15.2 Economic Growth And Development Flashcards
What is economic growth
Measures changes in physical quantity of goods and services that an economy actually produces or has the potential to produce
What is economic development
Goes further than economic growth as it is not just the quantity of output but also its quality and contribution to human happiness
Give an example of economic growth not leading to economic development
When a gov uses fruits of Economic growth to buy military equipment
What are 5 ways economic development can be measured by
- General improvement in living standards (reduces poverty and human suffering)
- Access to resources such as food and housing that are required to satisfy basic human needs
- Access to opportunities for human development (e,g education and training)
- Sustainability and regeneration through reducing resource depletion and degradation
- Access to decent healthcare
What is a ‘traditional society’ ?
Economies completely lacking economic development (little changes from generation to generation)
What does Rostov say is the stage above developing economies?
Economies preparing for take off (economies becoming
What is economic development fundamentally about?
People development over time
Describe economies ready for take off
Economies that are becoming more productive and in which various preconditions for successful industrial growth are beginning to appear
What is the stage above economies ready for take off and what is it about?
Self-sustaining economy
Involves changes from agricultural to an industrialised economy
Output increases but only a small portion of society benefits from increased living standards (growth takes priority over development)
What is the stage above self-sustaining economy and what is it about
Higher-income economies
Countries in a position to choose to allocate the increased output their economies are producing to social welfare and other aspects of what we call economic development
What are indicators of development
These include
GDP per Hearn
Mortality rates
Health statistics
Information of the distribution of income
For most developing economies GDP is usually greater than what?
GNI (Gross national income)
This is because profit outflows and interest payments out of developing economies to more developed economies (and banks within these economies explain why this is the case)
What are the 3 components of economic welfare
Economic welfare derived from goods and services purchased in the market economy
+
Economic welfare derived from public goods and merit goods provided collectively by the state
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Economic welfare derived from quality of life factors, including external benefits minus external costs and intangibles
What is the issue with using Gross national income as a measurement of development “
Good estimate for welfare derived from goods and services in the market economy and from public and private goods collected by the state
But bad at indicating how externalities and other quality of life factors affect economic welfare and living standards. Also fails to reflect the effect of resource depletion and environmental degradation
What factors can be used to supplement national income per head in order to provide a better indicator of the quality of life enjoyed by people?
Life expectancy
Mortality rates
Literacy rates
What is the United Nations HDI
An index based on life expectancy education and per capita income factors which ranks the worlds countries into 4 tiers of human development
Tiers are:
I. Very high human development
2. High human development
3. Medium development
4, low human development
What 3 factors make up the HDI
-life expectancy at birth
-mean years of schooling and expected years of schooling
-gross national income (GNI) per head of population, reflecting purchasing power parity (PPP) in US dollars
What does the HDI rank from
0-1
What is an unadjusted HDI and why can it be an issue ?
Perfect index of human development
It ignores inequalities in the distribution of income
What does the IHDI measure?
Actual level of human development accounting for inequality
The greater the degree of inequality the greater the difference of HDI and IHDI
What is IDHI
Inequality-adjusted human development index
Diagram for economic growth of a country only producing two goods
Increased development in economy has led to economic growth and development here (A-B)
What two factors are essential for economic growth and aid development
Investment in new capital goods and technical progress
What does movement of point A to C show?
Illustrates economic growth but not economic development
Because resources have been shifted from education to armaments
What is education and training
Education develops individual knowledge and intellect, while training develops work skills. Both are necessary for economic growth and development
Education and training is an important part of what
Economic growth and economic development
What 5 factors prevent or reduce economic growth (and any chance of economic development)
Corruption
Institutional factors
Infrastructure
Inadequate human capital
A lack of property rights
What is corruption
A barrier holding back economic growth and development, especially in less developed countries
Why does corruption stop economic growth and development
It diverts scarce resources away from more productive uses to protect less efficient resource use
Production costs and consumer prices also rose (leg back-handers paid by corrupt officials to employees of firms they wish ti do business
What are institutional factors ?
Examples include rules,laws, constitutions, the financial system and defined property rights
What do institutional factors include?
Legal and judicial structures
Public administration systems
Availability and access to financial institutions such as banks
Institutional factors, why is a ‘law of contract’ crucial
Without it, firms may not supply goods or services to consumers and other firms even though the goods and serves have been paid for
Without this business transactions may not take place
Infrastructure
For the most part result of past investment of buildings roads, bridges, power supplies, fast broadband and other fixed capital goods that are needed for the economy to operate efficiently
Why does poor infrastructure hinder development
development as it raises cost of production and makes it difficult to access raw materials
How can developing countries offset the disadvantage of lack of infrastructure?
Use fruits of technical progress to bypass old technology
(E.g phones developed in developed countries they can get phones without paying for its innovation)
What is a lack of human capital
The skills knowledge and experience possessed by the population
Why would an economy invest in human and physical capital?
Purpose is to build up stocks of physical capital such as machines and trained labour that are needed for on going growth and development to take place ,purpose labour training to build up stock of human capital
What do undeveloped societies lack
Property rights
What is sustainable development
Path where the maximisation of human well-being for todays generations does not lead to declines in future well being
What is the danger in pursuing growth g or growths sake .
Lead to outcomes that cost environment depletion and degradation that exceed the benefits of a higher standard of living
(Growth at the expense of development)
What microeconomic policies can be used to correct market failure brought about by growth
Uses of taxes and subsides to punish and deter the production of negative externalities and demerit goods (vice Versa with merit goods)
Why may redistribute polices he justified?
Needed to narrow the unjustifiable inequalities in the distributions of income of wealth, through as we have seen such policies may harm the incentives provided by the markets
What is capital flight?
The sudden withdrawal of money out of a country (affects poorer countries more than richer)
How can capital flight be avoided
Gov and central bank intervention (vigorously apprised foreign exchange Controls)
What is aid
Money, goods and services and ‘soft’ loans given by rhe gov of one country or a multilateral institution such as the world bank to help another country
NGOs such as Oxfam also provide aid
What do the UK and US say about aid
Less important than trade liberalisation
What is the strategic trade theory argument?
Govs in already developed counties are fully in favour of free trade -only if their country faces little/no completion from developing economies
What are the different types of aid?(6)
Military
Hard loan
Soft loan
Disaster relief
Tied aid
Lending their experts
What is military aid?
Has to be spent buying the weaponry of a done country (some people question if this is aid)
Hard loan
Has to be paid back at market rate, loosest sense of aid
Soft loan
Below market rate interest rate attached
What is disaster relief?
Much of this is dispensed by NGOs with their headquarters in developed countries
What is tied aid?
Can take form of a soft loan or a gift of money that can be spent on exports of the country granting the aid (arguably benefits doner county as much if not more than recipient)
Lending their experts
Richer counties can lend experts to a less economically developed country to offer advice on matters such as improving the country’s governance, its methods of production how to use advanced technology and maintenance of transport links and other forms of infrastructure
Does economic aid promote development
If it is the right type yes
In a country where domestic savings are low aid can be used to finance the domestic accumulation of capital and it can also provide vital foreign exchange to finance the import or capital goods and resources
What is the issue with giving aid of good technology
The poorer countries don’t have experts to replace it or fix it if it has faults
Humanitarian aid
Emergency disaster relief food aid, refugee relief and disaster preparedness
Trade vs aid: free market economists
Argue trade is more important than aid in relation to economic development
(Until recently said that African aid made the country poorer than better off)
