judgement — for example, that education is more effective in the long run than the short run — is required for the top band.
Investment in infrastructure
Roads, ports, airports, electricity, water, sanitation, broadband. Better infrastructure:
- Lowers firms' costs of doing business.
- Connects rural producers to urban markets.
- Makes the country more attractive to foreign investors.
- Improves quality of life directly (clean water, reliable electricity).
Funded through government revenue, borrowing or FDI.
Diversification away from primary products
A country that depends on coffee, copper or oil for most of its exports is vulnerable to commodity-price swings. Active policy to diversify into manufacturing and services:
- Reduces volatility of export earnings.
- Builds higher-value industries whose demand grows faster as world incomes rise.
- Creates more skilled jobs.
Examples: South Korea moved from primary exports in the 1960s to manufacturing in the 1970s–80s to high-tech in the 2000s. Most of East Asia's success stories follow a similar trajectory.
Trade liberalisation and export promotion
Lowering tariffs, removing import quotas, encouraging firms to enter export markets. The argument: exposure to world competition forces domestic firms to become more productive, and gives them access to the much larger world market. Combined with a competitive exchange rate (often slightly undervalued), this is the basis of the export-led growth model.
The counter-argument: developing-country firms may need protection in their early years (the "infant industry" argument) before they can compete with established foreign competitors. The right approach is often a mix of protection for emerging industries and openness in others.
Microfinance
Small loans to people too poor to access regular banks. Allows them to start small businesses, buy productive assets (sewing machines, farm equipment), and become self-sustaining. Effective for poverty reduction; less effective as a country-wide growth strategy.
Population policy
Already covered in topic 17. Falling birth rates (through education and family planning) reduce the dependency ratio over a generation and give the country a to support growth.
Reform of institutions
Long-term institutional reform (tackling corruption, strengthening property rights, reforming the legal system, professionalising the civil service) has large but slow-acting effects on development. It is the foundation that lets other strategies work.