4.3 Emerging And Developing Economies Flashcards

Question

Country that suffers from primary product dependency

Answer 1

Ghana Gold cocoa and oil account for 75% of their total exports

Answer 2

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.

Answer 3

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.

Answer 4

Teh difference between actual savings and the level of savings needed to achieve a higher growth rate

Answer 5

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

Answer 6

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.

Answer 7

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.

Answer 8

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.

Answer 9

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.

Answer 10

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.

Answer 11

Lack of confidence in a country’s stability, to hide it from government authorities or simply for profit repatriation.

Answer 12

Caused the Argentine economic crisis in 2001

Answer 13

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

Answer 14

The population of Africa is expected to more than double by 2050, complicating efforts to reduce hunger.

Answer 15

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

Answer 16

Nigeria’s debt is 52% of GDP

Answer 17

Developing countries have limited access to credit and banking meaning they cannot access funds for investment.

Answer 18

Developed countries have complex network of buildings, roads, ports, railways, airports, utilities and electricity cables. Low levels of infrastructure make it hard for businesses to trade and set up in a country. The development of infrastructure can be expensive and conflicts with environmental goals

Answer 19

India Saw power blackouts in 2012 which damaged tourism industry Half roads are not paved Need to invest around $400bn in the power sector

Answer 20

Poor education means workers are low skilled - low levels of productivity

Answer 21

China and South Korea invested in their human capital when they were developing - benefitted them in the long term. Ethiopia has high illiteracy rates at around only 49%

Answer 22

Over-education - graduates unable to find graduate level jobs

Answer 23

A lack of rights means individuals and businesses cannot use the law to protect their assets leading to reduced investment.

Answer 24

Many developing countries suffer from corruption. Ghanas freedom and democracy allows them to develop quickly. Diseases - negative Poor climates and geographical terrain, natural disasters Civil wars (Syria and Iraq)

Answer 25

Market-orientated strategies Interventionist strategies Other strategies

Answer 26

Trade liberalisation Promotion of FDI Removal of government subsidies Floating exchange rates Micro finance schemes Privatisation

Answer 27

Focus on removing government intervention, to enable free markets to function more effectively

Answer 28

Exploiting gains from comparative advantage offers countries a good way to increase economic welfare Free trade enables countries to specialise in goods where they have lower opportunity cost, leading to lower prices and increased economic welafre

Answer 29

May mean developing economies focus only on primary products, limiting development in the long term. To develop new industries may need tariff protection at least in short term Les protection for infant industries Job losses in short term

Answer 30

Subsidies distort the working of the price mechanism Subsidies can stifle innovation as producers dont innovate to increase profit Producers can become subsidies reliant, increasing inefficiency and costs

Answer 31

Can be used to protect infant/fledgling industries May be needed to make profit to invest Cheaper prices fro consumers

Answer 32

Injection into circular flow. Economic growth via Ad and more employment Can reduce the savings gap BOP benefits - reduce deficit on CA Technology transfer - increase in human capital Improved productivity Increased gov tax revenues

Answer 33

Employment often short term of labour force used not from domestic economy Reduces technology transfer Finite resources can be used up quickly Environmental costs

Answer 34

Reduced need for currency reserves Economic adjustment Less opportunity for currency speculation Freedom for domestic monetary policy Partial auto correction of trade deficit

Answer 35

Increase Efficiency Encourage innovation Greater investment from private sector Reduced budget deficit

Answer 36

Job losses Affordability of basic services Monopoly profits Social aims Increasing inequality Risk of foreign takeover

Answer 37

Schemes aim to give poor and near poor households permanent access to a range of financial services. They take little or no collateral and use group lending, pre-loan saving requirements and guarantee of access to future loans if present loans are repaid fully and promptly.

Answer 38

Can fill savings gap Can relieve poverty Low interest payments Empowers people especially minorities and women

Answer 39

Low consumption in many developing economies means venture may fail Most money used for consumption to provide basic needs Potential for exorbitant interest rates and short repayment methods Loans not sufficient to alleviate all poverty

Answer 40

Development of human capital Protectionism Managed exchange rates Infrastructure Development Promotion of joint ventures Buffer stock schemes

Answer 41

A scheme designed to reduce price fluctuations, and which involves the buying and selling of stocks to maintain price within agreed limits.

Answer 42

Lower risk of extreme food poverty for poorest consumers. More stable incomes and profits for farmers Helps macroeconomic stability/ investment Buffer stock ought to be self-financing

Answer 43

Buffer may not be large enough to change a price Causes rising surpluses i.e a misallocation of resources High costs of storage and falling quality of a product Might be better long run alternatives Many schemes may fail due to poor administration/ corruption

Answer 44

Provide workers with skills and training and thus help them to be more efficient and improve productivity. Through schools, vocational training.

Answer 45

Higher skills allow the country to develop from the primary sector to a manufacturing sector Better education also improves quality of life (Both China and South Korea have developed their human capital massively to develop)

Answer 46

It allows domestic industries to grow by keeping foreign goofs out and protecting them from strong competition.

Answer 47

Where the gov deliberately attempt to replace imported goods with domestically produced goods by adopting protectionist measures

Answer 48

Creates jobs in short run and allows industry to develop, perhaps to the extent where the barriers can be removed and the industry can compete globally.

Answer 49

Countries can lose out from the benefits of specialisation and comparative advantage Could cause inefficiency as domestic producers suffer from lack of competition Other countries likely to retaliate

Answer 50

The currency could be fixed against a number of different exchange rates. They can introduce high exchange rates for the import of essential products and lower exchange rates for others. A high exchange rate for essential products will mean that the price within a country is low, which helps reduce poverty and encourages capital investment. A lower exchange rate for other imports will mean that the price of these goods within the country is higher, discouraging their import and encouraging consumers to buy from domestic producers.

Answer 51

They often fail to work in practice, black markets in foreign exchange develop which can destabilise the system corruption becomes an issue when gov officials buy currency at one exchange rate and sell it for profit at another.

Answer 52

Infrastructure is essential for development ; a country needs roads, airports, schools, hospitals, railways etc. Interventionists believe the gov should provide these systems. It suffers from free rider problem so the private sector won’t provide it, but it has many positive social benefits.

Answer 53

Gov may not have the funds Projects often associated with bribery and corruption Cause environmental damage May be poorly built and maintained

Answer 54

One way to reduce the exploitation of countries as a result of FDI would be to set up a joint venture. The gov 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 keep some of the profits generated within the country, which can be used in investment.

Answer 55

Industrialisation Development of tourism Development of primary industries Fair trade schemes Aid Debt relief

Answer 56

Argued that growth be sustained by the gradual transfer of surplus workers from low-productivity agriculture (traditional sector) to higher productivity (secondary and tertiary sector) Industrialisation is seen as an objective of development Due to excess supply of labour, marginal productivity of agricultural workers might be close to zero. Opportunity cost of transferring workers from the agricultural to industrial sector would be zero. Industrial sector would be associated with investment which will raise productivity and profitability further. Shares of profits as %gdp will increase providing more funds for investment and economic growth The economy has now moved from a traditional to industrialised one

Answer 57

Profits made in the industrial sector might not be invested locally Reinvestment in capital equipment might mean less labour required Often doesn’t fit with empirical evidence

Answer 58

Employment creation (tourism is labour intensive) Employs a higher % of women Export earnings - tourism is a service industry - generates important foreign exchange earnings. An important source of diversification for smaller countries. Boost to AD creating local and regional income- multiplier effects Accelerator effects from investment in tourism infrastructure and services such as airlines and telecoms.

Answer 59

Exploitation of local labour by overseas transnational tourist businesses. Many workers in tourism ar emigrant workers - poor employment conditions Outflow of profits from foreign -owned tourist resorts All inclusive deals ignore the local economy, same as cruise ships Externalities - congestion,waste, pressure on natural environment Rising property prices make it less affordable for local people Seeping pressures on local cultures from westernisation.

Answer 60

Guarantee a higher / premium price to producers 2. Achieve greater price stability 3. Improve production standards. A grower will be able to receive a Fair Trade licenced if it can improve working conditions, increase pay to its workers and guarantee environmental sustainability of its operations 4. A Fairtrade premium price might be offered - for direct investment in improving businesses and communities. For example in 2008 Tate & Lyle announced all their retail sugar would be Fairtrade, benefiting 6000 sugar producers in Belize who will receive a Fairtrade premium.

Answer 61

Producers receive a higher price Extra money can be spent on development programmes Smaller price fluctuations Improved quality of products Producers can diversify products

Answer 62

Can be damaging for those without the fair trade label Policies to target the fundamental problem of poverty would be better

Answer 63

The voluntary transfer of resources from one country to another; or to loans given on concessionary terms

Answer 64

Tied aid - aid with conditions attached such as economic or political reforms Bilateral aid - directly from one country to another Multilateral aid - when countries give aid to an international organisation Concessional loans - loans given on lower or no interest rates

Answer 65

Helps to overcome the savings gap Stabilise post-conflict environments and in disaster recovery Can fast-forwards investment in critical infrastructure projects Long term aid for health and education projects Well targeted aid might add around 0.5% to growth rate of poorest countries - benefits donor countries too as trade grows Political motives

Answer 66

Poor governance Lack of transparency Dependency culture Distortion of market forces Loss of economic efficiency Risks of inflation

Answer 67

Will ease gov finances and allow more money to be spent on provision of services and infrastructure to aid development

Answer 68

Bring about long term development and a reduction in poverty

Answer 69

the International Bank for Reconstruction and Development (IBRD) o the International Development Association (IDA) o the International Finance Corporation (IFC) o the Multilateral Investment Guarantee Agency (MIGA) o and the International Centre for Settle of Investment Disputes (ICSID).

Answer 70

12,000 development projects

Answer 71

International Monetary Fund Ensure exchange systems work well Provide loans to help countries when there are international exchange rate crises of when they cannot afford to pay off their international debt Provides which aims to bring about economic stability and raise living standards to help countries to develop their economic institutions.

Answer 72

Non-profit organisations that are run independently from the government Can provide direct assistance to countries in the form of project work (o fam or cafod) They can act as pressure groups to lobby governments

Answer 73

It is believed that alone they can never solve the problem, the government needs to fix the issues Many of them are seen as having an anti-capitalist agenda which causes divisions in the development project.