Assess the significance of three factors which might limit economic development in the developing countries.
Economic development can be defined generally as involving an improvement in economic welfare, measured using a variety of indices, such as the Human Development Index (HDI). A developing country is described as a nation with a lower standard of living, underdeveloped industrial base, and a low HDI relative to other countries. There are several factors which may have the effect of limiting economic development in such countries. Factors such as these include: primary product dependency, the savings gap and political instability. Primary product dependency occurs where production of primary products accounts for a large proportion of a country’s GDP. This can have a particularly limiting effect on economic development when a country’s primary product is what may be classified as a “soft commodity”, that is to say, agricultural goods mainly such as wheat, rice, palm oil etc. For example, Kenya has a high dependency on tea and horticulture. This may limit economic development for several reasons. Both supply and demand for primary products tend to be elastic thus and demand or supply-side shock would cause a relatively large price change, meaning that primary products are likely to experience extreme price fluctuations. These price fluctuations will cause fluctuations in producers’ income as demand is price inelastic. Therefore, a fall in price would cause a fall in total revenue whilst an increase in price would cause a rise in total revenue of producers. These price and revenue fluctuations thus make it more difficult to plan investment and output. As a result, the revenues from exports of primary products will fluctuate in the same way as those for primary product producers, thus making it difficult for the government to plan economic development.