Today, most of the world’s economies are inextricably interlinked with each other, what affects one soon starts a cascading effect on all the world’s economies. In a sense, that’s good as interlinked economies can help promote trade and even result in free trade agreements without the requisite trade tariffs being levied on select products and services. We have long since moved away from the barter system to a free market system which often reacts to global cues and to the current supply and demand. The point being that economies have the power to lift up a nation or even help destroy one which is why we need to take a closer look at some of the positive and negative impact of economic development.
The positive impact of economic development:
- Threshold: With a formalized economy in place, manufacturers can manufacture goods and market the same to get the highest price possible for the same. And in a free market, consumers would naturally be on the lookout to get the same at the lowest price possible and the free market makes it possible for both these parties to agree to a threshold limit, a certain entry rate at which the product is retailed. Moreover, most companies often offer large discounts on the same seasonally along with free add-ons, thereby making it all the more attractive to the consumer. With strong and robust economic development, consumers should be able to purchase premium goods and services, at a lesser cost.
- Development: A free market economy that is thriving helps to increase confidence levels in that nation, especially among the various companies. This, in turn, has a cascading effect on FDI, as more companies would seek to invest in a nation whose economy can post a robust growth figure; the perfect example of the same would be India and China where both had recently recorded growth rates of 7.3% and 6.2% respectively. With more investment rolling in, the government can utilize the funds to boost infrastructure, military, and even chalk some towards skill development and other sectors. Overall, a good economy with a strong growth can help a nation to grow.
- Basic necessities: A good economy can help a nation take measures to ensure that all its citizens have access to basic facilities such as essential drinking water, food, housing, and even free medical care. Granted, this may seem like a large task which is why some of the governments have instituted a form of medical insurance where a part of the cost is borne by private organizations and the rest, by the government – thereby making it all possible.
The negative impact of economic development:
- Inflation: Inflation is where the threshold cost of certain items can increase in price due to various global cues. Often the current prevailing inflation rate can give one a clue as regards the health of the economy. This is why most countries take affirmative action to counter the effects of inflation so as to bring down the overall cost so that the common man does not get affected much.
- Runaway inflation: Runaway inflation is where a nation often incurs more debt than it is possible to the point that the common man no longer has any belief in the economy of his nation. As a result, a runaway inflation occurs where traders and others charge extremely high rates for common supplies, as a way to protect themselves against a free-falling economy. This results in extremely high inflation rate which is almost next to impossible to bring down.
- Sovereign debt: Economies fail all over the world for one reason or the other; it is part of the cyclic process but as a result of a low growth economy, several nations have been forced to take out loans from several organizations such as IMF among others. This has resulted in the nation being forced to meet certain conditions in order to repay the loan and as a result, their development has lagged over the last decade, for example, Africa
- Interlined economies: Since no economy exists on its own, they are all inter-linked with each other so what impacts one will affect the economic development of others. For example, the US housing mortgage crisis had impacted economies all over the world and it took a few years to rebound back. This is why it is essential that international agencies such as the IMF and others continue to advise governments all over the world, regarding the state of their economy and economic development.
These are some of the positive and negative effects of the economy; we continue to enjoy various perks and advantages thanks to a robust economy and that’s why it was important that we analyze some of the positive and negative effects of economic development.