Quick questions on Economic development - WJEC A-Level Economics

GDP per capita is a useful, comparable measure of average income, but it ignores the distribution of income and says nothing about health, education or quality of life. The HDI captures social progress alongside income, giving a fuller picture, though it still averages over inequality. Other indicators add detail: measures of inequality (the Gini coefficient), poverty rates, access to clean water and sanitation, and gender development. Using a range of measures matters because two countries with similar incomes can differ greatly in wellbeing, which is why development is judged on more than growth.

These barriers reinforce one another, which is why development is hard. Low incomes mean low saving, so there is little finance for the investment needed to raise productivity (the savings gap, addressed by the Harrod-Domar idea). Dependence on a narrow range of primary commodities exposes a country to volatile world prices and worsening terms of trade. Poor health and education limit the productivity of the workforce.

Each strategy is double-edged. Aid can fund investment, infrastructure, health and education and provide emergency relief, but may create dependence, be tied or misallocated, and bypass institutions. FDI brings capital, technology, skills, jobs and export-market access, but profits may be repatriated, transnational corporations may wield excessive power, and investment may sit in enclaves with few linkages to the wider economy. Trade liberalisation lets a country exploit comparative advantage and access larger markets, but can expose infant industries and worsen the terms of trade for commodity exporters.

State the three components combined in the Human Development Index. [2 marks]

Explain one drawback of relying on foreign direct investment to promote development. [3 marks]