1.4.4 Determinants of economic development
The section of your textbook dealing with economic development is both interesting and informative. However, it is also convoluted and you may find that after reading it you are not clear just what factors guarantee economic development. We can adopt a more fundamental approach and in the process anticipate some of the content of Chapter 4 of your textbook which deals with international trade theory.
The fundamental requirements for economic growth include natural resources, geography, history and an educated workforce. Every nation and people will obviously possess the first three items listed: however, possession of natural resources means little if the resources are inaccessible or of limited or inferior quality. See Figure 1.3 (over page) for an interesting example of a natural resource, the birch tree in China , that is being threatened by over-logging to manufacture some 45 billion sets of chopsticks per year for Chinese use and export. Yes, that is right: 45 billion!
Geography can also assist a nation's economy or limit it severely. Nations without natural harbours, for example - and there are some nations which are effectively landlocked except for the 'generosity' of their neighbours - always face problems in trading on an international scale. Such countries must be very resourceful to forge a really successful economy.
Geography also determines what types of products can be produced and where they are most readily able to be transported and sold. If the most ready market for produce is a poor one then the producing nation will be disadvantaged compared with other nations who are able to readily trade with wealthier partners.
A nation's geographical position and natural resources often influence its history and culture . Nations that are historically battlegrounds rarely sustain successful economic activity, although long periods of peace may produce 'golden ages'. This is particularly the case when the warfare is mainly civil or cultural.
Little economic value, and probably any other value, can be achieved when a nation's peoples are using their energies to fight among themselves or with near neighbours who espouse different beliefs. A culture of internecine conflict offers no economic benefit for a country as a whole, although unscrupulous individuals in the warring country or other countries may profit. Where there is a culture of cooperation, however, the energies of the nation can be directed into economic production that benefits the citizens and the nation as a whole.
Figure 1.3 Birch trees in China , a threatened natural resource
Source: New Internationalist 1999, p. 4.
Economic success also requires an educated workforce that can provide the individuals who produce innovation and act as entrepreneurs. Countries that do not have sufficient numbers in the workforce however, tend to attract 'guest workers' that, as one of the following readings illustrates, tend to undertake the low wage positions that workers in those affluent societies may shun.
Necessary also is a market economy which is often, but not always, accompanied by a political system that, if not purely democratic, generally places the rule of law above the rule of individuals so that property rights are protected.
Turn now to your Hill (2004) textbook for further detail on the above issues and some comments on the important role of innovation and entrepreneurship for economic development. The reading by Backman (2003) is the article mentioned earlier that discusses guest workers.
In your text
Hill 2005, Chapter 2, pp. 57-66.
Reading 1.7
Backman, M. 2003, 'Capital waves of a human kind wash across Asia 's shores', The Age , 26 December, p. Business 15.
Activity 1.5
Briefly explain what is meant by
- gross national income
- urchasing power parity.
Explain why these are important data for organisations anticipating conducting international business.
Previous Page