4.3 Emerging and Developing Economies Flashcards
What is the resource curse?
The observation that countries with natural resource abundance often end up with lower levels of development than countries with low levels of natural resources
Why are abundant natural resources a curse?
There is overspecialisation in a certain area. One dominant sector becomes a parasite for workers/ investment. There are diminishing returns from investment/workers into the dominant sector.
What is the Prebisch-Singer Hypothesis?
Primary commodities rise in price more quickly, than secondary commodities.
Has the Prebisch-Singer Hypothesis held in recent years?
No primary good prices have risen more quickly than manufactured good prices.
What is he problem of primary product dependency?
More price volatile, due to inelastic supply and demand, leads to fluctuating revenue hence less investment.
What are the two key issues to address as a result of the resource curse?
Over-dependence on a single sector.
Uncompetitiveness of other goods.
What does Dambisa Moyo say about aid?
“correlated with corruption, fosters dependency and instils beaucracy that hinders the emergence of an essential entrepreneurial class”
What is an example of an organisation giving cash unconditionally and directly to those in poverty?
give directly
What is Paul Rodan’s aeroplane analogy?
launching a country into self-sustaining growth is like getting an aeroplane off the ground - assistnace doesnt need to be indefinite
What can aid lead to?
Market distortions
What hypothetical case study does Moyo use in relation to Aid?
Mosquito net production (free nets are often diverted to the black market)
Aid: How many mosquito nets were distributed from 2008-2010?
3 million
What does Sachs argue against Moyo’s mosquito net development arguement?
‘Not all nets are equal’ - chemically protective nets not produced in areas that need them
Aid: What multiplier effect does give directly have?
2.4
When was microfinance first introduced?
1970s - Bangladesh
How many people were microfinance loans given to in 2020?
200 million
Positives of microfinance…
increased access to credit, empowerment of women, poverty reduction
Limitations of microfinance…
high interest rates, over-indebtedness (financial stress), is there a long term positive effect (in isolation)
What are the arguments against debt forgiveness ?
moral hazard (expectation it may be forgiven, fiscal irresponsibility), negative impact on credit rating, inequitability between different regions
What are the main causes in capital flight?
collapse in investor confidence
What is capital flight?
movement of large sums of money out of a country
Why is capital flight damaging?
leads to currency weakness (depreciation), rise in imported inflation (higher living costs), inflation has regressive effects on poorer households, increases the value of existing external debts
What is the Harrod Domar growth model?
Suggests a higher savings ratio leads to an increased rate of investment, therefore building capital stock of a country, hence increasing output through a rise in productive capacity.
A country where savings are low may imply…
the economy is choosing short-term consumption over long term investment
How may a savings gap be fixed?
attraction of FDI, net inflows form remittance payments, behavioural nudges encouraging households to save, policy increasing wage rates
Evaluation of the Harrod Domar model
only focuses on physical investment rather than other sources of investment
oversimplification of complex factors that go into growth
What are the market-orientated strategies influencing growth and development?
trade liberalisation, promotion of FDI, removal of subsidies, floating exchnage rate systems, microfinance schemes, privatisation
What is Export Oriented Industrialisation?
Reducing protectionism / trade libérelas tino for development
What is the Lewis Model?
Growth can be achieved by transferring labour from traditional agricultural sectors to the modern industrial sector.
Agricultural economy - abundance of labour keeps wages low.
Industrialisation - shortage of labour in agriculture drives up wages (as labour supply shrinks)
At the Lewis turning point wagesin agriculture begin to rise. Agricultural sector is more incentives to invest in capital, increasing productive potential
What is import substitution industrialisation?
Protection domestically of what was previously imported from elsewhere
What are some evaluation points for import substitution industrialisation?
- Empirical evidence failure of the Brazil computer industry. Slower growth of South American nations than East Asian Tigers
- risk of retaliation
Lack of competition for domestic firms
Tariffs result in inflation
What is an example of a country which developed using export led industrialisation?
South Korea
When did South Korea declare exports as anational priority?
1964
Exports in South Korea in the mid sixties rose by…
40% on average
How much is the tourism industry worth? (2019)
2.9 trillion in 2019
List the factors influencing goriwth and development
Primary product dependency, commodity price volatility, savings gap, foreign currency gaps, capital flight, demographic factors, access to credit and banking, infrastructure
What are the non economic factors influencing growth and development?
Corruption, poor governance, wars, political instability, geography
What are the three equal weights within the HDI?
Education ( mean years of schooling for an adult aged 25 and expected years of schooling from birth)
Health (life expectancy at birth)
Real GNI per head at PPP
What are other measures of development other than HDI?
Inequality adjusted HDI (falls below the HDI value as inequality rises)
The difference between HDI and IHDI represents the loss in potential human development due to inequality
Multi Dimensional Poverty Index - shows the number of people who are multi dimensionally poor ( suffering deprivation in over 33% of the weighted categories) and the number of deprivations poor households typically contend with
Why May some developing and emerging economies have a foreign currency gap?
face a shortage of foreign currency - low earnings form exports, large international debts
What is capital flight?
When owners of extra income withdraw money from a country in search of higher returns abroad
What are some interventionist strategies promoting growth and development?
Human capital development, protectionism, managed exchange rates, infrastructure development, promoting joint ventures with global countries, buffer stock schemes.
What are the main functions of the world bank?
Granting reconstruction loans to war devastated countries, developmental loans for underdeveloped countries, promoting economic reforms
What are the main functions of the IMF?
Ensure the stability international monetary system, prevent crisis within the international monetary system, (formal system known as surveillance), provide finance to correct balance of payment problems,
What are the key characteristics of NGOs?
Local control of small scale projects, self reliance, emphasis on environmental sustainability.
Describe the Lewis Model
Majority of labour is employed in land fixed resource (diminishing returns to labour - reduced marginal product)
Higher urban wages tempt surplus agricultural workers to migrate to cities.
The result is higher wages in both sectors
What is Ricardo Housmann’s line on development? (Good evaluation for comparative advantage).
Emphasis on diversification within development - South Korea aiming for a complex economy
Describe the Harrod Domar model
Increased savings - increased income -large capital stock - increased output - increased income
