• Institutional factors affecting development

1. Education
   1. External benefits
   2. More efficient work force
   3. More discussions and debates thus leading to social changes.
      1. Improve the role of women in society
         • Recognise political, economic and social participation and leadership of women
      2. Improve levels of health
         • People especially women are able to communicate more fully and become aware of some of the hazards that face them & the opp that exist. They are able to read about & be informed about dangers such as HIV / AIDS, poor sanitary habits and poor dietary habits. They are also able to find out about things such as innoculations & water filtering

• Large funds are required & there may be large disparities in the provision of education with urban areas receiving more funding then rural areas and there are family economic conditions that prevent children from entering school

2. Health care
   1. Training
   2. Health facilities
   3. Provision
   4. Availability of immunisations
3. Infrastructure
   1. Essential facilities & services such as roads, airports, sewage treatments, water systems, railways, telephone & other utilities that are necessary for economic activity
4. Political stability & lack of corruption
   1. Citizens are more likely to have an input in running the country
   2. The government’s planning is likely to be more structured & long term and the law is easier to enforce.
   3. When there is corruption ( the dishonest exploitation of power for personal gain)
      1. Government spend large amounts on large scale capital investment projects
      2. Official accounting practises are not well formulated / controlled

• Political elections are not well controlled (no democracy)

1. Weak legal structure & lack of freedom of speech

1. Forms of corruption & effect
   1. Electoral corruption – government is not voted for by the majority & they will not put into place policies that are for the benefit for the electorate
   2. Unfair allocation of resources – market failure & resources are misallocated. It often sustains inefficient producers, shielding them from competition

• Bribes increase cost of business thus higher prices

1. Reduces trust in economy – harder to attract FDI
2. Increases risk of contracts not being honoured thus deterrent to investment both internal & external
3. Reduces quality of government services to people as they divert public investment into capital projects where bribes are more likely.

• Turn blind eye to regulation
• Capital flight – monetary gains from corruption are moved out of the country & reduces capital available for internal investment

1. Constant paying of small bribes reduces economic well being of an ordinary citizen

5. Legal system
   1. To enforce contracts
   2. To uphold property rights
      1. Right to own assets (buildings)
      2. Right to establish the use of our assets (e.g. adding to the building – sanitation)

• Right to benefit from our assets

1. Right to sell
2. Rights to exclude others from using / taking over

1. If they are not guranteed the ownership, they will not improve the property & there is reduction in investment & growth and economic growth

6. Financial system, credit & micro-finance
   1. Savings is necessary for funds to be available for investment. If the financial institutions are weak & untrustworthy, people tend to buy assets / invest their money outside of the country
   2. Financial systems are necessary if low income people are to be able to manage their assets & to allow them to increase in value thus enabling them to invest in things (helath care, shelter & education)
   3. Saving & borrowing money is the breakout point of the poverty cycle
   4. It is difficult to start a business due to the lack of funding.
   5. Micro-finance is the provision of financial services (small loans, savings accounts, insurance & cheque books) geared specifically to the poor
7. Taxation
   1. Difficult for governments to collect tax revenue in developing countries – lack of inefficiency, information and pure corruption
   2. Corporate taxes tend to be low since there are relatively little corporate activity in developing countries & they offer large tax incentives in order to encourage domestic corporate activity & to attract FDI
   3. Export, import and excise (customs) duties – relatively easy to collect since they are paid when the goods goes through the country’s border posts. But only significant if the country is heavily involved in foreign trade.
   4. Size of informal markets – lower tax revenue and if incomes are not recorded, tax is not collected thus making it difficult for govt.
8. Use of appropriate technology
   1. Technology that’s appropriate for use with existing factor endowments
   2. There is often a surplus of labour & thus it would be appropriate to make use of the abundant labour supply
   3. Giving workers capital equipment that are cheap to make and requires labour to make use of it.
9. Empowerment of women
   1. Improve through education and improved social standing
      1. Well being of family is improved (health of children as women are better informed)
      2. Education of children in family improve

• Quality of workforce in the country improves

1. More control over contraception, marry later and tend to have smaller families thus reducing population growth

10. Income distribution
    1. Income inequality
       1. Low levels of savings
       2. Low investmet

• Rich dominate politics & economy thus we do not have pro-poor growth (economic growth leads to a fall in some agreed measure of poverty thus benefitting the poor)

1. Rich move large amounts of funds out of the economy in the form of capital flight.
2. Large proportion of goods purchase by rich are foreign produced & consumption does not really help the domestic economy

 

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