Causes and Consequences of International Differences

Countries with a higher GDP per head tend to be more developed

Even with high GDP per head, there may be significant inequality in the distribution of income, resulting in poor living standards for many  

Differences in skills result in difference in productivity

Higher levels of productivity are rewarded with higher wages, which leads to a better standard of living

More densely populated countries or cities face more challenges

A larger population can mean higher tax revenues for the government but at the same time, government expenditure on services is spread across more people

Poorer economies are characterised by less government spending per head

Economies with a larger proportion of secondary and tertiary activity tend to be more developed due to the wages associated with each sector

Primary sector workers are usually paid low wages due to the unskilled nature of the job and the fact that raw materials often generate the lowest profits in the production chain

Secondary sector workers add value to the raw materials and these products sell for higher profits. Therefore wages tend to be higher than primary sector wages

Tertiary sector workers are paid the highest. Their jobs often require highly valued skills that take years to acquire and the products they sell or services they provide can be complex and expensive e.g. artificial intelligence coders

Higher savings result in higher investment and economic growth. It is believed that as economies develop, savings increase

Increased savings → increased investment → higher capital stock → higher economic growth → increased savings

If the dependency ratio is high it means there is less money available for savings and investment

These directly influence the level of skill in an economy

Improved skills results in higher productivity and wages

The level of health directly impacts productivity of labour

Productivity influences output and income

Developed economies tend to have healthy workforces

The less developed the economy, the more sickness and disease there are

Countries with abundant natural resources (such as oil, minerals, fertile land, or water) can use them to produce goods for export, earn income and support economic growth

Natural resources can create jobs in primary industries and provide raw materials for the secondary sector