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Theme 4 Economics Lisa > 4.3- Emerging and Developing Economies > Flashcards

4.3- Emerging and Developing Economies Flashcards

1
Q

What is the difference between economic GROWTH and DEVELOPMENT?

A

Economic growth- A sustained rise in a country’s productive capacity.
-An increase in real value of GDP/GNI.

Economic development-Progress in expanding economic freedoms.
Sustained improvement in economic and social opportunities.

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2
Q

Factors that reflect economic development:

A

-GDP per capita
-health care/ life expectancy
-education
-gender equality
-environmental standard
-access to basic needs
-extent of welfare state/ government

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3
Q

What are some common characteristics of developing nations?

A
  • low incomes per capita
  • lower levels of absolute levels of productivity
    -high dependency on export incomes/ low export diversification
    -lots employed in agriculture
    -limited support by welfare system
    -many industries don’t have a lot of technology.
    -fast growth of population and younger average age
    -weaknesses in infrastructure- such as water, sanitation.
    -high tarrifs and import controls.
    -Lower access to advanced rich country markets because of trade barriers.
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4
Q

What are some common characteristics of developing nations?

A
  • low incomes per capita
  • lower levels of absolute levels of productivity
    -high dependency on export incomes/ low export diversification
    -lots employed in agriculture
    -limited support by welfare system
    -many industries don’t have a lot of technology.
    -fast growth of population and younger average age
    -weaknesses in infrastructure- such as water, sanitation.
    -high tarrifs and import controls.
    -Lower access to advanced rich country markets because of trade barriers.
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5
Q

What three dimensions does HDI measure?

A

Education
life expectancy (health)
standard of living

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6
Q

How is the education component in HDI measured?

A

Combines the statistics of the mean number of years of schooling.
And the expected years of schooling

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7
Q

How is life expectancy in HDI measured?

A

A minimum value for life expectancy of 25 years.
A maximum value of 85 years.

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8
Q

How is standard of living in HDI measured?

A

GNI per capita adjusted to purchasing power.

GDP used to be used however in order to account for remittances and foreign aid, GNI is now used.

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9
Q

What did HDI rise to in 2010 and why?

A

0.48 to 0.68
Growth of East Asia, Pacific and South Asia.

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10
Q

HDI values 1 and 0 meaning?

A

1= high level of economic development
close to 0=low level of development

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11
Q

What are the advantages of HDI?

A
  • Allows for comparisons between countries to be made, depending which are more developed.
    -Provides a much broader comparison that GDP does.
    -Education and health are important development factors to consider, and it can provide information about the country’s infrastructure- also shows how successful gov policies have been.
    -Can highlight countries with similar GNI per capita but different levels of economic development.
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12
Q

What are the limitations of HDI?

A
  • Does not take into account qualitative factors such as cultural identity, political freedoms, gender opportunity and human rights.
    -Higher national income GNI may not necessarily increase economic welfare, depends how it is spent.
  • Does not take the environment into account.
    -Does not consider the distribution of income, a country can have a high HDI but be very unequal- people still in poverty.
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13
Q

What is IHDI?

A

-Inequaliy- adjusted HDI
- takes into account how human development is distributed.
-Very unequal countries see their human development scores drop.

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14
Q

What is MPI?

A

-Includes several factors that relate to poor people’s experience of deprivation.
2 aspects of poverty:
- The incidence (% of people who are poor)
-The intensity of people’s poverty.

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15
Q

What is GDI?

A

Gender related development index
- measures the inequality between men and women.
- combines HDI with a consideration of gender.

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16
Q

Economic Factors influencing growth and development?

A
  • primary product dependency
  • volatility of commodity prices
  • savings gap : Harrod- Domar model
  • foreign currency gap
  • capital flight
  • demographic factors
  • debt
  • access to credit and banking
  • infrastructure
  • education/ skills
  • absence of property rights
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17
Q

What are primary products?

A
  • Primary products include agriculture, mining, oil etc.
    -Most developing country’s economic activity is based on primary product.
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18
Q

How does primary product dependency cause issues?

A
  • Natural disasters can wipe out production of the primary products, meaning farmers are left with no income. Often renewable, the country will suffer once run out.
  • Tend to have a low- income elasticity of demand, as people get wealthier they don’t continue to increase the amount of primary products they buy but they increase their demand for manufactured goods.
  • Discourages investment in other parts of the economy
  • comparative advantage can change overtime.
  • dutch disease
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19
Q

What is dutch disease?

A

When a country becomes a significant commodity producer in a short amount of time, causing an increase in demand for the currency ( to enable people to buy the goods). This increases export prices and reduces competitiveness of the economy, causing a fall in output in other areas.
- Occured in NON- oil sectors in Nigeria.

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20
Q

What is prebisch singer hypothesis?

A

The long run price of primary goods declines in proportion to manufactured goods, which means those dependent on primary exports will see a fall in their terms of trade.

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21
Q

Positives of primary product dependency?

A

Import source of export revenue:
- Exports for some economies to get hold of foreign currency reserves.
- Export revenues are vital for growth and development.

  • Creates jobs, which can attract investment from overseas.
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22
Q

Evaluation points for primary product dependency being a constrain on economic growth:

A
  • May have comparative advantage
  • Demand may be income elastic- diamonds (Nigeria)
  • there are other constraints
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23
Q

What is volatility of commodity prices?

A
  • Primary products tend to have inelastic demand and supply curves which means relatively small changes in demand or supply lead to huge fluctuations in price.
  • These large changes in price mean that producers income and the country’s earnings are also rapidly fluctuating, making it difficult to plan long term investment, meaning producers can see their income fall rapidly.
  • When prices of commodities rise for a number of years, there tends to be over- investment in the production of the commodity causing long term risk when price eventually falls.
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24
Q

How does savings gap influence development?

A
  • Developing countries have lower incomes and thus save less. This means there is less money for banks to lend, reducing investment.
  • A savings gap = the difference between actual savings and the level of savings needed to achieve a higher growth rate.
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25
Q

What is the Harrod- Domar model?

A
  • Suggests savings provide the funds which are borrowed for investment purposes.
  • Growth rates depend on the level of saving and the productivity of investment.
  • 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.
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26
Q

What problems are with the Harrod- Domar model?

A
  • 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.
  • investment could be wasted.
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27
Q

How does the foreign currency gap influence growth?

A
  • This is when exports from a developing country are too low compared to imports to finance the purchase of investment or other goods from overseas.
28
Q

How does capital flight influence growth?

A
  • Large amounts of money are taken out of the country, rather than being left there for people to borrow and invest.
  • If money was placed in banks within the country, then credit could be created by banks for consumers and businesses to spend.
  • Can occur because of lack of confidence in the country’s stability.
29
Q

How do demographic factors influence growth?

A
  • Developing countries tend to have higher population growth, limiting development.
  • The high population is caused by high birth rates, which increases the number of dependents within a country but does not increase those of working age.
  • Places strain on the education system.
30
Q

How does debt influence growth?

A
  • During 1970s and 1980s, developing countries receive vast loans from banks in the developed world.
  • Now suffer from high interest repayment, this can be higher than the development aid they receive from developed countries. Meaning money is flowing from developing to developed.
  • Less money to spend on services, might mean they need to raise taxes.
  • Government can take on too much debt and not spend it well.
31
Q

How does access to credit and banking influence growth ?

A
  • developing countries have limited access to credit and banking compared to developed countries.
  • Cannot have funds for investment and struggle to save in the future.
  • Some families may use loan sharks, who give high interest rates and leave individuals permanently in debt.
31
Q

How does access to credit and banking influence growth ?

A
  • developing countries have limited access to credit and banking compared to developed countries.
  • Cannot have funds for investment and struggle to save in the future.
  • Some families may use loan sharks, who give high interest rates and leave individuals permanently in debt.
32
Q

How does infrastructure influence development?

A
  • In a developed country,there is many buildings, roads, ports, airports.
  • Low levels on infrastructure make it hard for businesses to trade and set up within the country.
  • However the development of infrastructure can be expensive and tends to conflict with environmental goals.
33
Q

How do education/ skills influence development?

A
  • poor education means low skilled and unable to read or write, leading to low levels of productivity.
  • However, there is debate about what type of education is needed and problems concerning over- education.
34
Q

How does absence of property rights influence development?

A
  • Property rights are where individuals are allowed to own and decide what happens to certain resources.
  • A lack of rights means that businesses cannot use the law to protect their assets, leading to reduced investment.
  • They will be unwilling to buy machinery, build factories or establish brands.
35
Q

How do non- economic factors influence development?

A
  • Corruption- individuals make decisions which maximise the bribes they receive as oppose to those which maximise development and output.
  • Leaders make decisions to benefit themselves rather than the economy.
  • High levels of bureaucracy are costly and time- consuming reducing output.

-Diseases- malaria have had a negative impact on economic growth.

-Poor climates and geographic terrain may suffer from natural disasters- costly and difficult to set up businesses and infrastructure.

  • Civil wars- High levels of poverty, destroys infrastructure, making it difficult for the country to rebuild even after the war has ended.
35
Q

How do non- economic factors influence development?

A
  • Corruption- individuals make decisions which maximise the bribes they receive as oppose to those which maximise development and output.
  • Leaders make decisions to benefit themselves rather than the economy.
  • High levels of bureaucracy are costly and time- consuming reducing output.

-Diseases- malaria have had a negative impact on economic growth.

-Poor climates and geographic terrain may suffer from natural disasters- costly and difficult to set up businesses and infrastructure.

  • Civil wars- High levels of poverty, destroys infrastructure, making it difficult for the country to rebuild even after the war has ended.
36
Q

What are the 6 market- orientated strategies?

A
  • trade liberalisation
  • promotion of FDI
  • removal of government subsidies
  • floating exchange rate systems
  • microfinance schemes
  • privatisation
37
Q

How does trade liberalisation influence growth?

A
  • countries can aim for export- led growth.
  • Removing trade barriers will mean that domestic industries close or are forced to become as efficient as other world producers.
  • Resources will be allocated to their best use where the country has comparative advantage.
38
Q

Drawbacks of trade liberalisation?

A
  • free trade may mean developing economies focus only on primary products- as this is their comparative advantage.
  • To develop new industries, they may need tariff protection.
  • Job losses in short term.
39
Q

How does promotion of FDI influence growth?

A
  • FDI is investment by one private sector company in one country into another private sector company in another.
  • Firms tends to undertake FDI because production costs are lower in developing countries and because the can access to a new market.
  • If the investment fails it is the company who deals with it, the country does not owe money.
  • It also influences the transfer of knowledge, with the company bringing production and management techniques and training for staff.
  • It will create jobs and lead to the effect of the multiplier. Labour productivity increases as wages are higher. Source of investment and can help to fill the savings gap.
  • Increases government tax revenues.
40
Q

Drawbacks of FDI?

A
  • Employment is often short term.
  • Reduces technology transfer
  • Finite resources can be used up too quickly
  • Environmental costs/ degradation
  • Developing countries may find the company exploits them, by offering lower wages and poorer conditions than they would in a developed country.
  • Country loses sovereignty and become dependent on another firm.
41
Q

How do subsidies help growth?

A
  • They can be used to create cheaper food.
  • Farming - can be used to increase farmers income, leading to greater investment and productivity.
42
Q

Why is removal of government subsidies good?

A
  • subsidies distort the working of the price mechanism.
  • producers/ growers can become “subsidy dependent” in the long run- increasing inefficiency.
  • Often poorly targeted since subsidies on basic goods will benefit everyone in the country, not just the poor.
  • They represent a large amount of government spending, leading to opportunity cost and debt.
  • However, removing a subsidy can be politically unpopular and some governments have even been thrown out because of doing this.
    The best time to remove a subsidy is when the free market price is falling, as this means the removal is less notiiceable to people.
43
Q

How does floating exchange rate systems influence growth?

A
  • Market forces determine the currency in market based.
  • The country does not have to worry about their gold and foreign currency reserves and the government does not intervene.
  • However, means the currency can be volatile which makes it difficult for exporters/ importers to make decisions about the future and can cause large changes in macroeconomic variables.
44
Q

How do microfinance schemes influence development?

A
  • These schemes aim to give poor households permanent access to a range of financial services, including loans, savings, insurance and fund transfers.
  • Can fill savings gap- funding investment creating economic growth.
  • Can relieve poverty.
    -Low interest payments.
  • Empowers people- especially women.
45
Q

Drawbacks of microfinance?

A
  • low consumption in many developing economies and debt still needs repaying, most people do not have the funds necessary to ensure repayment of their loan, meaning they might need to sell off assets, or borrow from friends and family.
  • most money used for consumption to provide basic needs- debt increases.
  • loans not sufficient to alleviate property (health/ education)
  • When used for investment, it has increased the informal economy with little being spend on methods of development.
46
Q

How does privatisation influence growth?

A
  • Privatisation can end corruption within a firm who is owned by the state, and can encourage efficiency by increasing competition.
  • It can reduce gov debt.
  • greater invstment from private sector can create jobs and productivity.
  • innovation- profit motive will drive innovation.
47
Q

Drawbacks of privatisation:

A
  • job losses due to profit maximising objectives.
  • health care, education and transport becomes expensive.
    -if a newly privatised firm has monopoly power, they may use their market power to raise pricces.
    -increasing inequality- all depends on who ends up owning the shares in a privatised business and whether those profit are taxed.
48
Q

What are 6 interventionist strategies to influence growth and development?

A
  • development of human capital
  • protectionism
  • managed exchange rates
  • infrastructure development
  • promoting joint ventures with global companies
  • buffer stock schemes
49
Q

How does development of human capital influence growth?

A
  • Providing workers with skills and training in order to help them be more efficient and improve productivity.
  • Human capital could be developed through schools or vocational training.
  • Higher skills would allow development from primary sector to a manufacturing sector, overcoming primary product dependency.
  • better education also improves quality of life.
50
Q

How does protectionism influence growth?

A
  • Protectionism is shielding a country’s domestic industries by taxing imports.
  • Protectionism allows domestic industries to grow by keeping foreign goods out and protects them from competition.
  • They can use “import substitution” - which is where they attempt to replace imported goods with domestically produced goods.
  • This can create jobs in the short run and will allow the industry to develop, perhaps to an extent the barriers can be removed and the industry can compete globally.

-However, it means countries lose out from the benefits of specialisation and comparative advantage and could cause inefficiency, due to a lack of competition.

-Other countries are likely to retaliate.

51
Q

How does managed exchange rates influence economic growth and development?

A
  • The currency could be fixed against a number of different exchange rates.
  • They could introduce a high exchange rates for the import of essential products.
  • There could be an even lower one for exports.
  • A high exchange rate for essential imports will help to reduce poverty if the goods are consumer goods and encourages investment if capital.
  • The problem with these tiered exchange rates is that they often fail to work in practice. Black markets could develop and corruption can become an issue when gov buy currency at one exchange rate and sell it for another.
  • The government could manage a single exchange rate which will reduce volatility, however it can be difficult to maintain.
52
Q

How does infrastructure development influence growth?

A
  • a country needs roads, airports, schools and hospitals, railways etc.
  • Interventionists believe the government should provide these systems.
  • However, infrastructure tends to suffer from the free rider problem and has very high capital costs.
    -Has many posiive social benefits.
    -PROBLEM- the government may not have the funds to provide it and could be inefficient. They can cause environmental damage and may be poorly built and maintained.
    EVALUATION- intermediate technology, which uses locals materials can be better.
53
Q

How does promoting join ventures with global companies influence growth?

A
  • One way to reduce the exploitation of countries as a result of FDI.
  • The government may insist that firms setting up production plants in their country find a local partner to create a jointly owned company with.
    -This will help to generate profits in the country.
54
Q

How do buffer stock schemes influence economic growth?

A
  • The government imposes a maximum and minimum price for goods, buying up stocks when there is excess supply and selling them off when there is excess demand.
  • It should be self financing: money is raised when selling products which allows the gov to buy the next lot of stocks.
  • It is used on commodities, when prices are volatile. When it works effectively it stabilises the prices and so firms can plan for future investment.
    -It prevents sharp fall in prices, meaning that producers are kept from falling into absolute poverty.
  • also prevents sharp rises in price.
    However
  • It requires stocks to go up and down, if they keep rising, then the scheme will run out of money and if they keep falling the scheme will run out of stocks.
  • They require huge start up costs.
  • Other countries may benefit from a buffer stock system, it keeps global prices stable.
  • Biggest issue is that minimum prices can be too high, encourage ineffiency. They will produce as much as they like and know they will be able to sell it anyway, meaning supply is high and gov has to continually buy stocks.
55
Q

What are other strategies influencing growth and development?

A
  • industrialisation
  • development of tourism
  • development of primary industries
  • fairtrade schemes
  • aid
  • debt relief
56
Q

What does the lewis model show ( industrialisation)?

A
  • The Lewis model assumed that developing countries has dual economies with a traditional agricultural sector, which has low wages, low productivity, underemployment and low savings and a modern industrial sector with high levels of investment and urbanisation.
57
Q

How does industrialisation influence growth?

A
  • the modern industrial sector would attract workers from rural areas by offering higher wages.
  • Lewis believed labour productivity was so low in agricultural sectors that people leaving the area would have no impact since the same amount was being shared amongst less people.
  • Those who moved to urban areas would have higher incomes and more savings for investment.
  • He believed savings and investment were the key to growth and thus through rural- urban migration.
  • However, during plnating and harvesting vast amounts of labour is needed.
  • Not always true that those with higher wages will save and invest their money.
  • Can be argued industrialisation is a result of development rather than a cause.
  • Gov could build factories and plants to encourage transition to industrialisation.
58
Q

How does development of tourism influence growth?

A
  • The income elastic nature of tourism means that as global economy grows, demand for the industry will increase even further. However, it also means they will suffer in times of recession.
  • Tourism is associated with an increase in imports and so may not help the foreign currency gap at all.
  • countries are likely to attract investment from transnational hotel companies, who will also bring knowledge with them. It can help to fund infrastructure as tourism needs it.
  • Jobs are created locally, since tourism relies on low skilled workers who know the local area, rather than high skilled.
  • The gov will see higher tax revenues.

However-
- industry is seasonal and involves low skilled, low paid jobs which means the effect of multiplier is limited.
- country can suffer from externalities such as pollution, waste and environmental damage.

59
Q

How does development of primary industries influence growth?

A
  • The development of a primary industry provides funds to allow a country to diversify and develop.
    However- can be volatile and can cause many issues if dependent.
60
Q

How do fairtrade schemes influence growth?

A

Defined as “A trading partnership based on dialogue, transparency and respect, which seeks greater equity in international trade”
- A fair price means that agreements are made over a period of time. Gives producers stability and raises their income.
- Child labour not used and production does not allow environmental degradation.
- It is argued that the system has insignifcant impact on the developing world, non fair trade producers will see a fall in demand.

61
Q

How does aid influence growth?

A

tied aid= aid when conditions are attached such as political reforms or commitment to buy goods.
bilateral aid= directly from one country to another.
multilateral aid= when countries give aid to an international organisation who distributes it to other countries.
concessional loans-loans given on lower or no interest rates.

  • Aid can help to reduce absolute poverty, particularly after disasters such as the Haitan Earthquake 2010.
  • However it is unclear whether the money really reduces absolute poverty.
  • It can fill the saving cap, as outlines by Harrod- Domar, and provide funds for investment.
  • It can contribute to increased globalisation and trade.
  • However can lead to dependency culture- where countries are unconcerned by their finances because they know they will receive aid from another.
  • It is difficult to know the best way to develop a country and therefore the best place to spend the aid.
62
Q

How does debt relief influence growth?

A
  • Many countries suffer greatly from high interest repayments to loans.
  • Therefore, it seems reasonable for the debt of developing countries to be written off.
  • It will ease gov finances and allow more money to be spent on provision of services and infrastructure to aid development.
  • However- causes moral hazard because every poor country may expect to receive debt relief.
63
Q

The role of the world bank

A
  • founded at Bretton Woods conference after the second world war.
  • aims to strengthen the private sector in developing countries by providing them with finance, technical assistance.
  • aims to eliminate poverty.
64
Q

The role of the IMF-

A
  • set up to ensure that exchange rate systems work well.
  • They provide loans to help countries when there are international exchange rate crises.
  • It also wants countries to lower government spending.
  • Also provides advice which aims to bring about economic stability and raise living standards.
65
Q

The role of NGOS;

A
  • Non profit organisations that are run independently from the gov.
  • Oxfam or CAFOD- provide direct assistance to countries.
  • They can act as pressure groups to lobby governments to adopt more pro- development strategies.
    PROBLEM- they alone never solve the problem, it is the government who has to fix the issues.

Theme 4 Economics Lisa (4 decks)

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