4.3 Flashcards
What factors contribute to HDI?
Health (as measured by life expectancy at birth)
Education (as measured by the mean years of schooling of adults aged 25+ and the expected years of schooling of a current 5-year old over their lives)
Income (measured by real GNI per capita at PPP)
Advantages of using HDI to measure development of a c
It takes into account three factors which are important for the development of a country.
It is relatively easy to calculate because governments tend to collect the statistics used in the data.
Disadvantages of using HDI to measure development of a country
Health takes no notice of the quality of life that poeple enjoy and education doesn’t take into account the quality and success of education.
There is no consideration for the equality of income.
There are other factors that affect development, like freedom from corruption or the govt.
What is the Multidimensional Poverty Index (MPI)?
It measures the percentage of the population that is multidimensional poor.
Uses data for health, education, standard of living, but uses a broader range of indicators within these categories.
Includes years of schooling, attendance data. Includes availability of electricity, sanitation and safe drinking water in households, etc.
It highlights areas of the extreme rich but where most of the population is not. Focuses on poverty.
Disadvantages of MPI
It cannot be calculated for all countries as the data is not always available.
Doesn’t take environment into account.
What is the Genuine Progress Indicator?
Calculated from 26 different indicators grouped into three main categories: economic, environmental and social.
Aims to look at economic sustainability to ensure development does not limit amount produced and consumed in the future.
They tend to show developed countries epxeriencing negative growth over time, due to their impact on the enviornment.
What is the Prebisch Singer Hypthosesis?
Suggests the long run price of primary goods declines in proportion to manufactured goods, which means those countries dependent on primary exports will see a fall in their terms of trade.
An example why the Prebisch Singer Hypothesis may not always be right
In recent years, there has been a rise in the price of some key commodities, such as food and a fall in prices of some manufactured goods due to the expansion to places like China.
What is the Dutch disease?
When a country becomes a significant commodity producer in a short amount of time, causing an increase in demand for currency (to enable people to buy the goods) which pushes its value up.
This increases export prices and leads to a reduction in competitiveness of the economy, causing a fall in output in other areas.
What is the Harrod-Domar model?
Suggests savings provide the funds which are borrowed for investment purposes and that growth rates depend on the level of saving and the productivity of investment.
It concludes that economic growth depends on the amount of labour and capital and that developing countries have a vast labour supply, so their problems are caused by capital. In order to improve capital, investment is necessary and investment requires savings.
Problems with the Harrod-Domar model
Economic growth is not the same as economic development.
It is difficult for individuals to save when they have little income and borrowing from overseas causes problems with debt.
It is possible that investment could be wasted.
Economic factors influecing growth and development (11)
Primary product dependency Volatility of commodity prices Savings Gap Foreign currency Gap Capital flight Demographic factors (e.g. population) Debt Access to credit and banking Infrastructure Education/skills Absence of property rights
Why does the absence of property rights hinder economic growth/development?
Individuals and businesses cannot use the law to protect their assets, leading to reduced investment.
What is capital flight?
When large amounts of money are taken out of the country, rather than being left there for people to borrow and invest.
What is the foreign currency gap?
When exports from a developing country are too low compared to imports to finance the purchase of investment or other goods from overseas required for faster economic growth.
Non economic factors influencing growth and development
Corruption/High levels of bureaucracy
Diseases
Poor climates/geographical terrain
Civil wars
Market-orientated strategies influencing growth and development
Trade liberalisation Promotion of FDI Removal of govt subsidies Floating exchange rate systems Microfinance schemes Privatisation
Interventionist strategies influencing growth and development
Development of human capital
Protectionism
Managed exchange rates
Infrastructure development
Promoting joint ventures with global companies
Buffer stock schemes
What is the Lewis model
It assumed that developing countries had dual economies with a traditional agricultural sector, which had low wages, low productivity, underemployment and low savings, and a modern industrial sector, with high levels of investment and urbanisation.
It suggested that the modern industrial sector would attract workers from rural areas by offering higher wages. Lewis believed labour productivity was so low in agricultural areas that people leaving the area would have no impact on output and would in fact mean there was a surplus of food, since the same amount was being shared amongst less people. Those who moved to urban areas would have higher incomes and thus more savings for investment, which are key to growth.
Evaluation of the Lewis model
During planting and harvesting vast amounts of labour is needed.
Not all people on higher wages will save and invest their money.
Recently, migration has led to urban poverty replacing rural poverty as the industrial sector is unable to provide jobs for all those who have moved. Improvements in technology will lead to a reduced demand for labour.
What is FDI?
FDI is investment by one private sector in one country into another private sector company in another.
Advantages of FDI
Creation of jobs, leads to the multiplier effect.
Can help fill the savings gap.
Transfer of knowledge from one country to another.
Disadvantages of FDI
Usually a repatriation of profits and developing countries may exploit them.
The country will lose sovereignty and become dependent on another firm. Local competition may find it hard to compete.
Environmental damage and exploitation of natural resources.
Problems with floating exchange rate systems to influence growth and development
The currency can be volatile - makes it difficult for exporters/importers to make decisions about the future and can cause large changes in economic growth.
