4.3: Emerging and developing economies

Question 1

SEN’s definition of economic development

Answer 1

The process of which improving peoples well being and quality of life, involving improvement in standards of living, reduction in poverty, improved healthcare and education along with increased freedom of economic choice

Question 2

Characteristics of developing countries

Answer 2

-Low standards of living
-Low levels of productivity
-Low levels of savings
-High population growth
-Primary sector dominance (agriculture)
-Incomplete markets - lack of education and weak currencies
-High unemployment
-Low economic power on international stage

Question 3

Benefits of economic development

Answer 3

-Higher incomes - More jobs, better quality of life - income inequality - reduction in poverty
-Higher profits - technology and jobs
-Fiscal dividend - Infrastructure - health- education

Question 4

Costs of economic development

Answer 4

-Distribution of income
-Negative externalities - Azerbaijan - 80% of their exports is oil but it only accounts for 1% of oil and gas output globally
-Growth in one dominant sector - Senegalese fish industry

Question 5

4 factors needed for development of a country

Answer 5

-Growth
-Uncorrupted/effective government
-Incentives for firms to reinvest
-Income distribution

Question 6

Domestic factors affecting development

Answer 6

-Education
-Healthcare
-Infrastructure
-Taxation
-Appropriate use of technology
-Empowerment of women
-Income distribution

Question 7

5 trade policies for economic development

Answer 7

-Import substitution industrialisation
-Export promotion
-Trade liberalisation
-Bilateral trade agreement and regional PTAs
-Diversification

Question 8

Explain import substitution industrialisation as a trade policy for economic development

Answer 8

Tariffs on imported manufactured goods to allow domestic industries to grow

+ Protects domestic industries
+ Protects economy from foreign influence and potential dominance of MNCs

• Retaliatory protectionism (trump vs China)

Question 9

Explain export promotion as a trade policy for economic development

Answer 9

A trade policy designed to encourage the production of goods and services for export as a means of stimulating economic development

+ Potential technological advancements
+ Primary product dependence of developing countries

• Protectionism abroad
• Wider income inequality
• Over dominance of MNCs

Question 10

Explain trade liberalisation as a trade policy for economic development

Answer 10

A trade policy aimed at reducing or eliminating barriers to trade, such as tariffs, quotas, and import restrictions, to facilitate a freer flow of goods and services across borders.

+ Creating macroeconomic stability
+ Sustainable growth

• Increased income inequality and exploitation of workers
• More poverty creation —> MNCs have too much power

Question 11

Explain bilateral trade agreements as a policy for economic development

Answer 11

Trade policies in which two countries mutually agree to reduce or eliminate trade barriers such as tariffs, quotas, and restrictions to promote trade and investment between them

+ Better market access
+ Increased consumer choice

-Trade barriers in other countries

Question 12

Explain Diversification as a policy for economic development

Answer 12

Involves expanding the range of goods and services produced within an economy to reduce reliance on a narrow set of industries or exports

+ Prevents over reliance on one sector
+ New technology

• Highly skilled workforce is needed

Question 13

Benefits of trade for development

Answer 13

+ Exploit comparative advantage
+ Consumers benefit from lower prices and increased choice
+ Economies of scale and efficiency benefits
+Technological transfers and growth of secondary industries

Question 14

Problems of trade for development

Answer 14

• Resource depletion (primary commodity dependence)
• Price fluctuations
• Access to international markets is limited (protectionism)
• Long run decline in the terms of trade

Question 15

Outline the role of markets in promoting development

Answer 15

To decrease intervention so markets are able and free to allocate resources more efficiently (price mechanism)

+ More efficient allocation of resources
+ Incentivises profit to be made
+ Encourages FDI

• Infrastructure —> lack of quasi public/public goods —> Missing markets
• Market failure
• Under provision of merit goods e.g. Healthcare, education…

Question 16

Role of the government in promoting development

Answer 16

Governments get involved to increase development in a country

+ Infrastructure —> Quasi public goods
+ Government is a major employer of jobs
+ Stable macroeconomy
+ Welfare state

• Bureaucracy
• Nationalised industries are X-inefficient
• Increased gov spending can lead to fiscal deficit

Question 17

Benefits of FDI for development

Answer 17

+ Acts as an injection into circular flow of income
+ Positive effect on capital and current account
+ MNCs can expand infrastructure
+ Improved productivity domestically as it forces suppliers to be more efficient to compete with the world
+ Technological transfers
+ Total Tax revenue is higher —> Reduces chances of a fiscal deficit

Question 18

Problems of FDI for development

Answer 18

• MNCs may only stay for a short time
• They may bring their own employees
• They may force politicians to give better tax deals
• Exploitation of workers
• Environmental costs
• May deplete natural resources

Question 19

Definition of sustainable growth

Answer 19

Meeting the needs of present generations without compromising the ability of the future generations to meet their needs

+ Can promote higher profits which can be reinvested and used to develop more quantity and quality of FOP’s —> More innovation and technology —> Benefits future generations

+ Growth creates a fiscal dividend —> Increased gov spending on infrastructure spending –> increases productive capacity of an economy —> Boosts AD and development

• Resource depletion
• Deforestation (Palm oil in Indonesia)
• Overuse of fossil fuels