4.3 Emerging and Developing Economies Flashcards
what is economic development
improvements in living standards.
developed country
- One with a high GDP per head and tends to be thought of as Western.
- high levels of education healthcare, reliable and safe transport, high productivity and investment
developing country
- one with low GDP per head low levels of physical and human capital and high levels of unemployment and underemployment.
what is Human Development index
A measure of economic development calculated by the UN. It is a composite index
based on three factors:
- health
- education
- income
how is health measured in HDI?
measured by life expectancy at birth
how is education measured in HDI?
measured by the mean years of schooling of adults aged 25+ and the expected years of schooling of a current 5-year-old over their lives
how is income measured in HDI?
measured by real GNI per capita at purchasing power parity.
how is HDI calculated
Each of the three indicators is given equal weighting and a mean is taken to give a figure
between 0 and 1. The higher the number, the greater the level of development.
Advantages of HDI
- takes into account three key factors
- relativelt easy to calculate
disadvantages of HDI
- issues with the figures
- equality of income
- there are other factors whcih affect development
- only an indicator
Inequality-adjusted Human Development Index (IHDI)ai
- 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.
The multidimensional poverty index
- measures the precentage of the population that is multidimensional poor
- focuses on povery
- cannot cover all countries as data is not always avalible
The Genuine Progress Indicator
- calcualted from 26 different indicators mainly economic, envirnoment and social.
economic factors influencing growth and development
- Primary product dependency
- volatility of commodiry prices
- savings gap
- foreign currency gap
- capital flight
- demographic factors
- debt
- access to credit and banking
- infrastructure
- education and skills
- absence of property rights
non-economic factors influencing growth and development
- corruption
- high levels of bureaucracy
- dieseases
- poor climates and geographical terrain
- civil wars
primary product dependency
when a country is over dependent on the production and export of a primary sector product
advantages of PPD
- provides extensive revenue
- local production can save money
- afordable industry can create jobs in other industries
- trade deficit savings
- attracts FDI
- source of growth
disadvantages of PPD
- prices are volatile
- supply can be volatile
- limited resources
- discourages investment in other industries
- dutch disease
- inflation
volatility of commodity prices
- price changes means that producer’s income and the country’s earning are fluctuating making it difficult to plan and carry out long
term investment as well as meaning that producers can see their income fall very
rapidly, causing poverty.
savings gap
the difference between actual savings and the level of savings needed to achieve a higher growth rate.
Harod-Domar model
- Suggests savings provide the 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 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.
problems with harod-domar
- economic growth isnt the same as economic development
- investment could be wasted
foreign currecny 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.
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.
demographic factors
Developing countries tend to have higher population growth, which limits
development. If population grows by 5%, the economy needs to grow by 5% to even
maintain living standards. This means developing countries need to have higher
rates of growth to develop than more developed countries would do.
debt
they suffer from high levels of interest repayment;
sometimes even higher than the loans and aid they receive from developed countries, meaning money is flowing from developing to developed countries.
access to credit and banking
- limited access to credit and banking
- cannot access funds for investment
- struggel to save for the future
infrastructure
- hard for business to trade and set up within the country
- however can be expensive and environmetnal goals
education and skills
- low levels of productivity
- however which type of education and problems concerning over education
absence of property rights
- cannot use the law to protect their assets
strategies influencing growth and development - market orientatated
- trade liberalisation
- promotion of FDI
- removal of government subsidies
- floating exchange rate systems
- microfinance schemes
- privatisation
strategies influencing growth and development - interventionist
- development of human capital
- protectionism
- managed exchange rates
- infrastructure development
- promoting joint ventures with global companies
- buffer stock schemes
strategies influencing growth and development - other strategies
- industrialisation: the Lewis model
- development of tourism
- development of primary industries
- Fairtrade schemes
- aid
- debt relief
trade liberalisation - market based strategy
- Countries can aim for export led-growth.
- Removing trade barriers will mean that domestic industries either close or are forced
to become as efficient as other world producers. Resources will be allocated to their best use where the country has a comparative advantage.
Promotion of FDI - market based strategy
- Firms tend to undertake FDI because production costs are lower in developing
countries and because it enables them access to a new market. - transfer of knowledge
- creates jobs and will lead to the multiplier
- fill the savings gap
FDI
Investment by one private sector company in one country into another private sector company in another.
eval promotion of FDI - market based strategy
- repatriations of profits and developing countries may
find the company exploits them, by offering lower wages and poorer conditions than
they would in a developed country - country may lose sovereignty
- environmental damage and exploitation of natural resources
removal of government subsidies - market based strategy
They can be an effective way of minimising absolute poverty and ensuring a minimum
standard of living but they create many problems.
can also allow for inflant industry to grow
eval of government subsidies - market based strategy
- poorly targeted
- can lead to inefficiency
- represent a large proportion of government spending
- can cause problems of corruption
- politically unpopular
privatisation - market based strategy
- end the corruption within a firm who is owned by the state, as well as encouraging them to be more efficient by increasing competition.
- improve government finanaces and reduce the levels of debt
eval of privatisation - market based strategy
- can be associated with corruption
- monopoly
development of human capital - interventionist based strategy
- provides workers with skills and training and thus help them to be more efficent and improve productivity
protectionism - interventionist based strategy
- allows domestic industries to grow
- policy of import substitution
eval protectionism - interventionist based strategy
- countries lose out from the benefits of specialisation and comparative advantage
- could cause inefficiency
- retaliation
managed exchange rates - interventionist based strategy
- The currency could be fixed against a number of different exchange rates.
- high exchange rate for essential products will mean that the price within the country is low, which helps to reduce poverty if the goods are consumer goods and encourages investment if they are capital goods.
- often fail to work in
practice - governments can manage a single exchange rate which will reduce volatility
infrastructure development - interventionist based strategy
- Infrastructure is essential for development
- Infrastructure tends to suffer from the free rider problem and has very high capital costs
- It has many positive social
benefits
infrastructure development - interventionist based strategy eval
- government may not have the funds
- inefficient
- bribery and corruption, cause environmental damage
promoting joint ventures with global companies - interventionist based strategy
- reduce the exploitation of countries
- profits generated within the country can be used for investment
buffer stocks scheme - interventionist based strategy
- It should be self-financing: money is raised when selling the products, which allows the government to buy the next lot of stocks.
- used on commoditites
- stabilises prices
- can solve PPP
buffer stocks scheme - interventionist based strategy
- requires stocks to go up and down
- huge start-up costs
- inefficient
- government finances
Other strategies - industrialisation
- lewis model
- modern industrial sector would attract workers
- high incomes so more savings for investment
- savings and investment were the key to growth
Other strategies - industrialisation eval
- requires vast amount of labour
- those with higher wages will save and invest
- migration to urban poverty
- improvements in technology reduces demand for labour
- Industrialisation is a result of development
- not all countries will develop in the same way.
other strategies - development of tourism
- provides them with funds to develop their economy
- The income elastic nature of tourism means that as the global economy grows,
demand for the industry will increase even further, allowing the developing country to
continue development. - fills currency gap as represent as foreign currency
- improvements in infrastructure
- jobs created
- higher taxe revenues
other strategies - development of tourism eval
- industry is seasonal
- involves low skilled, low paid jobs
- trends in tourism
- TNCs repatriate their profits
- externalities
other strategies - development of primary issues
- The development of a primary industry provides funds to allow a country to diversify as well as allowing
infrastructure development and better education.
other strategies - development of primary issues eval
- PPP
- corruption
other strategies - fair trade schemes
- A fair price, community development, fair working conditions and protecting the environment.
- stability and raises their income.
- child labour won’t be used
- does not take place at the expense of environmental degradation
- higher income and satisfaction for those apart
other strategies - Aid
- reduce absolute poverty
- fill the savings gap
- fill the foreign currency
- increased globalisation and trade
other strategies - debt relief
- high interest repayments
- It will ease government finances and allow more money to be spent on provision of services and infrastructure to aid development.
Different types of aid
- tied aid is aid with conditions attached, such as economic or political reforms or a commitment to buy goods from the donor country
- bilateral aid is directly from one country to another
- multilateral aid is when countries give aid to an international organisation who
distributes it to other countries. - concessional loans are loans given on lower, or no, interest rates
aid eval
- dependency culture
- corruption
- difficult to know the best place to spend the aid
debt releif eval
- moral hazard
- eases pressure on weak govs
what do the world bank aim for
It aims to bring about long-term development and a reduction in
poverty.
what does the world bank provide
- The IBRD and IDA provide financing, policy advice and technical assistance: IDA
helps the poorest countries whilst IBRD helps middle income and creditworthy poorer countries. - IFC, MIGA and ICSID help strengthen the private sector in developing countries by providing them with finance, technical assistance, political risk insurance and settlement of disputes.
world bank developments project
- The World Bank has funded over 12,000 development projects since 1947 through
interest free loans and grants and supports long term human and social
development.
IMF
- ensure that exchange rate
systems work well. - They provide loans to help countries when there are international exchange rate
crises or when they cannot afford to pay off their international debt. - insists macroeconomic reforms
- provides advice to economic stability and
raise living standards and help countries to develop their economic institutions
NGOs
- non-profit organisations that are run independently from the government.
- direct assistance to countries
- can act as pressure groups
- they alone can never solve the problem
