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Table of Contents

  1. Topic pack - Development economics - introduction
  2. 4.1 Economic development (notes)
    1. Economic development - introduction
    2. Development - pause for thought
    3. Economic growth and economic development
    4. Sustainability
    5. The sources of economic growth and economic development
    6. Natural factors
    7. Importance of agriculture
    8. Externalities
    9. Case study - farming in Kenya
    10. Human factors
    11. Population
    12. Physical capital and technological factors
    13. Institutional factors
    14. The consequences of growth for Development
    15. Common characteristics of economically less developed countries
    16. Poverty cycle
    17. Diversity among economically less developed nations
    18. International development goals
    19. Millennium Development Goals
    20. Case Study - Millennium Development Goals
  3. 4.1 Economic development (questions)
  4. 4.2 Measuring Economic Development (notes)
  5. 4.2 Measuring development (questions)
  6. 4.3 The role of domestic factors in economic development (notes)
  7. 4.3 The role of domestic factors in economic development (questions)
  8. 4.4 The role of international trade (notes)
  9. 4.4 The role of international trade (questions)
  10. 4.5 The role of Foreign Direct Investment (FDI) (notes)
  11. 4.5 The role of foreign direct investment (questions)
  12. 4.6 The role of foreign aid and multilaterial development assistance (notes)
  13. 4.6 The role of foreign aid and multilateral development assistance (questions)
  14. 4.7 The role of international debt (notes)
  15. 4.7 The role of international debt (questions)
  16. 4.8 The balance between markets and intervention (notes)
  17. 4.8 The balance between markets and intervention (questions)
  18. Print View

Externalities

This section links with the reasons for market failure (Syllabus Section 1.4) It would be useful if you thoroughly revised this part of the course before proceeding with this section. Can you, for example, accurately define the term 'negative externality' and distinguish negative externalities from social cost?

The most obvious negative externality from Economic Growth is pollution but consider also:

  • non-sustainability,
  • soil erosion and degradation (have you read Grapes of Wrath by J. Steinbeck?),
  • water scarcity and
  • waste disposal (think Nuclear Waste for the most striking example, but also river (Tieté?) pollution)

All of these challenges face countries in the developed world but those experiencing the challenges of economic development have to 'balance' their desire to grow against the possible problems that might arise. The reduction in their biodiversity might also need to be addressed, as will atmospheric changes. Do the developing countries:

  • Ban certain activities or impose strict rules and controls?
  • Extend property rights and force private enterprise to pay more for the problems they cause?
  • Impose taxes on pollution and other externalities?
  • Subsidise non-pollution methods of production?
  • Award permits to pollute?


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Pause for thought

All developed countries have achieved rapid growth at some point in their history and in doing so have incurred significant external costs to society.

  • Should less developed countries also not be entitled to grow in such a manner until they are in a better position to invest in technologies that reduce these external costs and are more sustainable?
  • To what extent are the rich countries applying double standards when arguing that LDC should restrict production that involves negative externalities?

To achieve their goals, the developing countries will need to address problems of:

  • Land ownership and reform
  • Involving local communities in their own development
  • Engaging the poor and making them feel that opportunities will come their way
  • Pricing in ways that include the real costs of development

So externalities need to be taken into account when considering development, but for many developing countries there will be a significant opportunity cost if they try to grow their economies while minimising externalities, because this requires investment (and therefore slower growth) and perhaps reform - both of which are expensive.