4.3 Emerging and Developing Countries Flashcards
How are countries categorised based on their wealth and development?
High income countries (HIC’s) = Developed
Middle income countries (MIC’s) = Emerging = Newly Industrialised countries (NIC’s)
Low Income counties (LIC’s) = Developing
What are tiger economies?
Economies with very high growth rates
What characteristics do developing countries have?
Lower incomes per capita
Lower physical and human capital
Lower health and morality rates
Higher population growth rates
Higher unemployment and underemployment
Agriculture is a bigger sector vs manufacturing
Poor government
Under pressure environment as less of priority
What are 4 measurements of economic development?
Human Development Index (HDI)
Inequality-adjusted HDI (IHDI)
Multidimensional Poverty Index (MPI)
Genuine Progress Indicator (GPI)
What is Human Development Index (HDI)?
Index based on 3 indicators:
- Health
- Education
- Income measured by real gross national income (GNI) per capita at purchasing power parities
These are given weightings and a geometric mean is taken from 0-1
- higher score = better economic development
Quite easy to calculate
Real GNI per capita at purchasing power parities doesn’t take inequality domestically into consideration
Don’t have other variables such as housing, employment and environment
What is Inequality-adjusted HDI (IHDI)?
Adds inequality as a fourth indicator
Longevity, education attainment and standards of living are adjusted for inequality using measures like Gini coefficient
- called the Atkinson Index
IHDI is a broader measure than HDI
But doesn’t take other variables into consideration
What is Multidimensional Poverty Index (MPI)?
Measure % of people who are multidimensionally poor
Uses a broader range of indicators
Focuses on data linked to poverty
Not possible to gain all this data for all countries
Don’t take environment into consideration etc
What is Genuine Progress Indicator (GPI)?
Attempts to give a more comprehensive measure than HDI and MPI
Calculated by 26 different indicators
- grouped into 3 main categories: economic, environmental and social
Contributed to proof the antigrowth case
- So its a biased indicator
- Biased to countries not growing as much
What economic factors influence development?
Political and institutional factors
Education and skills
Infrastructure
Technology
Absolute Poverty
Income distribution
Access to credit and Microfinance
Demographic factors
International trade
Commodities
- however, the recourse curse or dutch disease may effect
Large proportion saved and lower capital needed to produce output (Harold-Domar model - Growth = s/k)
Debt
FDI and portfolio capital flows
Remittances
What non-economic factors influence development?
Gender issues
Environment
War
Diseases
Geographical location
What is the recourse curse?
Where countries rich in commodities often experience slower economic growth and worse development
Could be over-relied on resources
- Price shocks and volatility really slows down economy
What is the Dutch disease?
Where exploitation of commodities leads to a rise in the exchange rate and loss of international competitiveness
What’s the Harold-Domar growth model?
States the higher proportion an economy saves and the lower capital to output ratio, the more growth an economy has
Growth = s/k
s=saving proportion of economy where S=sY
k= capital-output ratio where k=ΔK/ΔY
Derivation:
Investment, I=ΔK (change in capital)
Investment is roughly the same as savings in an economy, so I=S
Economic growth =ΔY/Y
Rearranging equations so ΔY=ΔK/k and Y=ΔK/s
ΔY/Y=s/k
Economic growth =s/k
What’s the savings gap?
The difference between the savings of the country vs the amount needed to finance investment investment for a higher economic growth
What’s the foreign exchange gap?
The difference between actual level of exports vs level of exports needed to boost growth
How may not investment and savings may not lead to growth and development?
Capital flight
- holding savings in another country from gov authorities
Poor distribution of investment
What are remittances?
Money transfers from individuals working abroad back to their families/ communities back in their home country
Counts as an invisible export
Adds to GDP, helping develop a country
What are market orientated strategies to promote development?
Strategies that rely on free market to deliver economic development that aim at maximising profit
What are the different types of market orientated strategies to promote development?
Trade liberalisation
Promotion of FDI
Subsidy removal
Floating exchange rate systems
Microfinance schemes
Privatisation
What are interventionist strategies to promote development?
Govs correcting failing markets and promoting welfare and development
What are the different types of interventionist strategies to promote development?
Development of human capital
Protectionism
Managed exchange rates
Promoting joint ventures with global companies
Buffer stock schemes
What are joint ventures?
Where 2 or more firms create a jointly owned company
The gov promote joint ventures with global companies
- leads to local firms being more competitive, driving growth
What are buffer stock schemes?
Interventionist strategy to stabilise the price of a commodity
The gov only let the price of the commodity fluctuate within a range
If supply of commodity is too high leading to a low price of it, the gov buys loads of the commodity, increasing the price of it
When supply of commodity is too low leading to a high price, the gov sells the commodity, decreasing it’s price
Results in farmers etc. doing excess production, leading to more employment
However, these schemes are rare because:
- needs considerable amount of capital to setup
- may not actually effect prices that much, as theres a whole worlds market out there
- Main reason is min price is usually too high, the artificial price is unsustainable and the scheme runs out of money
What other strategies can be used to develop countries?
Industrialisation - The Lewis Model
Development of tourism
Development of primary industries (commodities)
Fairtrade schemes
Foreign aid
Debt relief
What is industrialisation?
When an economy transforms from dominating agricultural/ manual labour sector to being dominated by industry and manufacturing
What’s the Lewis Model?
The Lewis Model explains at the early stages of development, the economy has 2 main sectors:
- Agricultural sector which employs most
- Industrial sector which increases NI and productivity
The model assumes theres a surplus labour in agriculture
- meaning workers can contribute zero due to diminishing marginal productivity
Hence, gradually transferring workers from A to I doesn’t reduce agriculture and leads to more output and profit, expanding industrial sector, cycling growth
Overall leads to industrialisation
However, it may:
- Lead to urban poverty as countryside has not many jobs
- ignores globalisation and immigrants
- wastes resources as industrialisation is forced
What role does the World bank and WTO have on development?
Promotes economic development
Founded in 1944 to fund postwar development
Promote economic reform and trade liberalisation
- done by WTO
Provide low interest loans for poor countries or struggling countries with war etc
What role does the International Monetary Fund (IMF) have on development?
Founded in 1944
Not actually setup to promote economic development, but focuses to maintain global financial stability
Provides temporary financial assistance to countries as a last resort
Stabilises exchange rates
What role do private banks have on development?
e.g JP Morgan, HSBC, Lloyds
Also help facilitate FDI and portfolio investment for their clients
Provide all types of loans
Own parts of companies (equity) to help them
Raise company funds through Investment Banking
Profit-orientated
What role do Non-Government Organisations (NGO’s) have on development?
Typically voluntary charities
Engage with small scale projects to boost development
May help absolute poverty and poverty
