Changing Institutional Factors
- Sound institutions, free from corruption and well-established help a country to progress in human development
Strong institutions help to create an environment that generates significant human development and economic growth
1. Access to credit and banking (finance)
- Financial institutions enable individuals and firms to borrow money which can be used for investment or to generate growth
- A lack of financial institutions prevents this from happening and causes the poverty trap to continue
- Mobile banking has increased significantly in most developing countries
- This allows customers to conduct financial transactions more easily and facilitates a flow of finance in more remote areas
- This allows customers to conduct financial transactions more easily and facilitates a flow of finance in more remote areas
- Microfinance has been very successful in breaking the poverty trap for some households in LEDCs
- The Grameen Bank pioneered the use of microfinance in Bangladesh and the country saw significant gains in economic development
- The Grameen Bank pioneered the use of microfinance in Bangladesh and the country saw significant gains in economic development
The Advantages and Disadvantages of Microfinance
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2. Property and land rights
- In many countries, property is the main household asset which can be used to secure loans or generate income
- A lack of property rights in some developing countries prevents this from happening and causes the poverty trap to continue
The Advantages and Disadvantages of Permitting Property Rights
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3. Women's empowerment
- Gender inequality reduces the incentive for women to enter the workforce resulting in a smaller production possibility curve for the nation
- This represent a loss of efficiency for a nation
- Household income is suppressed which worsens the quality of life
- Increasing women's empowerment reverses these effects
- The additional income helps to break the poverty trap in LEDCs
- Increased opportunity incentivises young girls to study harder which helps to close any existing education gaps between genders
4. Reducing corruption
- Corruption reduces investment, limits economic growth and affects the pattern of government spending within a country
- These consequences of corruption hold back economic development and growth
- Corruption is often enabled or led by the government or figures in the government
Tackling corruption has the following advantages:
- There is more confidence in the economy and foreign direct investment increases
- Money allocated to development projects in the country actually gets used for development
- As national output rises, tax revenue rises and the government is able to provide more services, merit goods, and public goods
- An increase in national output leads to more employment opportunities, which can raise household income