4.3 - Emerging and developing countries Flashcards
Why is growth important?
Rising living standards
Leads to more growth through the multiplier and accelerator
Gov. can receive more tax revenue
What is economic development?
Sustained improvement in economic and social opportunities
What are some negatives of economic growth?
Generate negative externalities
May not be evenly distributed creating inequalities
Urbanisation can reduce living standards
What is HDI? What does it consist of
Human development index:
Life expectancy
Number of years expected in education
GNI per capita
Limitations of using HDI
Does not measure inequality that exists in GNI
Does not compare the levels of absolute poverty
What are other measures of development?
Gender-related development index
Genuine progress indicator
Happy planet index
Multidimensional Poverty Index
What is Primary Product Dependency?
When an economy is based on the production of primary products - they can soft or hard commodities
What are strategies to reduce primary product dependency?
Better government - more transparency
Higher taxes
Diversification - Tourism etc.
Why do volatile commodity prices impact on development?
Creates volatile income for primary sector workers
Uncertainty about future income
Falling commodity prices - lowers revenue
Creates volatility in the governments fiscal balance - hard to spend
What is a commodity?
An economic good, usually a resource, that specifically has full or substantial fungibility
Why are savings low in developing economies?
Low income so very little money left over to save
Lack of banking infrastructure
Low levels of literacy making banking difficult
How can savings improve growth and development?
Investment can raise productivity and increase job opportunities
Savings can be spent on basic education and healthcare in economies
What does the Harrod-Domar model emphasise?
The role of savings to help fund capital investment
What does the theory state? (Harrod-Domar)
That investment, saving and technological changes are key variables in determining economic growth
Constraints to the Harrod Domar Model
Persistent savings gap in some countries
Small scale financial institutions
Deep weaknesses in human capital
What is a savings gap?
A situation where the current level of savings is insufficient to achieve an economic objective
Ways to overcome the savings gap
Attract inflows of foreign direct investment
External financing from inflows of overseas aid
Behavioural interventions to encourage households to save
What is the foreign currency gap?
When currency outflows exceeds inflows meaning there is a reduction in the availability of foreign currency
What are the causes of a foreign currency gap?
Persistent current account deficit
Lack of inward remittances
Capital flight
What is capital flight?
The uncertain and rapid movement of large sums of money out of the country
What are the problems with capital flight?
Loss of tax revenue
Currency depreciation as supply of the domestic currency increases
Undermines the stability of the financial sector
How can infrastructure gaps limit economic growth and human development?
Increase supply costs for businesses
Reduce geographical mobility of labour
Damage export competitiveness
Make a country less attractive to inward FDI
How does high debt impact development?
Large opportunity cost
Reduce an economy’s credit rating, making it more challenging to borrow in the future
How does corruption affect growth and development?
Deters foreign investment
Leads to allocative investment
Causes a loss of trust
Poorer human development outcomes
