4.3 Emerging And Developing Economies Flashcards
How do economic growth and economic development differ
Economic growth is measured purely by real GDP and the productive potential of the country, economic development is about improvements in l living standards
What is a developed country
High GDP per head
High levels of education and healthcare
Reliable and safe transport and infrastructure
High productivity and investment
Governments democratically elected and not corrupt
What is a developing country
Lower GDP per head
Low levels of physical and human capital
High unemployment and underemployment
High mortality rates
High population growth
Weak institutions and corruption
What is HDI
Measure of economic development calculated by the UN
What are the three factors HDI is based off of
Health
Education
Income
How do they use the three factors to calculate HDI
Give them equal weighting
A mean is taken to give a value between 0 and 1
The higher the number, the greater the level of development
Advantages of HDI
Takes into account three key factors which are important for the development of a country
Relatively easy to calculate as gobs tends to calculate the statistics used in this data
Problems with HDI
Health takes no notice for the quality of life that people enjoy and education doesn’t account for quality or success of the education.
No consideration for the equality of income
There are other factors not considered that affect development, eg freedom from corruption or the environment.
What are other indicators for development (not HDI)
The inequality adjusted HDI
The multidimensional poverty index (MPI)
The genuine progress indicator
What is the inequality adjusted HDI
This is an adjustment of HDI which includes a fourth indicator of development: inequality. The Atkinson Index adjusts measures for education, health and income according to the level of inequality. It is broader than HDI but can still be criticised for not taking into account more measures and quality
What is the multidimensional poverty index
This measures the percentage of the population that is multidimensional poor. It uses data for health, education and standard of living but uses a broader range of indicators within these categories.
Why May MPI be better than HDI
Years of schooling and school attendance data is used for education; child mortality and nutrition data for health; and availability of electricity, sanitation and safe drinking water in households, cooking fuel used, assets owned and the type of floor in a house for standard of living.
● It highlights the countries where some areas are extremely rich but where most of the population is not and focuses on poverty.
Critique of MPI
Cannot be used for all countries as the data is not always available.
Doesnt account for the environment
How is the genuine progress indicator calculated
It is calculated from 26 different indicators grouped into three main categories: economic, environmental and social. It aims to look at economic sustainability, to ensure development does not limit the amount produced and consumed in the future.
How does the genuine progress indicator have more detail
The economic category looks at personal consumption, inequality and the cost of unemployment. Environmental accounts for the cost of pollution, loss of natural areas, CO2 emissions, ozone depletion and the depletion of non-renewable resources. In social, the 10 indicators range from the value of housework and parenting to the cost of crime and commuting to the value of volunteer work.
What kind of growth does the genuine progress indicator show developed countries experience?
Thoughts on this
Negative growth over time Due to their impact on the environment.
Some argue this shows proves that development is unsustainable, others argue the index is biased and is constructed to prove the anti growth case.
What figures can be used to calculate development that are easier to use that indexes
Changes in electricity production
Numbers with a mobile phone per thousand of the population
What are the key economic factors influencing growth and development
Primary product dependency
Volatility of commodity prices
Savings gap
Foreign currency gap
Capital flight
Demographic factors
Debt
Access to credit and banking
Infrastructure
Education/skills
Absences of property rights
What is primary product dependency
When countries become too reliant on their primary products
Benefits of primary products
May be the best option for a country’s growth
Some resources can be reliableish
Saudi Arabia used oil
Can give them revenue to invest in manafacturing
Not all have low income elasticity of demand (diamonds)
Negatives of primary product dependency
Natural diasasters can wipe out their supply
They’re often non-renewable and finite
Tend to have a low income elasticity of demand
Prebisch singer hypothesis
Dutch disease
What is the prebisch singer hypothesis
Suggests in 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.
What is dutch disease
When a country becomes a significant commodity producer in a short amount of time, causing an increase in the demand for a 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.
Example of where dutch disaese occurred
Non-oil sectors in Venezuela and Nigeria
Country that suffers from primary product dependency
Ghana
Gold cocoa and oil account for 75% of their total exports
What is the volatility of commodity prices
Primary products tend to have inelastic demand and supply curves which means relatively small changes in demand or supply leads to huge fluctuations in price.
Why is volatility of commodity prices bad
Large changes in price mean that a producers income and the country’s earnings are also rapidly fluctuating, making it difficult to plan and carry out long term investment.
Producers may see their income fall rapidly causing poverty
When the price of commodities rises over a few years there may be over-investment which will cause long term risk when the price falls.
What is the savings gap
Teh difference between actual savings and the level of savings needed to achieve a higher growth rate
Why do developing countries suffer from a savings gap
They have lower incomes and thus they save less
This means there is less money for banks to lend reducing borrowing and thus reducing investment/consumption
What is the Harrod- Domar model
Suggets savinsg provide 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 amount of labour and capital and that developing countries have vast labour supply, so problems are caused by capital.
In order to improve capital, investment is required and investment requires savings.
What are the 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.
What is a 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.
What country suffers from a foreign currency gap
Ethiopia
In 2018 public debt was around 60% of GDP, most of it in foreign currency so it is possible that they will not have enough foreign currency to repay their debt. It is thought that there are only enough currency reserves to pay for a month of imports.
What is capital flight
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.
Why May capital flight occur
Lack of confidence in a country’s stability, to hide it from government authorities or simply for profit repatriation.
Example of capital flight
Caused the Argentine economic crisis in 2001
How can demographic factors influence growth and development
Developing countries tend to have higher population growth - this limits development. The growth of the economy must increase by an equal percentage in order to maintain living standards. Means developing countries must have higher rates of growth than developed countries.
The high population is caused by high birth rates. Thsi increases the amount of dependents in a country but not those at working age. This strains the education system and leads to youth unemployment
Example of Impact of demographic factors on growth in a country
The population of Africa is expected to more than double by 2050, complicating efforts to reduce hunger.
How can debt affect growth and development
In the 70’s and 80’s some countries received vast loans from banks and now they have high levels of interest repayment.
Means they have less money to spend on services for their population and they need to raise taxes.
Borrowing for growth makes sense but governments must ensure not to take on too much debt, and they must spend it well
