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Macroeconomics > 4.3 Emerging and Developing economies > Flashcards

4.3 Emerging and Developing economies Flashcards

1
Q

What are the Key barriers to growth and development (11)?

A
  • Primary product dependency
  • Infrastructure gaps
  • Savings gap
  • Foreign currency gao
  • Capital flight
  • demographic factors
  • debt
  • Access to credit and banking
  • Education/skills
  • absence of property rights
  • volatility of commmdoity prices
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2
Q

What are infrastructure gaps and how is it a barrier to growth and development?

A

Infrastructure is the physical and organisational structures and facillities which are required for thr rfficient operation of a society and its enterprises
If Infrastructure is poor, it is likely to deter both domestic and foreign investment, causing less investment, and an inward shift in supply

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3
Q

What is Primary product dependency and how is it a barrier to growth and development?

A

Occurs when a large proportion of a country’s GDP is reliant on primary products.
the Fluctuatiing prices of primary products will make it more difficult to plan investment, cause fluctuations in exchange rates, making economic development hard to plan, potentially face shortages of supplies for domestic producers, and foreign countries may create protectionist strategies.
THis will lead to a falling terms of trade, desmonstrated in the prebisch singer hypothesis.

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4
Q

Explain the prebisch singer hypothesis?

Part of Primary product dependency

A

States that when global incomes grow, the terms of trade for primary products worsens, because the YED of manufactured goods is greater than primary products (more elastic)
TMT as incomes rise, the price/demand of manufactured goods will rise faster than that of primary goods, worsening a nations ToT

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5
Q

Evaluate Primary product dependency/ the prebisch singer hypothesis?

A
  • Depends on the type of primary porduct, minerals and energy may have a more elastic response
  • The real price of primary products may increase in the future as they become more scarce e.g oil
  • FDI has increased singificantly in recent years in countries with PPD
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6
Q

What is the savings gap and how is it a barrier to growth and development?

A

States that developing countries have lower incomes and therefore lower savings, TMT it will be harder to finance investment and therefore capital acculmulation will be limited (investment and spending), and GDP and Output this is demonstrated in the Harrod domar model

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7
Q

Explain the Harrod-Domar model?

Part of The savings gap

A

Low incomes and output-> Low savings -> low investment -> Low capital acculmulation -> Low incomes and Output
suggests the rate of economic growth = Level of savings/capital output ratio

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8
Q

Evaluate the Harrod Domar model and the savings gap?

A
  • savings gap/ model focuses on physical capital and not human capital
  • assumes there is a constant relationship between capital and output
  • The sacings gap can be filled by other means, namely FDI
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9
Q

What is the foreign currency gap and how is it a barrier to growth and development?

A

When a country has shortages of foreign currency caused by
* PPD
* depdency on imports
* interest payments on depts
* capital flight

As a result a nation may not have enough foreign currency to purchase imported capital goods to increase its productive capacity

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10
Q

What is capital flight and how is it a barrier to growth and development?

A

Capital flight is when large amounts of money are taken out of the counry, rather than being left there for borrowing and investment
this can occur due to a lack of condifence, or profit repatriation like TNC’s like royal dutch shell in Nigeria

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11
Q

What are demographic factors that can act as a barrier to growth and development?

A
  • Developing countries have a high population growth, TMT a country’s GDP will have to grow faster than its poulation to maintain an increase in economic growth
  • High birth rate also increases number of economic dependent, placing strains on education systems and creating youth unemployment e.g. the population of Africa is due to double by 2050
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12
Q

What is Debt and how is it a barrier to growth and development?

A

Countries with a high level of debt suffer from high interst payments. TMT developing countries ahve less money to spend on tier population, potentially leading to rises in taxation or periods of Austerity

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13
Q

How does education/skills act as a barrier to growth and development?

A

If school enrolment ratio is lo, there will be low level literacty rates, reducing productivity of workforce, acting as a deterrent to FDI

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14
Q

How does the Absence of property rights act as a barrier to economic development?

A

With a lack of property rights, it many be very hard for someone to secure a bank loan as they will not have any collateral to offer.

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15
Q

What is the HDI?

A

A composite measure of development used in the UN development report.

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16
Q

What are the three dimensions of the HDI and how are they measured?

A
  • Income index = GNI per capita at PPP
  • Education index = mean years of schooling and expected years of schoolinh
  • Health index = life expectancy at birth
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17
Q

What are the advantages of using the HDI as a measure of development?

A
  • Broader measure than GDP per capita
  • The three dimesnisions are essential contributors for people to live a long and healthy life
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18
Q

What are the disadvantages of using the HDI as a measure of development?

A
  • Too narrow, only comprising of three measures of development
  • Only concerned with long term development outcomes
  • Average measure, therefore disguising disparities and inequalities within countries
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19
Q

List some other (not HDI) measures of development?

A
  • Proportion with access to clean water
  • energy consumption per person
  • proportion with energy access
  • degree of inequality
  • proportion of employment in the agricultural sector
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19
Q

List some other (not HDI) measures of development?

A
  • Proportion with access to clean water
  • energy consumption per person
  • proportion with energy access
  • degree of inequality
  • proportion of employment in the agricultural sector
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20
Q

What are the market orientated strategies of influencing growth and development?

A
  • Trade liberlisation
  • Promtoion of FDI
  • Removal of govt subsidies
  • FLoating exachange rates
  • Microfinance schemes
  • privitisation
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21
Q

How can trade liberalisation influence growth and development?

A

Removal of tariffs lowes the price and increases quantity demanded, creating more lower priced and competitive exports. As a result there is increased trade creation -> more jobs -> more AD -> more welfare

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22
Q

What shows the effect of trade liberalisation on influencing a growth within an economy?

A

A world supply + Tariffs graph

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23
Q

Evaluate the effect of trade liberalisation on influencing growth and development?

A
  • Removal of tariffs means domestic suppliers are no longer protected from foreign importers
  • This could cause increased domestic imports
  • devloping countries tend to rely on income from tariffs, more than that of taxation, so it may be a removal of an important source of income.
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24
Q

How can FDI influence growth and development?

A

FDI may be encouraged throgh a variety of measures:
* Trade liberalisation
* Deregulation of capita; ,arkets
* Measures to reduce labour and production costs
* Tax incentives

25
Q

What are the 3 types of FDI?

A
  • Vertical FDI = not adding value to services e.g. Nigeria
  • Horizontal FDI = adding value by building more factories
  • Platform FDI = Using it as a base of operations e.g. Amazon in Luxembourg
26
Q

How can floating exchange rates influence growth and development?

A

floating exchange rates act as an automatic stabiliser for when exports drop or increase in value

27
Q

Evaluate floating exchange rates as a strategy to influence growth and development?

A

Could lead to dutch diesease where demand for currency grows so high that the exchange rate increases too much so that exports become too expensive for world markets

28
Q

What is Dutch diesease?

A

Holland was a massive exporter of flowers and they sold many with such a high demand that demand for guilders shot up and increased the exchange rate, this made the flowersr too expensive for the global market.

28
Q

What is Dutch diesease?

A

Holland was a massive exporter of flowers and they sold many with such a high demand that demand for guilders shot up and increased the exchange rate, this made the flowersr too expensive for the global market.

29
Q

How can microfinance schemes influence growth and development?

A

Microfinance schemes are a means of providing poor people with small loans to help them engage in economic activity to create their own way out of poverty

30
Q

Evaluate the use of microfinance schemes to influence growth and development?

A

Criticised for their high interest rates that are not always succesful in letting businesses prosper in the long run.

30
Q

Evaluate the use of microfinance schemes to influence growth and development?

A

Criticised for their high interest rates that are not always succesful in letting businesses prosper in the long run.

31
Q

How can privitisation influence growth and development?

A

It is argued that the profit motive and competition mean that the privitased firms will operate more efficiently than those ran by the state.

32
Q

What are the intervetnionist strategies to influence growth and development?

A
  • Development of human capital
  • Protectionism
  • Managed exchange rates
  • INfrastructure developments
  • Promoting joint ventures with global companies
  • Buffer stock schemes (with a diagram)
33
Q

What are the intervetnionist strategies to influence growth and development?

A
  • Development of human capital
  • Protectionism
  • Managed exchange rates
  • INfrastructure developments
  • Promoting joint ventures with global companies
  • Buffer stock schemes (with a diagram)
34
Q

How can the development of human capital influence growth and development?

A

Providing workers with skills and training to increase their preductivity will allow businesses to thrive and expand and creating innovation. This can be done through traditional traching or apprenticeships. Allows nations to develop from the primary to secondary sector (South Korea and CHina), overcoming primary product dependency and also encourages FDI.

34
Q

How can the development of human capital influence growth and development?

A

Providing workers with skills and training to increase their preductivity will allow businesses to thrive and expand and creating innovation. This can be done through traditional traching or apprenticeships. Allows nations to develop from the primary to secondary sector (South Korea and CHina), overcoming primary product dependency and also encourages FDI.

35
Q

How can protectionism influence growth and development?

A

domestic subsidies and protection by keeping foreign goods out creates jobs in the SR and allows industry to devlop until eventually protectionist policies can be removed and compete more effectively globally

36
Q

Evaluate protectionism as a strategy to influence growth and development?

A

Protectionism may cause a country to lose out on the benefits of specialisation and comparative advantage and lead to inefficiency

37
Q

How can Managed exchange rates influence growth and development?

A

with a system of managing exchange rates the centeral bank could devalue a currency and increase the competitiveness of its goods and services

38
Q

How can infrastructure development influence growth and development?

A

Cab be expensive, but will expand the LRAS of a country, expad the PPF. This can be funded publicly or privately through public private partnerships

39
Q

How can promoting joint ventures influence growth and development?

A

in a joint venture, a foreign investor and local partner business esstablish a jointly owned firm to conduct operations in host country and allows for a reduction in costs and risks and less vulnerabillity to hostile actions

40
Q

How can buffer stock schemes influence growth and development?

A

Buffer stock schemes involve the government imposing a minimum and max price for goods, buying up stocks when there is excess supply and then selling them off when there is excess demand, this should be self financing, money is raised in selling products at a gain.
This also stabilises the price of volatile commodities which encourages investment as investors can plan in the LR, also can prvent large falls and rises in the price of products, meaning consumers can afford the good.

41
Q

Evaluate bufffer stock schemes as a method of influencing growth and development?

A
  • Requires stocks to go up and down
  • Requires large start up and admin costs
  • max prices may be set too low for producers
  • Min ptices could be set too high and create a surplus every year
42
Q

What are the basics of the lewis model?

A

Lewis model suggests developing economies at an early stage of development have two sectors:
- a primary subsitence, rutal economy with low productivity
- a small modern industrial sector with high productivity, monetary exchange and a large urban population

The lews model states economic development can only occur if there is industrialisation

43
Q

Why does the Lewis model state economic development can only occur because of industrialisation?

A

Lewis model states:
* The marginal utllity of agricultural workers is practically zero due to excess supply of labour
* TMT opportunity cost of one agricultural labourer moving to the industrial sector would have virtually zero opportunity costs
* industrialisation requiers investment which will increase productivity, profitabillity and higher wages - attracting more workers from rural areas
* This increases wages and the savings ratio and profits, leading to more investment and economic growth

44
Q

What are the criticisms of the lewis model/ industrialisation as a way of influencing growth and development?

A
  • Profits by TNCs may be repatriated, rather than reinvested
  • Assumption that surplus labour is occuring in the agricultural sector
  • Agriculture and primary products have already formed the basis of some succesful economies
45
Q

What are the ‘other’ strategies to promote economic growth?

A
  • Industrialisation
  • Development of tourism industry
  • Development of primary industries
  • Fairtrade schemes
  • Aid
  • Debt relief
45
Q

How can the development of the toursim industry influence growth and development?

A
  • Source of foreign exchange
  • Investment from TNCs
  • Infrastructure and employment opportunities
  • increased tax revenue
  • Demand for tourism is income elastic, meaning that when real incomes rise, demand will increase more than proportionately
45
Q

Evaluate the development of the Tourism industry as a method of inlfuencing economic growth and development?

A
  • May have an adverse affect on the current acccount as imported capital goods for hotels are required, imported food and gifts and profits may be repatriated to foreign shareholders
  • Fluctuating demand is realiant on seasonality and trade cycle
  • Low paid employement and it is seasonal
46
Q

How can the development of primary industries influence growth and development?

A

Will only work if:
* YED for product is income elastic, and demand will change lots when incomes grow
* FDI is attracted
* If the country has a comparative advantage in the good

47
Q

How can fairtrade schemes influence growth and development?

A

Guarantees producers recieve a fair price for their products resulting in:
* Producers set a price higher than market average, with increased revenues used to improve efficiency or quality
* Extra money available to be spent on development programmes
* Producers are protected from fluctuating prices, allowing investment to be planned

48
Q

Evaluate the use of fairtrade schemes as a method of influencing economic growth and devlopement?

A
  • Many poor and remote farmers unable to join the scheme
  • Artficially high prices distort market prices
  • Little incentive to improve quality or cost of production
  • Certification of fairtrade based on normative criteria
49
Q

How can aid influence growth and development?

A
  • provides funds for investment and the improvement of human capital
  • Fills the savings gap and foreign exchange gap
  • Reduces poverty and inequality
50
Q

Evaluate the use of aid as a method of promoting economic growth and development?

A
  • Aid dependency theory suggests it reinforces the dominance of developed economies
  • Danger that dependency culture will emerge, offering little incentives
  • Distorts market forces
  • Donor countries can exert political influence
51
Q

How can debt relief influence economic growth and development?

A
  • less interest payments means more funds for investment and the improvement of human capital
  • Fills the savings gap and foreign exchange gap
  • Reduces poverty and inequality
51
Q

What is the role of the world bank in influencing economic growth and development?

A
  • Did provide loans after WW2 and Structural Adjustement programmes, but these SAPs often resulted in political and social chaos, and now the world bank focuses on poverty reduction strategies with aid directed to sound macroeconomic policies
52
Q

What is the role of the IMF in influencing economic growth and development?

A

Lends to countries with temporary balance of payments deficits and increases the liquidity of markets through systems of currencies pegged to the dollar, as well as offering economic advice and forcasts

53
Q

What is the Role of NGOs in influencing economic growth and development?

A

Usually advances community based development to the forefront of development strategies, moving focus away from state - managed schemes

Macroeconomics (7 decks)

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