Inequality of income
- growth rarely delivers its benefits evenly. It often rewards the strong,
but gives little to the economically weak. This will widen the income
distribution in the economy. Typically
seen in Brazil, where the rich minority earn the vast majority of the
national income. More growth has
seen the rich get richer and the poor get poorer!
Pollution (and other
negative externalities) - the drive for increased output tends to put more and more pressure on
the environment and the result will often be increased pollution. This may be
water or air pollution, but growth also creates significantly increased noise
pollution. Traffic growth and increased congestion are prime examples of
this. These negative
externalities mean that firms will overproduce goods and services, because
the private optimum is greater than the social optimum.
non-renewable resources -
the more we want to produce, the more resources we need to do that. The
faster we use these resources, the less time they will last, and eventually
the more expensive they will be to obtain.
Loss of land
- increased output puts further pressure on the available land. This may
gradually erode the available countryside.
E.g. the Masai in Kenya have been banned from their native land in the
Masai Mara, which has now become a famous tourist destination as a result of
the desire for economic growth.
cultural changes - the
push for growth has in many areas put a great deal of pressure on
individuals. This may have costs in terms of family and community life.
E.g. in Indonesia the women are being taken out of their homes so that
they can work for local factories and firms, thus removing the role of the
pressures - an increase in
the national income of a country may result from a shift of the AD curve
outwards, which will cause the price level to rise and thus inflation.
– foreign investors may
bring about strong competition against domestic firms by offering cheaper
goods and services, thus driving local firms out of business.
Also investors may bring their own skilled employment from abroad, and
thus the land occupied by the foreign firm cannot be used to employ locals.
Unemployment in certain areas will mean that some structural
adjustment policies will be required.
Growth of shanty
towns – these will
develop as more and more people see the ‘bright lights’ of the city and
leave all their possessions back in their rural villages, to find no
jobs/housing, and thus shanty towns develop, e.g. outside Rio de Janeiro.
Balance of payments
deficit – as more
investors choose to build firms in the developing country more capital goods
will be required to be imported, and thus as imports exceed exports, a
deficit builds up.
on infrastructure – as more businesses invest in the country more vehicles
will travel on the roads and a better distribution of water and electricity
will be required, and thus if the infrastructure is weak, significant
improvements (expensive) will be required.