The measurement of development, the barriers to development, and development strategies including aid, foreign direct investment and trade liberalisation.

What this dot point is asking

WJEC wants you to explain how development is measured, the barriers facing developing economies, and the main development strategies, including aid, foreign direct investment and liberalisation, and to evaluate them.

The answer

Measuring development

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.

Barriers to development

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. Weak institutions, insecure property rights and corruption deter investment and misallocate resources. Some economies are caught in a poverty trap, where low income perpetuates the conditions that keep income low, so a deliberate strategy is needed to break out.

Development strategies

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. Market-based strategies (deregulation, privatisation) versus interventionist strategies (state-led investment, protection of infant industries) are debated. The exam reward is weighing the benefits against the drawbacks for a given strategy.

Examples in context

Example 1. The HDI versus income. Some oil-rich economies have high GNI per capita but lower HDI rankings because the wealth is narrowly held and health or education lag, while some lower-income countries achieve relatively high HDI by investing heavily in health and schooling. These contrasts show why the HDI, by combining income, health and education, can rank development differently from GDP per capita alone, the comparison the exam expects.

Example 2. FDI and export-led development. Several East Asian economies used inflows of foreign direct investment, combined with investment in education and infrastructure and an export-oriented strategy, to industrialise rapidly and raise incomes. The contrast with economies where FDI formed isolated enclaves with repatriated profits illustrates that FDI promotes development when it is linked to the domestic economy and accompanied by human-capital investment, not automatically.

Try this

Q1. State the three components combined in the Human Development Index. [2 marks]

• Cue. Income (GNI per capita), health (life expectancy) and education (years of schooling).

Q2. Explain one drawback of relying on foreign direct investment to promote development. [3 marks]

• Cue. For example profits may be repatriated rather than reinvested, transnational corporations may wield excessive power and pay low wages, or investment may form an enclave with few linkages to the wider economy.