4-3 Emerging and developing economies

Question 1

What are the components of HDI?

Answer 1

• Education, combines the statistics of the mean number of years of schooling and the expected years of schooling.
• Life expectancy, uses a life expectancy range of 25 to 85 years.
• Standard of living, measures GNI adjusted to PPP per capita.

Question 2

What does HDI measure?

Answer 2

• It measures economic and social welfare of countries over time.

Question 3

What do the values of HDI show?

Answer 3

• A value close to 1 is indicative of a high level of economic development.
• A value close to 0 is indicative of a low level of economic development.

Question 4

What are the advantages of using HDI to compare levels of development between countries over time?

Answer 4

• HDI allows for comparisons between countries to be made, based upon which countries are generally more developed than other countries.
• HDI provides a much broader comparison between countries than GDP does.
• HDI shows whether a government’s policies have been effective.

Question 5

What are the disadvantages of using HDI to compare levels of development between countries over time?

Answer 5

• HDI does not consider how free people are politically, their human rights, gender equality, or people’s cultural identity.
• HDI does not take the environment into account.
• HDI does not consider distribution of income.

Question 6

What are the two other indicators of development?

Answer 6

• Human Poverty Index (HPI).
  o Measures life expectancy, education and the ability of citizens to meet basic needs.
  o Two types HPI-1 and HPI-2.
  o HPI-1 measures poverty in developing countries.
  o HPI-2 measures poverty in developed countries.
• Gender-related Development Index (GDI)
  o Measures the relative inequality between men and women.
  o Combines HDI with a consideration of gender.
  o Considers life expectancies, income and education between genders.

Question 7

What are the impacts of economic and non-economic factors in different countries?

Answer 7

• Primary product dependency
  o Primary products are raw materials.
• Savings gap: Harrod-Domar model
  o The Harrod-Domar model states that investment, saving and technological change are required in an economy for economic growth.
  o The rate of growth increases if the savings ratio increases.
  o This leads to increased investment and technological progress, which leads to higher productivity.
  o The rate of growth is calculated by the savings ratio / capital output ratio in the Harrod-Domar model.
  o The limitations of the model are that there is a low MPS in some countries, or that there might be poor financial systems. Also, the paradox of thrift, increase in savings could lead to investment or could lead to a reduction in consumption.
• Foreign currency gap
  o A foreign currency gap is when a country is not attracting sufficient capital flows to make up for a deficit in the capital account.
  o In other words, if the value of the current account deficit is larger than the value of capital inflows.
• Capital flight
  o This is when capital and money leave the economy through investment in foreign economies.
  o It is triggered by an economic threat such as hyperinflation or rising taxes.
• Demographic factors
  o Population numbers.
• Debt
• Access to credit and banking
• Infrastructure
• Education/skills
• Absence of property rights
• Corruption
• Poor governance
• Vulnerability to external shocks

Question 8

What are the two different types of strategies that can influence growth and development?

Answer 8

• Market-oriented strategies
• Interventionist strategies.

Question 9

What are the different market-oriented strategies?

Answer 9

• Trade liberalisation.
• Promotion of FDI.
• Removal of government subsidies
• Floating exchange rate systems
• Microfinance Schemes
• Privatisation

Question 10

What are the different interventionist strategies?

Answer 10

• Development of human capital
• Protectionism
• Managed exchange rates
• Infrastructure development
• Promoting joint ventures with global companies
• Buffer stock schemes

Question 11

What other strategies can be used?

Answer 11

• Industrialisation: the Lewis model
  o The Lewis model is an explanation of how a developing country which focuses on agriculture could move towards manufacturing.
  o It assumes that in agriculture, there is a surplus of unproductive labour in developing economies.
  o The model assumes that in the manufacturing sector, wages are fixed.
  o Workers are attracted to higher wages in manufacturing sector.
  o Assumes profits from manufacturing sector are reinvested thus increasing productivity.
  o The state then moves from agriculture to manufacturing.
  o However, profits might not be invested and demand for labour may fall with increased efficiency.
• Development of tourism
• Fairtrade schemes.

Question 12

What role do international institutions and non-government organisations play on growth and development?

Answer 12

• World Bank
  o Loan funds to member countries
• IMF
  o Promotes free trade globally
  o Lends money
  o Promotes cooperation between nations
• NGO’s
  o Can lobby governments to make changes, raise funds and undertake projects in developing countries.