What is a key constraint to economic growth and development for developing countries? Explain how so.

One crucial constraint to economic growth and development in developing countries may be human capital inadequacy. For example, only 2.3% of India's population is classified as skilled, with only 44% of the population managing to complete an education to the level of Year 10. If many of the population are functionally illiterate, they are not deemed to have the relevant higher order skills (e.g. as per Bloom's taxonomy: critical thinking, reasoning, synthesis, innovation). This deficit of key skills may subsequently lower confidence in the workforce from an international investor's perspective, which might result in lower levels of FDI, which is further detrimental in inhibiting a potential source of knowledge transfer and international technology diffusion. Lower FDI implies lower investment and fewer injections into the circular flow of income, which thus means that AD is not stimulated, and so real output and economic growth may be lower. (Draw LRAS and AD diagram) Further, lower FDI is detrimental to long-run development and growth prospects for the following reason. An absence of international firms in the domestic market may serve to perpetuate crony capitalistic practises and dynastic management, for instance, in developing countries; domestic firms would, complacent due to substantial barriers to entry and a lack of competition, not be incentivised to be productively inefficient (in a microeconomic sense, not operating on their LRAC curve) and furthermore engage in R&D and product/process innovations to spur dynamic efficiency. In turn, this stunted technological progress would curb total factor productivity in the long run, thus meaning LRAS would not shift out substantially, and hence neither would long-run potential economic growth. (PPF diagram)