4.3 emerging and developing economies Flashcards
1
Q
what is economic growth?
A
increase in the productive potential of an economy, increase in the real GDP of an economy
2
Q
what is economic development - Michael Todaro?
A
life sustaining goods and services- increase availability of basic life-sustaining goods and services
higher incomes- raise levels of living
freedom to make economic and social choices- expand the range
3
Q
what is economic development- Amartya Sen?
A
process of improving people’s well-being and quality of life
4
Q
how is economic growth linking to development?
A
higher incomes, higher material standards of living, reductions in poverty
higher profits, allows technology advancements, creation of jobs
5
Q
what does economic growth and development depend on?
A
distribution of income, sustainability, sectors of the economy experiencing growth
6
Q
what are the characteristics of developing countries?
A
-low standards of living
-low levels of productivity
-low levels of savings
-high population growth
-primary sector dominance
-incomplete markets
-high unemployment
-low economic power on international stage
7
Q
what measures of development is there?
A
-national income data
-health data
-education data
8
Q
what is involved in national income data?
A
GDP per capita (PPP)
9
Q
what is involved in health data?
A
life expectancy, infant mortality, doctors per 1000
10
Q
what is involved in education data?
A
literacy rates, enrolment in education
11
Q
what is HDI?
A
composite measure of development that expresses the level of development of a country, with a numerical value, closer to 0 less developed, closer to 1 more developed
12
Q
advantages of HDI?
A
-broad based
-health and education elements provide a focus on development outcomes
-allows for progress to be measured and compared overtime
-aid can be supported to countries
13
Q
disadvantages of using HDI?
A
-doesn’t take into account income distribution
-arbitrary weighting- wy are the components equally weighted?
-says nothing of freedoms or choice available
-range of other factors not considered- crime etc
14
Q
what is primary product dependency?
A
most developing economies are reliant on growing/ extracting and exporting low value-added primary commodities
15
Q
how does primary product dependency affect economic growth?
A
dependency on low value goods limit the total value of exports, limits the value of AD, limits the level of actual growth
16
Q
how does primary product dependency affect development?
A
dependency on low value goods limit the incomes earned, limits the level of GNI per capita, limits the living standards dimension of HDI
17
Q
primary product development evaluation?
A
how much of a help or hindrance it is depends on the product, agricultural products are more susceptible to supply constraints from poor weather and are often lower value, compared to mined and extracted commoditites
18
Q
what is volatility of commodity prices?
A
primary goods often have volatile prices, uncertainty makes it difficult for businesses to make informed investment decisions, resulting in lower levels of investment
19
Q
how does volatility of commodity prices affect economic growth?
A
low levels of investment limits the level of AD and limits actual growth, low levels of investment limits the productive potential of the economy
20
Q
how does the volatility of commodity prices affect development?
A
low investment means capital quality and quantity develop at a slower rate, leads to slower gains in the level of living standards, GNI per capita grows more slowly, HDI grows more slowly
21
Q
evaluation of volatility of commodity prices?
A
significance depends on the type of primary product, volatility affects low priced goods, government could intervene to encourage the development of infant industries in higher value manufactured goods
22
Q
what is the savings gap: Harrod-Domar model?
A
low levels of savings make it harder for firms to find funds for investment, financial markets may not be well established in LEDCs.
23
Q
how does the savings gap- Harrod Domar model affect economic growth?
A
lack of investment limits the level of AD and limits actual growth, low levels of investment limits the productive potential of the economy
24
Q
how does the savings gap - Harrod Domar model affect development?
A
low investment means capital quality and quantity develops at a slower rate, leading to slower gains in the level of living standards, GNI per capita grows more slowly, HDI grows more slowly
25
evaluation of Harrod-Domar model?
any intervention that breaks the cycle, finance is internationalised, funds available abroad, microfinance can be used to create funding, FDI attracts investment
26
what is the foreign currency gap?
developing countries can face shortages of foreign currency, causing dependency on exports of primary products, capital flight, high interest payments on foreign loans, leading to a lack of foreign currency with which to buy imported capital goods
27
how does foreign currency gap affect economic growth?
lack of capital goods limits the productive capacity of the economy, restricting the potential growth of the economy
28
how does the foreign currency gap affect development?
lack of capital means the country is not increasing the value of what they are producing, leading to slower gains in the level of living standards, slow growth of GNI per cap, HDI grows more slowly
29
evaluation of the foreign currency gap?
foreign finance may be available to provide funds for capital goods, aid could provide the capital goods or the funds to buy them
30
what is capital flight?
uncertain and rapid movement of large sums of money out of a country, if money was left in domestic banks then credit could be created by banks for consumers and businesses to spend, can be caused by political unrest/ conflict, corruption, exchange rate volatility/ uncertainty
31
how does capital flight affect economic growth?
lack of funds for domestic investment along with a lack of FDI, limits actual growth as investment is a component of AD, limits potential growth as low levels of investment limits growth of LRAS
32
how does capital flight affect development?
lack of funds for investment means output of the economy remains low value, limits the level f GNI per capita, limits the living standards dimension of HDI
32
evaluation of capital flight?
governments can impose restrictions on the freedom to move money out of the economy, likely to be highly unpopular, but can stop the outflow of currency from an economy
32
what are demographic factors?
vague term covers a range of different population issues, main problems include high population growth, aging populations
33
how do demographic factors affect economic growth?
rapidly rising population can lead to a rising level of LRAS, as the quantity of labour rises
34
how do demographic factors affect development?
if total population rises faster than GNI, then GNI per capita will fall. living standards dimension falls, rapidly rising population may make educationless accessible as there is limited capacity
35
evaluation of demographic factors?
falling birth rates over time means that globally, population is not rising as rapidly as it was
36
what is debt?
historic lending can leave developing economies burdened with significant levels of debt, high levels of debt mean significant spending on debt interest payments
37
how does debt affect economic growth?
debt payments are a withdrawal from the economy so every year debt interest is paid AD is lower than it would otherwise be, reducing actual growth, reduces ability of governments to develop supply side of the economy, limits potential growth
38
how does debt affect development?
greater spending on interest payments limits health and education spending, reduces years of schooling and life expectancy, reduces level of HDI
39
evaluation of debt?
HIPC debt relief programme, heavily indebted poor countries are a group of 37 developing countries with high levels of poverty and debt overhang, eligible for special assistance from IMF
40
what is access to credit and banking?
developing countries often have less developed financial systems than developed countries, lack of an established banking sector may limit the access to credit for businesses and individuals
41
how does access to credit and banking affect economic growth?
lack of finance means lack of investment, limits actual growth as investment is a component of AD, limits potential growth as low levels of investment limits growth of LRAS
42
how does access to credit and banking affect development?
lack of funds for investment means output of the economy remains low value, limits the level of GNI per capita, limits the living standards dimension of HDI
43
evaluation of access to credit and banking?
some developing countries that do not have the banking infrastructure in towns and villages are able to now use 'mobile banking' via phones for citizens
44
what is infrastructure?
includes transport, communications, energy, poor infrastructure reduces mobility in the economy and deters investment, limit access to international markets
45
how does infrastructure affect economic growth?
lack of investment reduces AD, limits the level of actual growth, lack of investment also limits the increase in potential growth
46
how does infrastructure affect development?
low investment means capital quality and quantity develop at a slower rate, leads to slower gains in the level of living standards, GNI per capita grows more slowly, HDI grows more slowly
47
evaluation of infrastructure?
external funding can elp plug and domestic funding gap
48
what are education/skills?
sometimes referred to as human capital, low levels of education and skills leads to low levels of productivity
49
how does education/skills affect economic growth?
low productivity negatively impacts LRAS so reducing potential growth, lack of investment would reduce AD, limits the level of actual growth
50
how does education/ skills affect development?
low skills and productivity levels limit the earnings potential of workers, limits the level of GNI per capita, limiting the living standards dimension of HDI
51
evaluation of education/ skills?
where domestic funding prevents the development of education, foreign sources of funding can be found
52
what is absence of property rights?
when assets lack defined ownership they cannot be used as effectively to create investment, having clear property ownership allows banks to lend against the value of that asset
53
how does absence of property rights affect economic growth?
lack f investment reduces AD, limiting the level of actual growth, also limits the increase in potential growth
54
how does absence of property rights affect development?
low investment means capital quality and quantity develop at a slower rate, leading to slower gains in level of living standards, GNI per capita grows more slowly, HDI grows more slowly
55
evaluation of absence of property rights?
property rights can be given to assets that previously had no ownership or common ownership, microfinance can provide lending to individuals that would otherwise not get credit due to a lack of assets
56
what are non-economic factors?
corruption, diseases, geography, conflict
57
how does non-economic factors affect economic growth?
corruption can lead to poor economic decision making, deters businesses that don't want the uncertainty associated with corruption, less investment lowers AD and actual growth
58
how does non-economic factors affect development?
health problems from diseases limit HDI by lowering life expectancy, conflict lowers income earning potential, disrupts schooling, and reduces life expectancy
59
evaluation of non-economic factors?
problems that seem immense can be overcome: e.g corruption can be reduced through a change of government
60
what is trade liberalisation?
reducing barriers to trade with foreign countries, achieving: exploit comparative advantages through greater trade, improved efficiency due to greater competition
61
how does trade liberalisation affect economic growth?
exploiting comparative advantage should increase total real output which increases actual growth, improved efficiency and productivity helps to increase the potential growth of the economy
62
how does trade liberalisation affect development?
greater output and lower prices are good for living standards and may raise more people out of poverty
63
evaluation of trade liberalisation?
SR vs LLR, gains of trade liberalisation may be in the long run, short run structural unemployment could be a problem as industries move production to other economies
64
what is protectionism?
protect domestic industry from foreign competition by putting up trade barriers, can help develop infant industries
65
how does protectionism affect economic growth?
higher tariffs reduce demand for imports which switches consumer spending to domestic production, infant industries get established then it could create export markets also raising AD
66
how does protectionism affect development?
encouraging an infant industry could allow a developing economy to establish a higher value export market, higher value goods should lead to higher paid jobs, rise in income raises GNI per capita, raising living standards and HDI
67
evaluation of protectionism?
retaliations- when raising tariffs likely other countries will do the same, harming demand for domestic exports (cancel any boost to AD), dependency- can become to dependent from being shielded
68
what is floating exchange rate systems?
allowing the currency to be determined by markets with no government or central bank interference
69
how does floating exchange rate systems affect economic growth?
a fixed currency uses valuable government resources to maintain the currency fix, freeing up those resources could allow more investment into the economy stimulating AD
70
how does floating exchange rate systems affect development?
increasing levels of AD should increase GNI per capita which increases living standards and HDI
71
evaluation of floating exchange rate systems?
floating systems are likely to be more volatile in the short run, creating greater uncertainty, reducing investment- detrimental to AD
72
what is managed exchange rates?
intervention by government or central bank to influence the value of currency relative to a significant trading partner
-buying partner currency weakens the currency
buying domestic currency strengthens the currency
73
how does managed exchange rates affect economic growth?
devaluing a currency makes the price of imports rise and the relative price of exports fall (increase X and reduce M causing AD to rise) actual growth
74
how does managed exchange rates affect development?
increases in demand for exports should create jobs and stimulate the economy, should raise GNI per capita which raises living standards and HDI
75
evaluation of managed exchange rates?
fighting against the market rate, meaning constant intervention to maintain the rate at market disequilibrium, government may lack the funds to manage a currency for a sustained period of time
76
what is the promotion of FDI?
includes any investment by foreign firms or governments into domestic businesses or projects, via foreign money
77
how does promotion of FDI affect economic growth?
increasing investment creates an injection into the circular flow - so increasing AD and creating actual growth, increasing productive potential of the economy, increasing the LRAS and causes potential growth
78
how does promotion of FDI affect development?
FDI increases the opportunities for developing economies to move in to higher value secondary and tertiary sectors and increase income leading to higher living standards, improving HDI
79
evaluation of promotion of FDI?
FDI may lead to exploitation of MNCs, can create race to the bottom
80
what is promoting joint ventures?
FDI may result in repatriation of profits and little gains for host country, keep some of the benefits for the host country, both parties have a profit incentive and share in the success of the investment
81
how does promoting joint ventures affect economic growth?
sharing of ideas and good practices along with investment in capital should raise productivity and increase potential growth, injection from abroad raises AD and leads to actual growth
82
how does promoting joint ventures affect development?
joint ventures allows access to higher value goods that a developing economy may struggle to produce alone, this should raise incomes and so increase GNI per capita and living standards
83
evaluation of promoting joint ventures?
imposition of restrictions and ownership rules may act as a disincentive to foreign companies, if the joint venture is accompanied by significant regulations and rules on business practices then it may discourage FDI
84
what is a government subsidy?
governments can provide farming subsidies and manufacturing subsidies
85
what is the removal of government subsidies?
subsidies can create dependency and encourage inefficiencies, agricultural subsidies can lead to large payments to landowners, money spent on inefficient subsidies takes money away from other potential spending such as education
86
how does removal of government subsidies affect economic growth?
switching from inefficient subsidies to spending on infrastructure, health or education should raise the productive potential of the economy
87
how does removal of government subsidies affect development?
if spending is focussed on health of education it should lead to improvements in HDI
88
evaluation of removal of government subsidies?
levels of subsidies in LEDCs often much lower than in MEDCs, removing may create an even greater competitive disadvantage, subsidies are injections removing them reduces AD reducing actual growth
89
what are buffer stock schemes?
uses minimum and maximum price concurrently, prices falls below the price floor, buffer stock buys stock to increase demand and raise price above floor, price rises above ceiling they sell stock to increase supply and lower price, aim to reduce volatility encouraging investment
90
how do buffer stock schemes affect economic growth?
greater price stability creates more certainty which means investment is more likely, has the effect of boosting AD and productive potential
91
how do buffer stock schemes affect development?
minimum price creates greater guarantee of income which helps support the living standards of the poorest workers
92
evaluation of buffer stock schemes?
not very common, huge financial capital required, generally attempting to influence a global commodity price may not be sustainable, often means price is set to high, leading to constant need to buy stocks in order to maintain the price, may just run out of money
93
what is a microfinance scheme?
provides very small loans to individuals that otherwise would not get them, often community based
94
how do microfinance schemes affect economic growth?
encouraging investment helps to expand the productive potential of the economy, investment also acts as an injection into AD
95
how do microfinance schemes affect development?
giving poor individuals the opportunity to invest and generate incomes raises living standards HDI and can reduce inequality
96
evaluation of microfinance schemes?
potential for microfinance to become a debt-trap, lack of regulation can lead to exploiting individuals
97
what is privatisation?
involves selling off state owned enterprises to the private sector, profit motive can lead to a greater incentive to increase efficiency by cutting costs and responding to market demand
98
how does privatisation affect economic growth?
where privatisation leads to greater competition it can help to reduce costs, should reduce costs of production across the economy, firms becomes more internationally competitive then could also raise AD
99
how does privatisation affect development?
increased real output should lead to rising GNI per capita which increase the living standards dimension of HDI
100
evaluation of privatisation?
privatisation of an industry that remains a monopoly may not increase efficiency, corruption, nationally owned firm may be sold below market price for financial gain of the ruling party
101
what is infrastructure development?
includes transport, energy, communications and healthcare, developing infrastructure improves productivity , mobility and access to foreign markets
102
how does infrastructure development affect economic growth?
improvement in infrastructure makes the economy a stronger option for FDI (actual growth), improvements in energy infrastructure also have significant benefits to productivity and productive potential of the economy (potential growth)
103
how does infrastructure development affect developement?
improvements in productivity means value that workers are producing is increasing, increasing incomes so increasing GNI per capita, living standards and HDI
104
evaluation of infrastructure development?
government may not have the funds to develop all the infrastructure necessary and may not complete infrastructure projects efficiently
105
what is development of human capital?
developing the quality and accessibility of education to raise skills levels in the economy
106
how does development of human capital affect economic growth?
improvements in skills and productivity increases the quality of labour in the economy so should raise the productive potential of the economy
107
how does the development of human capital affect development?
greater access to education should increase mean years of schooling, increasing education dimension of HDI, higher skills means higher value for workers and higher paid jobs, increasing living standards
108
evaluation of development of human capital?
affordability problem for low income countries, long time lag, governments and donors may be to short-termist, brain drain effect if there is a lack of suitable skilled jobs
109
what is industrialisation: lewis model?
developing countries can achieve economic growth by transferring labour from the traditional agriculture sector to the modern industrial sector, leading to higher value production
110
how does industrialisation: lewis model affect economic growth?
increasing the level of productivity over time should increase productive capacity of the economy
111
how does industrialisation: lewis model affect development?
iger productivity and higher value goods should lead to higher wages which increases living standards
112
evaluation of industrialisation: lewis model?
model doesn't suggest how the process should happen, no guarantee that workers in urban sector will have higher productivity or income levels
113
what is development of tourism?
increased spending from foreign tourists can create an injection into the economy, potential multiplier effect from related sales to tourists
114
how does development of tourism affect economic growth?
injection into the circular flow leads to a rise in AD leading to actual growth, creation of jobs creates the potential for multiplier effect
115
how does development of tourism affect development?
job creation creates opportunity for higher incomes so improving living standards
116
evaluation of development of tourism?
without suitable infrastructure tourism development may not be possible, environmental impact (degradation of landscapes/ coastline)
117
what is the development of primary industries?
some countries with significant natural resources can develop industries as a first step to development, can then be used to diversify the economy
118
how does development of primary industries affect economic growth?
large export revenues from valuable primary resources create an injection and boost AD leading to actual growth, if revenue are reinvested into capital infrastructure it can increase LRAS leading to potential growth
119
how does development of primary industries affect development?
investment into infrastructure and diversification that follows allows production of higher value goods and services which raises incomes, so improving living standards and HDI
120
evaluation of development of primary industries?
strong commodity performance may lead to a strengthening of currency which could harm other industries, countries with high levels of corruption may not spend the revenues in a way that improves society's welfare
121
what are fairtrade schemes?
buyers agree to pay a group of farmers a guaranteed amount which is above the market price, fair trade also focuses on community development, working conditions and the environment
122
how does fairtrade schemes economic growth?
higher prices paid means creates greater revenues in what are generally export industries, raising AD, fairtrade focusing on community projects like schools it builds the skills
123
how does fairtrade schemes affect development?
raising the incomes of poor farmers should increase living standards improving access to education should increase the mean years of schooling
124
evaluation of fairtrade schemes?
fairtrade doesn't tackle the fundamental problem, of producing a low value product, evidence that wage workers do not see the benefit of fairtrade
125
what is aid?
aid can help overcome funding problems that a developing economy might otherwise have, aid which builds capacity tends to be more effective in the long run than emergency aid
126
how does aid affect economic growth?
aid that targets infrastructure or education should improve the productive potential of the economy, as it it likely to come from abroad it should provide an injection into the economy
127
how does aid affect development?
where aid enables production of higher value goods and services it should increase living standards, aid is often targeted at education and healthcare so should increase years of schooling and life expectancy
128
evaluation of aid?
corruption is a major problem, prevents benefits from being seen by those who really need it, information problem, do those providing actually know what those receiving actually need
129
what is debt relief?
cancelling or restructuring debt should reduce the financial burden on developing economies
130
how does debt relief affect economic growth?
reducing debt interest payments reduces a leakage from the economy so more can be injected, raising AD, debt relief allows greater funds for developing infrastructure, healthcare, increase potential growth
131
how does debt relief affect development?
by freeing up government funds that previously were spent on interest, more can be spent on education and healthcare which increases years of schooling and life expectancy
132
evaluation of debt relief?
moral hazard- countries may be less cautious about borrowing, HIPC is criticized as imposing capitalist ideals onto developing countries
133
what is the world bank?
aims to bring long-term development and reduction in poverty, funded over 12000 development projects through interest free loans and grants and supports long term human and social development
134
what is the IMF?
works to achieve sustainable growth and prosperity for 190 member countries, supports economic policies that promote financial stability and monetary cooperation, loans often accompanied by strict conditions on making macroeconomic reforms
135
what are non-government organisations?
work independently of government, funding can come from private donations, grants or government funding, some focus on implementing projects
