Barriers to Economic Growth and/or Development
There are several factors that can restrain growth and development.
- Poverty Cycle
- Institutional and political factors
- International trade barriers
- International financial barriers – indebtedness
- Social and cultural factors
1. Poverty
People receive little education and health care. This poverty can be very difficult to reduce as any economies struggle to develop.
Low income -> Low Savings -> Low Investment -> Low Incomes
2. Institutional and Political Factors
- Ineffective taxation structures
- Lack of property rights
- Political instability
- Corruption
- Unequal distribution of income
- Formal and informal markets
- Lack of infrastructure
3. International Trade Barriers
- Overdependence on primary products
- Consequences of a narrow range of exports (Overproduction, failure to get all producers to join, difficulty of storing commodities, high floor prices which encourage overproduction)
- Protectionism
4. International financial barriers – indebtedness
Developing countries like Haiti mainly trade in primary exports. The moneuy raised from their sale pays for imported goods. There are several problems involved in being overdependent on primary products, such as…
- The terms of trade have deteriorated over a long period of time for the developing countries.
- Low income elasticity of demand for primary products
- Sudden fluctuating prices of primary goods.
5. Social and Cultural factors
- religion, gender, culture and tradition can prevent economic growth and development.
Haiti’s Barriers to Growth
Poverty cycle : In Haiti, 80% of the people live under the poverty line. From this, there is low consumer expenditure in the market. This leads to lower revenue for firms and in return, causes higher unemployment because firms decrease business investment. This causes a poverty cycle in Haiti that prevents economic growth.
Institutional and Political Factors: Corruption is one of the key issues in Haiti. Past corruption in the government has caused under-investment in many sectors of the Haitian economy and prevented economic growth. Furthermore, a high level of income inequality further dampens economic growth as the rich gets richer and poor gets poorer as the economy grows. Since Haiti does not have a fixed taxation system that prevents further gaps in inequality, economic growth may be a negative influence to some sectors.
International Trade Barriers: Haiti’s current account balance is -611 million (2008), indicating that it is in a current account deficit. This comes from the overdependence on primary goods. (66% of the economy is agriculture). The sum of the deficit is large so it is a serious issue. Furthermore, since Haiti is not achieving large economic growth, the deficit is unlikely to show positive economic growth. It reflects Haiti’s weak economic output and dependency on foreign countries
Social and Cultural Factors: In the past, Haiti’s government have prevented any kind of foreign investment in the country. Tradition and culture have been valued heavily so it is difficult to introduce new technology and ideas to the economy. This eventually led to the current state Haiti, where Haiti is the least industrial country in the Western hemisphere.
Evaluation
It is clear that the poverty cycle is one of the main barriers to economic growth. However, there are other factors that prevent Haiti’s economic growth. International trade barriers is one of the most significant growth barrier in Haiti. As stated previously (blogs below), Haiti specializes in a small range of primary exports. This makes Haiti heavily reliant on foreign goods. In the blog post, “Sources of Economic Growth”, we can see that Haiti is an import-relying country because it is in a large current account deficit. With unreliable flows of earning through exports, it is difficult to invest in new industries. This leads to unemployment in the economy because there is less job opportunities. This is a significant societal cost, because Haiti is a densely populated country and many people with potential do not have jobs. Furthermore, the heavy reliance on primary exports can lead to large changes in the current account balance. Import costs can quickly exceed export revenues, and this can lead to increased debt. When developing countries like Haiti depend on primary exports, the money raised from their sale pays for imported goods. This means that sudden fluctuation prices of primary goods could occur and makes the economy less stable.
Another major barrier to growth is Haiti’s lack of infrastructure. Haiti’s infrastructure is primitive and poorly mainted as the result of decades of under-investment and environmental damage. Out of a total of 4160 kilometers of roads, only 1011 kilometers are paved. This indicates the lack of infrastructure, which can cause slower transportation of goods/people. After the earthquake, the Haitians are increasingly angry that a massive international aid effort is not succeeding in reaching them. This indicates how it lags economic recovery and growth. Poor road conditions have had negative effects on farmers, who find transportations of their goods to markets and towns to be difficult. Furthermore, deforestation and the resulting soil erosion have diminished Haiti’s main hydroelectric power generating system. Although the rich have private generators, many industries had barely enough electricity to keep going. From this, the main fuel was charcoal at often enormous environmental cost.
