4.3 Emerging and developing economies Flashcards
What does HDI stand for
Human development index
What is the HDI
- introduced in 1990 UN
is a composite index measuring the average achievement in basic areas of economic development
Consists of
- health
- education
- living
What is the health section of HDI
measured by the life expectancy at birth
- represents levels of national healthcare
What is the Knowledge section of HDI
first an educational component kade of the
- means years of schooling
- expected years of schooling
What is the income section of HDI
as measured by the real Gross national income per capita at PPP
What does the HDI do
published by the UNDP and focuses on longevity, basic education and minimal income
- it tracks progress made by countries in improving these three outomes
- the inclusion of education and health indicates sign of successful government policies in providing access to important merit goods
Why is GNI used instead of GDP for the HDI
GNI is now used rather than GDP because of the growing size of remittances in the global economy and the importance of international aid payments
What are the advantages of of using HDI
- composite indicator which provides a more useful comparison metric than single indicator do
- corporates 3 important household metrics
- wifely used all over the world which provides an opportunity for meaningful comparisons
- provides a goal for governments to use when developing their policies
- provides citizens at understanding how their quality of life compares to other countries
What are the disadvantages of the HDI
- it does not measure the inequality that exists as it uses the mean GNI/capita
- it does not measure or compare the levels of absolute and relative poverty that exist
- many countries it does not provide useful short-term information as gathering the data required for the calculation is difficult. This means the data often lags by several years.
What does IHDI stand for?
Inequality adjusted HDI
What is the IHDI
adjusts the HDI for inequality distribution of each dimension across the population
What are the characteristics of IHDI
- created to deal with the lack information that hid provides
- will be equal to HDI value when no inequality, but falls below the HDI value as inequality
- the IHDI measures the level of human development when inequality is accounted for
- difference between the two can be presented as a percentage
- it provides greater insight into the differences in human development that exist in a country as opposed to the average development
What does MPI stand for
multi dimensional poverty index
What is the multi dimensional poverty index
reflects the mult deprivations that poor people face in education, health and living standards
What are the economic factors that influence growth and development
- primary product dependency
- volatility of commodity prices
- the savings gap
- the foreign currency gaps
- capital flight
- demographic factors
- access to credit and banking
- infracture
- education and skills
- absence of property rights
Primary product dependency
- tend to have low YED, as world incomes rice there is a less proportional increase in demand which means there is limited scope to continue increasing demand
- very little added value, exporting manufactured products raisers the added value incomes and profits
Volatility of commodity prices
- due to the inelastic nature of demand and supply of commodities, small changes in demand or supply can lead to large changes in price
- commodities account for larger proportions of some LEDC’s therefore when commodities prices rise exports rise and thus gdp increases
- however a more diversified range of exports prevents this
What benefits does the Jarrod do are model identify from increased saving?
Increased saving
Increased investment
High capital stock
Higher economic growth
Increased saving
The saving gap: Harrod-domar model evaluation
increases in capital stock lead to growth
- does not account for many other factors such as labour productivity, corruption, technological innovation
- bases in data from wealthier industrialising nations opposed to very poor underdeveloped countries
- only focuses on physical investment and ignored other types such as investment in labour
Foreign currency gaps
when currency outflows > currency inflows, develop when:
- oil importing countries have to pay more when oil prices rise whereas oil exporting countries receive less when world oil prices fall
- large international debt payments may require continual outflows of currency
- capital flight due to uncertainty or sanctions
- this means central banks are forced to use their reserves to buy vital imports
- develops a diversified, healthy export market preventing foreign currency gap from developing
Capital flight
When money or assets rapidly leave a country
- may happen due to political upheaval, economic sanctions war or changes to government policy
- reduces money available for investment, reducing growth and development
What is the dependency ratio
Ratio of number of dependents (children/pensioners) to the total working age population
Demographic factors
A high dependency ratio means less money available for savings and investments
Many developing countries have a high dependency ratio
Access to credit and banking
- financial institutions enable individuals and firms to borrow money which can be used for investment or to generate growth
- a lack kid financial institutions prevents this from happening
Infrastructure
- good infrastructure reduces business costs and attracts FDI
- developing countries have poor infustructure making it difficult to generate economic activity.
Education and skills
- investing in this supply side policy increases the potential output of the country, shifting the PPF outwards
- higher education/skill levels, higher labour, increased productivity, higher output, higher income
Absence of property rights
- property is the main asset used to secure loans or generate income
- lack of property rights make it more difficult for financing to occur, limiting investment and consumption
What are some non-economic factors that can influence growth and development
- corruption
- poor governance
- wars
- political instability
- geography
Corruption
Money intended for investment can
- divert funds to certain groups who have bribed officials resulting in projects that deliver a low level of growth and development
- be siphoned off by corrupt governments resulting in lower levels of investment
Poor governance
- leads to inefficient use of resources
- Poor decision making
- result in laws or regulation which directly inhibit growth and development
Wars
Conflict destroys infrastructure
- disrupts suply chains
- often reduces the post war supply of labour
- shifts PPF inwards
Political instability
- constant change can lead to changing policies and priorities
- reducing confidence in the economy
- international investors are slower to invest as they are fearful of losing their investment
Geography
- harder for landlocked countries to generate growth
- transportation and admin costs a higher without access to ports
- increasing cost of production and decrease international competitiveness
Similar effects can occur from natural terrain limiting access
What are market orientaed strategies
- create the conditions for private individuals and firms to pursue economic activity with the aim of maximising profit
What are the market orientated strategies to influence growth and development
- trade liberisarion
- FDI
- Subsidy removal
- floating exchange rate systems
- micro finance
- privatisation
trade liberisation
Removing the barriers to international trade such as tariffs quotas etc
- more trade increases output, employment and incomes
Foreign direct investment
Investment by foreign firms which results in more than 10% share if ownership of domestic firms
- more FDI increases output employment and incomes
Subsidy removal
Can increase competition, efficiency, employment, profits and income
Floating exchange rate systems
Demand and supply determines the rate at which one currency exchanges for another
- appreciation can generate higher incomes as the cost of imported raw materials reduces
- can lead to higher incomes
Micro finance
Small loans made available to unemployed or low income households who otherwise would not have aces to credit
- helps to break poverty cycle
Privatisation
Transfer of ownership & control from state to firms in the private sector
-increases competition leading to an increase in output, employment and incomes
What are interventionist strategies
Put in place by governments to correct the callings of the free market and promote the welfare/development of its citizens
What interventionist strategies influence growth and development
- human capital
- protection
- managed exchange rates
- infrastructure
- joint venture
- buffer stocks
What is human capital
The knowledge, skills and health that people invest in and accumulate through their lives
- enabling them to meet there productive members of society
How does human capital influence growth and developed?
Raises potential output of the economy leading to an increase in incomes
- can take time to have impacts
What is protectionism
Policies that restrict international trade to protect domestic industries
How does protectionism influence growth and developed?
- can intervene in natrual market forcing lower wage rates
- protecting employees leading to higher levels of income
What are managed exchange rates
A system where the free market determine the value of a currency but the central bank will intervene to keep the currency value within a desired range
How does managed exchange rates influence growth and developed?
- rising exports lead to currency appreciation
- can lead to a slowdown or a fall in exports
- managing currency prevents appreciation and a slowdown in exports
- leading to long periods of growing income
How does infrastructure influence growth and developed?
- developing infras reduces the cost of business and makes economic activity easier
- increases FDI, output, employment, income
What are joint ventures
Contractual agreement between 2 or more firms to combine their resources and expertise to achieve a particular goal
How does joint ventures influence growth and developed?
Some countries restrict FDI to promote domestic employment
- JV’s can increase trade, outputs employment and incomes
What are buffer stocks
Created when the government buys up suppliers of agricultural products when harvests are plentiful, stores them and sells when supplies are low
- aims to support agricultural producers, consumers and stabilise the market price of agricultural products
What problems can occur when using buffer stock schemes
- storage is expensive
- transport to and from storage expensive
- difficult to analyse and control market forces
- requires all producers to participate honestly in the scheme
How does buffer stock schemes influence growth and developed?
- price stability ensures income stability
- results in excess production
- increases levels of employment
What are other strategies that can be used to influence growth and development
- industrialisation: the Lewis model
- development of tourism
- development of primary industries
- fair trade schemes
- aid
- debt relief
Industrialisation: the Lewis model
- Lewis model believes in 2 sectors, the agricultural and the urban industrial sector
- productivity and incomes are higher in the industrial sector so Lewis argued countries should transform their structure
- critics argue developing countries have high unemployment in urban areas
- however, theory assumes that manufacturing will be labour intensive when it is usually capital intensive
Development of tourism
- excellent source of employment revenue and income
- rising global incomes increase demand for tourism
- however there can be negative externalities created thus many take then approach of ecotourism
Development of primary industries
- successfully developed as a result of gdp growth that has been driven by relatively few primary industries
E.g. Zambia and copper, Middle East and oil, Ethiopia and coffee, - this is lucrative due to there comparative advantage
Fair trade schemes
- developed countries use protectionism to shift profits from developing nations to developed nations
- price of commodities is set far away from where farmers are, prices are set months in advance and determine the price buyers will pay sellers on a particular day in the future
What is Aid
The transfer of resources on concessional terms
What is the ODA
Official development assistance
What is bilateral aid
Aid on a country to country bait
What is multi-natrual aid
Aid channeled through international bodies/ aid agencies
What is project aid
Direct financing of aid for specific projects
What is technical assistance
Funding of expertise of various thpes
What is humanitarian aid
Emergency disaster relief, food aid, refugee relief and disaster preparedness
What are soft loans
A loan made to a country on. Concessionaire basis with a lower rate of interest
What is tied aid
Projects tied to suppliers in the donor country
Aid
- over coming savings gap, provides a financial inflow for low income countries helping to overcome the savings gap
- savings encourage further investment
Aid for development
- IncreSw in number of people with access to education leasing to higher literacy eaters thus increase ig men yers of schooling
- increasing the value of the human index
- reducing number of people in extreme poverty
What are the main functions of the world bank?
- granting reconstruction loans to war devasted countries
- granting development loans to underdeveloped countries, providing loans to governments for agriculture
- encouraging industrial development of underdeveloped countries by providing economic reforms.
World bank
- provides grants and low interest loans
- offers policy and technical assistance to developing countries
- coordinates projects w governments
World bank structure
- comprises of 2 institby 188 member countriee
