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Economics > 4.3 - Emerging and Developing economies > Flashcards

4.3 - Emerging and Developing economies Flashcards

1
Q

What are the 5 main indicators of development?

A
  1. Access to clean water - 100% in the UK, 94% in India & 76% in Burundi
  2. Number of mobile phones - UK = 122 per 100, India = 87 per 100, Burundi = 48 per 100
  3. Access to internet = UK = 95%. India = 30%, Burundi = 5%
  4. Energy consumption per person - UK = 2764kg of oil per yr, India = 673kg, Burundi = 2.5kg
  5. Proportion of agricultural work - UK = 1% of economy, India = 44%, Burundi = 91%
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2
Q

What is economic development?

A

A sustainable increase in living standards in an economy

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3
Q

What are composite indicators?

A

Multiple individual indicators combined into a single indicator

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4
Q

What is HDI and how is it measured?

A
  • Measure of a country’s development through 3 indicators: education, health, living standards
  • Geometric mean is calculated
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5
Q

What do HDI values mean? Give examples of countries with varying HDI values.

A
  • Ranges from 0-1 (where 1 is perfect)
  • 0-0.49 -> low development (Burundi = 0.40)
  • 0.50-0.69 -> medium development (India = 0.62)
  • 0.70-0.79 -> high development (China = 0.74)
  • 0.80-1.00 (UK = 0.91)
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6
Q

What are the 3 dimensions of the HDI?
(give case-study examples)

A
  • Education: compares the no. of years spent in school on average across different countries e.g. UK = 15 yrs, India = 9yrs, Burundi = 7yrs
  • Health: takes a child’s average life expectancy at birth e.g. UK = 81yrs, India = 68yrs, Burundi = 57yrs
  • Living standards: looks at real GNI per capita e.g. UK = $37,000, India = $5,700, Burundi = $700
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7
Q

What are the advantages of using HDI?

A
  • Holistic: looks at the whole of development through 3 important factors -> broad-ranging view of development -> reliable picture
  • Good for comparison: easy to compare levels of development across countries -> assess which countries need aid
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8
Q

What are the disadvantages of using HDI?

A
  • Omits other indicators: can be unreliable -> when measuring living standards it only looks at income, neglecting access to electricity, internet etc
  • Ignores distribution of development: e.g. Israel’s HDI is 0.90 but it has one of the world’s highest Gini coefficients -> unequal distribution of development -> difficult to compare
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9
Q

What is IHDI?

A
  • Takes our normal HDI and adjusts it to account for different levels of inequality
  • Norway, HDI = 0.95, IHDI = 0.90
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10
Q

What is the MPI and what does it calculate?

A
  • Looks at the same 3 indicators as the HDI & IDHI breaking them down into 10 smaller components
  • Calculates: 1) No. of people in poverty, 2) Average intensity of poverty -> combines these to produce an overall MPI rating
  • High MPI = high poverty
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11
Q

What are the 10 components of the MPI?

A

Education:
- Average yrs spent in school
- No. of children not in school

Health:
- Child mortality
- Nutrition

Living standards:
- Fuel used
- Access to a toilet
- Access to clean water
- Access to electricity
- Types of floor
- Ownership of gadgets

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12
Q

What 3 main things hinder growth & development?

A
  1. Low productivity (fall in LRAS -> fall in income -> fall in profit -> no funds for development)
  2. High costs (fall in SRAS -> less price competitive -> lower profits -> no funds for development)
  3. Low investment (falls in AD & LRAS)
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13
Q

What is FDI?

A

Investments made by a firm in one country into a firm in another country to gain control over a foreign firm

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14
Q

How does poor infrastructure constrain growth & development?

A

Poor infrastructure → Increases costs → Left shift of SRAS → Increases prices → Decreases competitiveness → Less profit → Less corporation tax revenue → Less government spending on development

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15
Q

What are the two ways of promoting FDI? (Give case study example)

A
  • India received $31bn in FDI (2015)
  • Reducing corporation tax: India reduced it from 50% -> 40%
  • Reducing wage costs: 2001 min wage established in UK
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16
Q

How does promoting FDI work as a strategy for poor infrastructure?

A

Improved infrastructure → Decreases costs → Right shift of SRAS → Decreases prices → Increases competitiveness → More profit → More corporation tax revenue → More government spending on development

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17
Q

What is the evaluation of promoting FDI as a strategy for growth & development?

A

Reducing the rate of corporation tax -> government collects less revenue from corporation tax -> less money to spend on development

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18
Q

How does poor health constrain growth & development?

A

Poor health → Low productivity → Increases costs → Less profit → Less corporation tax revenue → Less government spending on development

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19
Q

How does aid work as a strategy for poor health?
(include a real world example)

A
  • Aid is intended to promote growth and development and can be used to invest in health & education -> human capital -> productivity
  • Kenya received $650 million in 2016 from the USA (1.6 million had HIV)
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20
Q

Evaluate aid as a strategy to growth & development?

A
  • Aid money doesn’t always go to where it is intended, it can end up with corrupt government officials who spend it on themselves rather than on helping people in poverty
  • US suspended $21 million of the 650mil it gave to Kenya to dedicate to healthcare as they had failed to use it effectively
  • $300 million missing from Venezuela in the last 10 years
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21
Q

How does population growth constrain growth and development?
(include a country example)

A

Higher birth rate → Overcrowding → Lower quality education → Less productive → Lower incomes → Limits economic development

Higher birth rate → Less time for parents to focus on education/career → Decreases incomes → Limits economic development

In 2010, women in Tanzania with a good education had half the number of children as those without education

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22
Q

How does education work as a strategy for population growth?

A

Improved education (sex education) → Higher human capital (more productive & career-focused as a result) → Higher productivity → Higher incomes → Decrease birth rate → Higher quality education (less overcrowding) → Increases economic development

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23
Q

Evaluate sex education as a strategy for growth & development.

A
  • Sex education may not help if there are other societal pressures, like religion, which can prevent women from using contraception - rate of population growth can remain high
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24
Q

What is a savings gap?

A

A gap between the amount of money held at banks in savings and the amount of money that firms want to borrow from banks

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25
Q

What are the reasons for low savings rates in developing countries?

A
  • Low incomes
  • Low access to banks
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26
Q

How does the savings gap constrain growth and development?

A
  • Low levels of investment → fall in AD & LRAS → limits real GDP → developing countries stay poor → incomes stay low → savings gap stays large
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27
Q

What is microfinance and how is it a strategy for the savings gap? (include real world examples)

A
  • Small loans provided to tiny businesses who otherwise would have no access to financial services
  • $102bn of microfinance given to small businesses in 2016

Increase investment → Increase productivity of capital → Right shift of LRAS → Increase economic growth → Increase economic development

Increase investment → Decrease unit costs → Decrease prices → More competitive → More profit → More corporation tax revenue → More spending on development

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28
Q

Evaluate microfinance as a strategy to growth and development.

A
  • Microfinance lenders charge very high interest rates → unless these small businesses grow very quickly they will struggle to pay this back → spends any extra income repaying the loan → can’t save → savings gap
  • Could also lead to bankruptcy or unemployment → Savings gap
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29
Q

What is the Harrod-Domar model and what does it show?

A
  • Harrod-Domar model: describes how low incomes → low savings → which means banks don’t have enough money to lend out → low investment → keeps AD & LRAS left → low economic growth.

Low incomes → Low savings → No money in the bank to lend → Low investment → Low AD and low LRAS → Low economic growth → Low incomes

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30
Q

What are property rights?

A

The legal right to your property

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31
Q

What is dead capital? (how much dead capital is there globally?)

A
  • Property without property rights
  • $9.3tn dead capital globally (De Soto)
32
Q

What is collateral?

A
  • An asset given as security for the repayment of a loan
  • Ensures the bank isn’t out of pocket if you don’t pay back the loan - they can take ownership of the asset
33
Q

How does dead capital constrain growth & development?

A
  • Dead capital can’t be used as collateral dead capital → people can’t borrow → can’t invest → Low investment

Low levels of investment → Decreases productivity → Left shift of LRAS → Decrease real GDP → Limits economic growth

Low levels of investment → Decrease productivity → Increase unit costs → Increase prices → Less competitive → Less profit → Less corporation tax revenue → Less government spending on development

34
Q

How does assigning property rights act as a strategy for growth & development? (give case study example)

A
  • NPTC in Colombia aims to establish government presence in remote areas e.g. through building police stations & courts → they can then assign property rights → dead capital (formerly) can now be used as collateral
35
Q

Evaluate assigning property rights as a strategy for dead capital.

A

Studies in Argentina & Peru have found that poor people with property rights are no more likely to take out loans than those without property rights → investment stays low

36
Q

How is trade liberalisation an effective strategy for growth & development?

A
  • Removal of trade barriers

Trade liberalisation → Increased specialisation according to comparative advantage → Increases productivity → Increases output → Increases competitiveness → Increases exports → Increases injections → Increases AD → Increases real GDP → Increases economic growth

37
Q

How might the removal of government subsidies be an effective strategy for promoting development?

A
  • Subsidies have a huge opportunity cost as the government cannot spend the money on development e.g. education, healthcare.
  • Subsidies can encourage inefficiency in firms as the subsidy helps make them more competitive without them actually having to become more productive
38
Q

How might a switch from a fixed to a floating exchange rate be an effective strategy for promoting development?

A
  1. No need to hold large reserves of foreign currency: under a fixed exchange rate, central banks must hold substantial foreign currency reserves to maintain the rate, appreciating their currency by selling reserves & buying up their domestic currency - expensive
  2. Being able to have an effective monetary policy: fixed exchange rate → change in the interest rate → change the demand for the currency → changes the value of the currency away from the fixed level - floating exchange rate → use monetary policy to increase AD
  3. Automatic adjustment following economic shocks: floating exchange rate = a decrease in demand will decrease demand for the currency → depreciation of the exchange rate → cheaper exports → brings the demand up again
39
Q

What is privatisation & might it be an effective strategy for promoting development?

A
  • Privatisation: when government assets are sold to the private sector

Main benefits:
- Selling government assets raises revenue - can be spent on development
- The private sector has a profit incentive - they produce things more efficiently than the government → prices decrease as a result of an increase in competition - good for consumers & should increase AD → increase real GDP → economic development

40
Q

What is corruption? (real world example)

A
  • When government officials use public funds for private gain
  • $300bn gone missing from Venezuela over the last 10yrs
41
Q

What is a fair trade scheme?

A

When you buy fair trade products, part of the fair trade price you pay goes directly to the producers and so it increases their incomes → increased consumption → increased AD → increased development

42
Q

What is a fair trade premium?

A

A communal fund that fair trade farmers can spend on whatever will develop their communities the most - no reliance on corrupt officials

43
Q

How do fair trade schemes act as strategy to corruption?

A
  1. People buying Fair Trade pay a slightly higher price + some of the extra money is given directly to the producer - raises their income which → increases consumption → increases AD → increases real GDP → increases development
  2. Some money from Fair Trade goes to the Fair Trade Premium - a communal fund for the community to spend on development - this bypasses the government which means it is less susceptible to corruption
44
Q

Evaluate fair trade schemes as a strategy to growth & development.

A
  • Fair trade foundation doesn’t monitor how much fair trade products are sold for - one investigation found that less than 1% of the extra price made its way to the farmers → incomes stay low
45
Q

What is a landlocked country?

A

When a country has no coasts as it is surrounded by other countries

46
Q

What is debt relief?

A

When you tell somebody that has borrowed money from you that they no longer have to pay it back

47
Q

How is being landlocked a constraint to growth & development? (give a country example)

A
  • Burundi: has to transport goods through its neighbours - has a bad relationship with Kenya + Mozambique faces lots of wars/conflicts - had to borrow $833mil from World Bank

Landlocked → Increases shipping costs → Left shift of SRAS → Increases prices → Decreases competitiveness → Less profit → Less corporation tax revenue → Less government spending on development → Limits development

48
Q

How is debt relief a strategy for landlocked countries? (give a country example)

A
  • More money to spend on development → Improved education and healthcare → Increases development
  • Heavily indebted poor country’s initiative: Burundi has to borrow $833 million from World Bank (2009) → debt was relieved in 2009
49
Q

Evaluate debt relief as a strategy for growth & development.

A
  • Despite Burundi’s debt relief, most of the extra money they had was taken by corrupt officials → less funds for development → not spent on education, healthcare etc
  • Burundi hasn’t experienced growth since debt relief → GDP fell in 2018
50
Q

What are foreign currency gaps? (give a country example)

A
  • A foreign currency gap occurs when the amount of foreign currency in a country decreases - caused when net imports > net exports
  • Lebanon has a current account deficit
  • Exports: gold, computers, jewelery → gain foreign currency
  • Imports: Saudi Arabia’s oil, UK pharmaceuticals,
51
Q

How do foreign currency gaps constrain growth & development?

A
  • Foreign currency gap - if there is low demand for Lebanese exports → low demand for Lebanese pound → high demand for foreign imports → have to sell Lebanese pounds in exchange for foreign currency
  • Thus Lebanese pound depreciates → price of imports increases → SRAS decreases → cost push inflation → fall in output → economic slowdown → FDI slowdown
52
Q

How is diversification of exports a strategy to foreign currency gaps?
Give real world examples.

A
  • Ethiopia closed its currency gap (used to export mainly cocoa beans) - also exports leather, textiles, wine
  • Done this by not taxing new companies for 5 years + put new schemes in place to encourage FDI
  • Diversification → increased demand for Ethiopian exports which → increased demand for Ethiopian currency → Ethiopia’s foreign currency gap has closed → decreased price of imports
53
Q

Evaluate diversification of exports as a strategy for foreign currency gaps (Give a country example)

A
  • Lebanese government could immediately start spending money on new industries - can’t collect tax revenue for 5 years → impacts will only be seen in the long run
  • Lebanon government will have to invest in the policy → increased national debt
54
Q

How is education a constrain of growth & development?

A

Poor standard of education→ low levels of human capital → workers are less productive - Low productivity decreases LRAS & shift left → economy has lower productive capacity → limit real GDP → limit economic growth

Poor education → Low human capital → Lower incomes → Lower tax revenue → Less government spending on development → Limits economic growth and development

55
Q

Evaluate improved education as a strategy to growth & development.

A

Improved education → More children in school → Less children helping parents with work → Lower income for families → Less consumption → Less aggregate demand → Decrease in real GDP → Limits economic growth in the short run

56
Q

What are infant industries?

A

Industries which are too small to benefit from economies of scale

57
Q

How are infant industries a constraint on growth & development?

A
  • Low output -> increased average costs -> SRAS falls -> increased prices -> decreased competitiveness -> less profit -> less CPT -> less GS -> limits development
58
Q

How is protectionism a strategy for infant industries?

A

Protects domestic producers from competitive foreign firms

59
Q

Evaluate protectionism as a strategy for infant industries?

A

Depends on subsidies -> lower costs -> not work as hard -> fall in quantity produced -> SRAS won’t shift much

60
Q

What is competitive devaluation as a strategy for infant industries?

A
  • Competitive devaluation: when you devalue your fixed exchange rate in order to keep your exports competitive
  • Two ways:
    1. Sell the domestic currency
    2. Decrease the interest rate
  • Export prices fall -> increased competitiveness with large industries -> increased profits -> decreased costs -> SRAS rises
61
Q

Evaluate competitive devaluation as a strategy for infant industries?

A
  • Currency wars - imports become expensive as exchange rate depreciates
62
Q

What are the characteristics of primary products?
Example countries.

A
  • Demand for primary products is price inelastic
  • Supply is price inelastic
  • Demand is income inelastic
  • Madagascar e.g. vanilla
  • Kenya e.g. tea
63
Q

What is price instability (primary products) and its impact on growth & development?

A
  • Price instability: small changes in the supply and demand for primary products can lead to big changes in price
  • Harder for investors to predict future prices -> can’t predict future revenue -> can’t tell if their investment will be profitable -> low investment
64
Q

What are the market oriented strategies for growth & development?

A
  • trade liberalisation
  • promotion of FDI
  • removal of government subsidies
  • floating exchange rate systems
  • microfinance schemes
  • privatisation
65
Q

What are the interventionist strategies for growth & development?

A
  • development of human capital
  • protectionism
  • managed exchange rates
  • infrastructure development
  • promoting joint ventures with global companies
  • buffer stock schemes
66
Q

What are buffer stock schemes as a strategy for primary product dependency?
Draw a buffer stock diagram.

A
  • A scheme where the government buys and sells primary products from a market in order to reduce price fluctuations
  • Decrease supply when weather is good, increases supply when weather is good
  • Interventionist
  • Keeps prices within a certain range (sets a floor & ceiling price), which increases price stability -> reduces price fluctuations
67
Q

Evaluate buffer stock schemes as a strategy for growth & development.

A
  • Gives producers an incentive to overproduce -> expensive to run - opportunity cost on development
  • High admin costs
  • High storage costs - may be perishable
68
Q

What is the prebsich singer hypothesis?

A
  • As world incomes rise → demand for manufactured & primary goods will increase → manufactured goods are income elastic → demand will increase by a lot → big increase in the price of manufactured goods → primary goods are income inelastic → demand increases by less → increases price of primary goods by less than the price increase for manufactured goods
  • Since developing countries mainly export primary products & import manufactured products → price of their imports will rise by more than the price of their exports → worsens their terms of trade.
69
Q

What is industrialisation?

A

Industrialisation occurs when the main industries in an economy shift from agricultural to manufacturing

70
Q

why are manufacturing firms in developing countries are often able to make supernormal profit?

A

Before industrialisation, there will be few manufacturing firms in developing countries -> a new manufacturing firm is likely to be a monopsony, as they are the only firm hiring workers -> workers have no choice -> the firm can keep wages super low & still attract workers - low costs -> able to make supernormal profit

71
Q

What is the Lewis model

A

Very few manufacturing firms → Monopsony power → Low wages → low costs → Supernormal profit → Investment → Increased productivity → Increased labour demand → Increased wages → Workers move from agriculture to manufacturing → Increases output → Increases supernormal profit for manufacturing firms

72
Q

Evaluate industrialisation as a strategy for growth & development.
Real world example.

A
  • Coca cola could be sold to foreign daughter companies & charge whatever they like -> avoid paying corporation tax in Swaziland as they’ve made no profit - transfer pricing
  • Several hundred billions dollars of tax
73
Q

What is the World Bank and what is their role?
How much did they loan out in 2016?

A
  • 189 member countries
  • Reconstruction loans post-war
  • Development loans (recent years) - provide debt relief for these loans
  • Loaned out $61bn (2016) to countries in need
74
Q

What is the IMF and its role?

A
  • World Bank formed IMF to ensure all countries are getting along
  • They monitor: exchange rates, economic policies, balance of payments etc
  • Greece (2010) was on the verge of collapse - $147bn IMF bailout (South Korea exports $2bn to Greece - maintains stability)
  • Maintains stability in the World Economy
75
Q

What are NGOs and their role?

A
  • Seek to promote growth & development
  • 10 million NGOs worldwide
  • Examples : Amnesty international (human rights), Wikimedia foundation

Economics (38 decks)

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