Economic development is something which cannot be universal as people’s ideas are constantly different and always changing. Michael Todaro considered economic development to fall under three categories: life sustaining goods and services, higher incomes and freedom to make economics and social choices. These may be restricted from improving in countries which are trying to improve their GDP, grow as an economy- developing countries for the following factors.
Firstly, in developing countries there is often a savings gap, where by domestic saving is very hard. For example, in low income regions such as Africa with high levels of absolute poverty, these people us most if not all of their income to provide and support their families with none left over to save. This makes it impossible for them to generate sufficient funds for unexpected expenses. This then can damage their living standards further if homes, livestock and possessions are lost. This restriction to make free economic and social choices, would, in Todaros view, indicate a lack of economic development. Furthermore, without saving it restricts developing economies from business and capital investment as with no one saving there is no money to loan out to fund investment and expansion for businesses to improve their capital and thus improving the standard of living in impoverished areas through increased wages and greater access to life sustaining goods such as food and water. Capital investment is important as is our productivity with it as the Harrod-Domar model looks at savings and productivity e.g. capital to explain an economies growth. Finally, capital investment if vital for capital accumulation such as schools and office blocks. Developing countries don’t have much capital acquired due to the inability to save and invest. By increasing their accumulation of capital it can help them to urbanise and