AQA Specification focus:
‘Barriers to growth and development, such as: corruption, institutional factors, poor infrastructure, inadequate human capital, lack of property rights.’
Global economic development is often hindered by structural and institutional barriers that prevent efficient resource use, discourage investment, and restrict innovation in less-developed economies.
Structural Barriers to Growth and Development
Corruption
Corruption diverts resources away from productive activities and erodes trust in public institutions.
Corruption: The misuse of public power for private gain, such as bribery, embezzlement, or favouritism.
Corruption discourages foreign direct investment (FDI), as firms face unpredictable costs and lack of transparency. It also reduces tax revenue, weakening the government’s ability to fund public goods like education and healthcare.
In countries where corruption is systemic, public procurement and infrastructure projects are often over-costed or poorly executed, leading to inefficiencies and slower economic progress.
Institutional Factors
Institutions—both political and legal—play a critical role in fostering economic stability and growth. Weak or inefficient institutions can lead to poor policy implementation and economic mismanagement.
Institutions: The formal and informal rules governing economic, political, and social interactions, including laws, regulations, and enforcement mechanisms.
Weak institutions result in:
Unstable governance, causing uncertainty and deterring long-term investment.
Poor legal enforcement, limiting contract reliability and discouraging entrepreneurship.
Limited accountability, increasing the likelihood of corruption and misallocation of funds.
Strong institutions, by contrast, provide a predictable environment for business, ensuring property rights, reducing transaction costs, and encouraging productivity improvements.
Poor Infrastructure
Infrastructure—transport, energy, water, and telecommunications—is fundamental for efficient production and distribution.
Infrastructure: The physical and organisational framework necessary for an economy to function effectively, including transport systems, power grids, and communication networks.
In developing economies, poor infrastructure increases transaction costs and limits market access:
Transport inefficiencies raise export costs and reduce competitiveness.
Inadequate electricity supply disrupts production and increases business costs.
Limited digital access restricts integration into global markets and innovation.
Investment in infrastructure boosts productivity by reducing bottlenecks and enabling economies to participate in international trade.
Inadequate Human Capital
Human capital—the knowledge, skills, and health of a nation’s workforce—is essential for sustainable growth.
Human Capital: The stock of skills, knowledge, and experience possessed by individuals, which enhances their productivity.
Barriers include:
Low educational attainment, which restricts access to higher-paying jobs and limits innovation.
Poor healthcare, leading to reduced labour productivity and increased absenteeism.
Brain drain, as skilled individuals emigrate to developed nations for better opportunities.
When human capital investment is inadequate, productivity stagnates and economies remain dependent on low-value primary industries.
Lack of Property Rights
Property rights ensure individuals and firms can own and control resources, providing security for investment.
Property Rights: The legal right to possess, use, and transfer assets such as land, buildings, and intellectual property.
In many developing economies, weak or unclear property rights deter both domestic and foreign investment. Without legal protection, assets cannot be used as collateral, restricting access to credit and discouraging entrepreneurship.
Furthermore, insecure property rights often lead to informal markets and unregistered businesses, which fall outside the tax system and limit state revenue collection.
Additional Barriers
Political Instability
Frequent government changes, conflict, and civil unrest deter investment and disrupt economic planning. Political instability increases the risk premium on loans and insurance, making borrowing more expensive and reducing access to capital for development.
Dependence on Primary Products
Many less-developed economies rely heavily on the export of primary commodities, such as oil, copper, or agricultural products. This dependence exposes them to price volatility and deteriorating terms of trade, reducing export revenue and foreign currency reserves.
Terms of Trade: The ratio of export prices to import prices, showing how much imports a country can buy per unit of exports.
When commodity prices fall, government budgets suffer, leading to reduced spending on infrastructure, education, and healthcare.
External Debt
High levels of external debt limit a government’s ability to invest in development projects. Servicing debt through interest payments diverts resources from essential sectors. In extreme cases, economies face a debt trap, where borrowing is required simply to repay existing loans.
Debt overhang discourages private investment because firms anticipate higher future taxes to service public debt, reducing confidence and long-term growth prospects.
Income Inequality and Social Barriers
High inequality can restrict access to education and healthcare for lower-income groups, reducing the overall quality of human capital. It also leads to underconsumption, as wealth is concentrated among those with a lower marginal propensity to consume.
Social barriers—such as discrimination by gender, ethnicity, or caste—further limit labour market participation and human resource utilisation, reducing the potential productive capacity of an economy.
Interaction Between Barriers
Barriers to development are interconnected. For example:
Corruption can weaken institutions and exacerbate poor infrastructure investment.
Inadequate human capital may prevent economies from diversifying beyond primary production.
Weak property rights can perpetuate poverty by restricting access to formal credit markets.
Effective development requires simultaneous improvements across governance, infrastructure, education, and legal systems to break these reinforcing cycles of underdevelopment.
FAQ
Weak governance reduces accountability and transparency, allowing corruption, inefficient bureaucracy, and poor policy enforcement to flourish.
This amplifies other barriers such as:
Poor infrastructure, due to misallocation of public funds.
Low human capital, as education and health budgets may be misused.
Weak property rights, because laws are not properly enforced.
When governance is weak, institutional reforms become harder to implement, trapping economies in cycles of underdevelopment.
Access to credit enables individuals and firms to invest in capital, infrastructure, and innovation. Without secure property rights, banks are unwilling to lend because assets cannot serve as collateral.
Improving access to credit encourages:
Private investment in productive activities.
Entrepreneurship, especially among small and medium enterprises.
Infrastructure development, supported by domestic and foreign capital inflows.
Thus, credit accessibility helps bridge financing gaps and stimulates development.
Institutions such as the World Bank, IMF, and United Nations Development Programme (UNDP) provide financial assistance and technical support to improve governance, education, and infrastructure.
Their contributions include:
Funding infrastructure and education projects.
Promoting anti-corruption measures.
Supporting legal and institutional reforms.
However, their success depends on local governments implementing transparent and effective policies.
Income inequality limits access to quality education and healthcare for low-income groups, reducing overall labour productivity.
When only a small portion of the population can afford higher education, economies struggle to move beyond primary production sectors.
Additionally, inequality can reduce social mobility, discouraging investment in skills development among poorer households.
This perpetuates low productivity and slows the pace of economic transformation.
Yes. Digital technology can mitigate several barriers by improving access to information, markets, and education.
Examples include:
E-governance systems that reduce corruption through transparency.
Online education improving human capital where traditional schooling is limited.
Digital banking enhancing financial inclusion and investment opportunities.
When combined with sound policy and infrastructure investment, digitalisation can accelerate economic growth and reduce inequality.
Practice Questions
Explain one way in which corruption can act as a barrier to economic development. (2 marks)
1 mark for identifying a way corruption hinders development (e.g., misallocation of resources or reduced investment).
1 mark for explaining the mechanism or impact (e.g., corruption diverts funds from productive investment, reducing public service efficiency and long-term growth).
Discuss how inadequate human capital can limit economic growth and development in less-developed economies. (6 marks)
1–2 marks: Basic identification of what human capital is, with limited or general explanation (e.g., skills and education of the workforce).
3–4 marks: Clear explanation of how low education or poor healthcare can reduce productivity, innovation, and economic diversification.
5–6 marks: Well-developed discussion showing the link between inadequate human capital and restricted development outcomes, such as dependence on low-value industries or limited foreign investment. May include examples or logical reasoning for full marks.
