GCSE Geography | Economic Causes of the Development Gap (Development Gap 7)

Countries around the globe experience different rates of development - with some able to develop much more easily than others, which leads to a development gap.

There are significant economic reasons for the gap in development...

Trade

Resources

Countries can become wealthier by trading with others, but different countries have different goods and services to sell, leading to differences in wealth. Some countries have a lack of resources to trade, and haven’t got enough money to set up industries - so they end up exporting low-value goods. Many LICs export raw materials which sell for much less than processed goods.

Unfortunately raw materials are at risk of fluctuating prices - where we see huge changes in the price of a commodity in short periods of time, leading to economic instability. If prices go up and down all the time countries are not guaranteed a decent income - particularly if they are reliant on one export product.

A good example of this is rice which is exported by several LICs in SE Asia - rice grows in flooded paddy fields (see image below) so is perfect for the monsoon climate of this region. However, if several countries are exporting huge quantities of rice then the value of rice on the global market will decrease.

Another example is Zambia in south-central Africa whose main export commodity is copper - this used to be a few lucrative material for the country as the global demand for copper for piping was great, however more recently plastic has been used to make pipes, which is much cheaper, causing the global price of copper to plummet, and causing economic harm to Zambia.

The reason that NEEs have experienced strong economic growth is because they have developed their manufacturing industries, knowing that processed goods will make them much more money.

Unfair trade

It is also important to consider unfair trade - where producers in LICs receive very little income for the crops that they grow, with those who process, transport and sell the goods receiving a much larger share of the profits. Some farmers in LICs grow cash crops, which are crops grown to export, however, they have very little control over the price they receive for their produce, particularly as supermarkets in HICs want to pay the lowest price they can in order to maximise their own profits, so as a result LIC farmers receive a low wage and struggle to support their families.

Transnational corporations (TNCs)

TNCs often cause issues for trade too - these are huge companies with offices and factories in several countries and can move around the world to find the cheapest workers and raw materials. This means they can produce their goods and services cheaply, making it hard for smaller businesses to compete. Although TNCs create jobs in LICs and NEEs, most of the profits return to the host country through economic leakage, rather than help to develop the local economy further.

Trade blocs

Finally, some countries are part of trade blocs, which are groups of countries that join together to trade freely between member countries. They trade without quotas (which are limits to how much they can trade) or tariffs (which are taxes on imports/exports) - so if a country is not part of a trade bloc then trading with other countries is more expensive. An example of a trade bloc is the European Union (EU), which the UK ceased to be part of on 31st January 2020.

Debt

Countries may borrow money from organisations such as the World Bank, or from other countries. In the 1960s and 1970s many LICs took out loans to fund development projects after they had gained independence, usually to pay for large-scale infrastructure.

One example is the Akosombo Dam on the Volta River in Ghana that opened in 1965 (pictured below). The project cost $258 million and was constructed to provide electricity for the aluminium industry, and to sell electricity to the neighbouring countries of Togo and Benin. The dam was described by the Volta River Authority as "the largest single investment in the economic development plans of Ghana." In order to build the dam the Ghanian government had to borrow almost £50 million - from the International Bank for Reconstruction and Development of the World Bank, the UK, and the USA.

When countries borrow money they have to repay the loan over a period of years, usually with a considerable amount of interest, meaning that they have less money to spend on essential services such as education and healthcare that would help the country develop.

This was devastating for Zambia, who borrowed money in order to develop their copper industry, however the price of copper crashed so Zambia had to borrow even more money just to keep the economy running. At the same time interest rates rose rapidly and by the end of the 1980s Zambia's $800 million debt had risen to over $6billion.