Countries differ in income, productivity, population growth, sector structure, saving, education, healthcare and resources.
Economic development means a rise in living standards, not just in output. Developed countries have high incomes, long lives and good schooling. Each worker makes a lot. Developing countries score lower on these measures.
Income and output per worker: in developed countries, workers have more machines and skills, so each makes more. More output per worker means higher pay. Saving and investment: richer countries save more, which pays for new machines and makes workers even more productive. Poorer countries may be stuck in a cycle: low income, low saving, little investment.
Population: when the population grows fast, it is harder to raise income per head. Sectors: in developing countries many people work in farming, where output per worker is low. Developed countries have large service sectors.
Schooling and health care make workers more skilled and healthier. Natural resources can bring income. But a country that relies on one resource suffers when its price falls.
- Development factors
- Income, productivity, population growth, sector structure, saving and investment, education, healthcare, resources.
- Poverty cycle
- Low income, low saving, low investment, low productivity.
Worked example: Comparing two economies
Compare a developed country with a developing one.
- Developed: most people work in services. Each worker makes a lot, and people save and invest.
- Developing: many people work on farms with few machines, so each makes little.
- Result: low pay means little saving, so few new machines, so pay stays low.
- Breaking the cycle: schools, health care, foreign firms and new roads and ports can help each worker make more.
Watch out for this
Countries rich in natural resources are always developed.
Resources help, but development also depends on education, investment, good government and how the resource income is used. Some resource-rich countries remain poor.
Check your understanding
Why does a large primary sector often go with lower incomes?
- Primary sector jobs, such as small-scale farming, often have low productivity.
- The primary sector pays the highest wages.
- It means the country has no natural resources.