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Economics Theme 4 > 4.3 Emerging and Developing Economies > Flashcards

4.3 Emerging and Developing Economies Flashcards

1
Q

What is Human development index?

A

Human development is a measure of economic development.

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2
Q

What are the 3 factors HDI is based on?

A

Health; life expectancy
Education; literacy rates
Income; GNI / capita

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3
Q

Advantages of HDI

A
  • Takes 3 key factors into account
  • Relatively easy to calculate
  • Widely used; reliable to compare
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4
Q

Disadvantages of HDI

A
  • Income doesn’t include income inequality
  • Does not measure levels of absolute/relative poverty
  • Education doesn’t take into account the quality/success of education
  • Health takes no notice to quality of life
  • Other factors affect development e.g corruption/environment
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5
Q

What is the MPI (Multidimensional poverty index)

A

Measures % of population that is multidimensional poor using data from health, education and living standards indicators.

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6
Q

What is the GPI (Genuine progress index)?

A

Measures economic sustainability using factors such as income distribution

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7
Q

What is primary product dependency?

A

Primary product dependency is when a country heavily relies on the export for a primary product or commodity.

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8
Q

Why can primary product dependency be negative?

A

Natural disasters
- Potentially wipe out production of product e.g mines closed, land infertile

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9
Q

How does volatility of commodity affect growth and development?

A

Commodities e.g gold, diamond have inelastic supply and demand; changes in demand/supply have huge fluctuations in price
Makes it difficult to plan long term; producers may see their income change rapidly, causing poverty

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10
Q

What is saving gap?

A

Saving gap is the difference between actual savings and the level of savings needed to achieve growth.

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11
Q

How does saving gap affect growth and development?

A

Developing countries have lower incomes; they save less.
Less money for banks to lend out so less borrowing
Decreased investment/consumption

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12
Q

What does the Harrod-Domar model state?

A

Growth rates depend on savings.
Savings can be used by banks to lend to firms; they increase investment
If savings is low, banks can’t lend as much; less investment

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13
Q

How does the Harrod-domar model cycle?

A
  • Low savings
  • Low money to lend to firms
  • Low investment
  • Low incomes
  • Low savings
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14
Q

How can countries counter the saving gap?

A

Microfinance
- small loans are provided to tiny businesses that have no access to financial services
This can help increase investments, productivity and break saving gap cycle

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15
Q

Eval of microfinance

A

High interest rates
- Profits spent on paying back expensive loans; no money to save; fall back into savings gap
If they are unable to pay back loans, they go bankrup

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16
Q

What is foreign currency gaps?

A

Currency outflows constantly exceed foreign currency inflows; closely related to trade deficit

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17
Q

How can countries counter foreign currency gaps?

A

Diversification of exports
- More demand for exports; demand for Ethiopia currency increases; foreign currency gap decreases; price of imports decrease

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18
Q

Eval of diversification of exports

A
  • Requires government investment which could lead to debt
  • Only effective in long term
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19
Q

What is capital flight and why may it occur?

A

Capital flight is when assets rapidly leave the economy.
It may occur if
- a country’s confidence is low
- hide it from government authorities

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20
Q

How does capital flight affect growth and development?

A

Reduces money available for investment; reduces growth and development

Takes valuable resources out of the country; reduces level of investment

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21
Q

What is a demographic factor that affects growth and development?

A

Increase in population means economy needs to grow by same % to maintain living standards. Developing countries need to have higher rate of growth to develop

If parents stay home with children , they can’t develop careers; stay in unproductive jobs.

If more schools and hospital have to cater to more children, quality of healthcare/education will decrease. Less human capital

22
Q

How can education tackle population growth?

A

Improve access to education
- Build new schools, investment finish off…

23
Q

How can access to credit and banking affect growth and development?

A

Good access allows individuals and firms to borrow money to invest and consume and generate growth.

24
Q

How does national debt affect growth and development?

A

More national debt limits spending on services and may need to increase tax; all decrease growth and development.

25
How does **infrastructure** affect growth and development?
Low levels of infrastructure make it hard for businesses to profit. Difficult to generate economic activity and growth. Increased infrastructure unlocks economic potential
26
How does **absence of property rights** affect growth and development?
**Assets are more risky** - Can't use law to protect assets; reduced investments as incentive to purchase assets e.g machinery, factories.
27
How does **education/skills** affect growth and development?
Higher education higher human capital increased productivity higher output higher income higher living standards
28
How does **corruption** affect growth and development?
Leaders likely to make decisions that benefit themselves rather than development or growth.
29
How does **poor governance** affect growth and development?
Poor spending leads to inefficient use of resources. Poor regulations/laws passed around. Affects growth and development negatively.
30
How does **wars** affect growth and development?
- Destroys infrastructure - Disrupts supply chains
31
How does **political instability** affect growth and development?
- Low confidence; low spending; low output
32
How does **geography** affect growth and development?
Landlocked countries harder to generate growth. Countries with access to ports have lower transportation/administrative costs. increase cost of production
33
How do **diseases** affect growth and development?
Causes workers to work less; lower productivity; lower output Lower income; lower living standards
34
How does **trade liberalisation** lead to economic growth/development?
Trade liberalisation can lead to higher exports; increase AD/output; growth
35
How does **promotion of FDI** lead to economic growth/development?
- Creates jobs; fill savings gap -
36
How does **removal of government subsidies** lead to economic growth/development?
- Increase competition, efficiency, employment, profits, income - Reduce government debt; money spent elsewhere
37
How does **floating exchange rate systems** lead to economic growth/development?
Appreciation can generate higher incomes as the cost of imported raw materials reduces possibly leading to higher income
38
How does **microfinance schemes** lead to economic growth/development?
The small loans allow firms to increase investment and grow; increase in output, AD, growth.
39
How does **privatisation** lead to economic growth/development?
**Increased competition** - less waste produced; firms efficient; increased profits; reinvestment, AD, output, growth **Improve government finances** - Industry sold to private firms; brings in money.
40
How does **development of human capital** lead to economic growth/development?
**Provide workers with skills and education** - Improve efficiency, productivity, increase AS, output, growth **Increase in income** - Better living standards
41
How does **protectionism** lead to economic growth/development?
**Allows domestic industries to grow** - Decreases international competitiveness; consumers buy domestically, increases AD, output, growth - Increases profits, reinvestment, AS, output, growth - Increase in profits, higher wages, higher incomes, better living standards
42
How does **managed exchange rates** lead to economic growth/development?
High exchange rates for the import of essential products Lower exchange rates for others...
43
How does **infrastructure development** lead to economic growth/development?
**Transport** - lower production costs; higher AS **Education** - Increased human capital; higher employment **High costs** - Government may have to borrow, higher debt, less spending elsewhere
44
What is promoting joint ventures with global companies?
**Help keeps some of the profit generated within the country** - Some countries block foreign ownership of firms. Joint ventures are only option to reduce exploitation of countries.
45
What is buffer stock schemes and how does it promote growth/development?
Policy used to stabilise fluctuating commodity prices to protect consumers and producers. When there is excess supply, government buy up this excess supply to ensure price is pushed back up to equilibrium. When there is excess demand, government sell off extra stock to increase supply and meet excess demand
46
How does **development of primary industries** lead to economic growth/development?
**Abundance in natural resources** - Development of a primary industry provides funds to allow a country to diversify - also allows for infrastructure development and education
47
Lewis model
48
How does **development of tourism** influence growth and development?
**Job creation** - Tourism industry jobs; increased employment **Investment from TNC hotel companies** - Transfer of knowledge. **Help fund infrastructure** - Tourism requires reliable electricity, airports clean water etc; govt have incentive to provide this due to potential of growth **Tourism spending** - Helps fund to develop economy; increased growth and development **Source of foreign currency** - Tourist demand currency; closes currency gap.
49
Key principles of fairtrade and how it helps growth and development
**Fair price** - Producers have stability; raises income **Community development** **Fair working conditions** - No child labour **Protect environment**
50
What is aid?
When a country voluntarily transfers resources to another or gives loans on concessionary terms
51
What are the different types of aid?
**Tied aid** - Aid with conditions attached e.g economic/political reforms **Bilateral aid** - Aid directly from one country to another **Multilateral aid** - When countries give aid to international organisation who distributes to other countries
52
How does **aid** influence growth and development?
**Reduce absolute poverty** **Fill savings gap** - Provides funds for investment

Economics Theme 4 (6 decks)

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