Explain the main barriers that LEDC's face when attempting to achieve stable, long-term growth

Long-term growth is defined as an increase in the productive capacity of an economy, which is due to the increase in the quality or quantity of an economy's factors of production (FoP). These barriers may include: (1)A lack/deficiency in Human Capital- which would imply a low productive capacity of individuals (a measure accounting for one's skills, knowledge, health, social attributes). A lack of human capital would prevent the development of quantity or quality of FoPs, E.g. the quality of the FoP Labour is likely to remain low if the workforce continues to have poor health and education. (2)Access/reliability of financial markets - means that there is little scope to acquire the crucial investment required to increase an economy's quality or quantity of its FoPs. E.g. the quality of Capital in a country may not be improved as necessary spending in R&D can't be afforded without access to financial markets. Moreover, with the help of a diagram one can illustrate the gap between LRAS2 (access to financial markets) and LRAS1 (no access) and highlight the loss of potential gains in productive capacity due to the absence of access to financial markets in an LEDC. (3) Corruption – limits the growth in the productive capacity (an increase in the quality or quantity of FoP) firstly by sapping the incentives for innovation, as one can view corruption as a very high tax. In a corrupt country, successful firms are disproportionately targeted, politicians may thieve profits from successful firms by demanding payments to officials, setting high permit costs, and costs to obtain to continued licensing of activities. Secondly, corruption can deprive governments of necessary funds for long term growth, say via embezzlement.  Politicians by taking money from the public purse deprive a country of funds that could be used for infrastructure, health and education, which would all lead to an expansion in the productive capacity and long term growth. 

Answered by Richard T. Economics tutor

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