4.3. Emerging and Developing Economies Flashcards
What is the main difference between economic growth and economic development?
Economic growth is measured by real GDP, while economic development focuses on improvements in living standards.
What does the Human Development Index (HDI) measure?
HDI is a composite index based on health, education, and income.
What are the three factors that contribute to the Human Development Index?
- Health (life expectancy at birth)
- Education (mean years of schooling and expected years of schooling)
- Income (real GNI per capita at purchasing power parity)
What is the range of the HDI score?
The HDI score ranges between 0 and 1.
True or False: The HDI takes into account the quality of life that people enjoy.
False
What is the Inequality-adjusted Human Development Index (IHDI)?
IHDI is an adjustment of HDI that includes inequality as a fourth indicator.
What does the Multidimensional Poverty Index (MPI) measure?
MPI measures the percentage of the population that is multidimensional poor using health, education, and standard of living data.
List some indicators used in the Multidimensional Poverty Index.
- Years of schooling
- School attendance
- Child mortality
- Nutrition
- Availability of electricity
- Sanitation
- Safe drinking water
- Cooking fuel used
- Assets owned
- Type of floor in a house
What does the Genuine Progress Indicator evaluate?
It evaluates economic sustainability using economic, environmental, and social indicators.
What economic issue is caused by primary product dependency?
Natural disasters can wipe out production, leading to no income for farmers.
What is the Prebisch Singer Hypothesis?
It suggests that the long-run price of primary goods declines in proportion to manufactured goods.
What is Dutch disease?
Dutch disease occurs when a country becomes a significant commodity producer, leading to currency appreciation and reduced competitiveness in other sectors.
What is a savings gap?
A savings gap is the difference between actual savings and the level needed for higher growth.
What does the Harrod-Domar model suggest?
It suggests that growth rates depend on the level of saving and the productivity of investment.
What is a foreign currency gap?
A foreign currency gap occurs when exports are too low compared to imports to finance necessary purchases from overseas.
What is capital flight?
Capital flight is when large amounts of money are taken out of a country instead of being invested domestically.
True or False: Developing countries tend to have lower population growth rates.
False
How does debt affect developing countries?
High levels of interest repayments can limit spending on services and require tax increases.
What is the impact of limited access to credit and banking in developing countries?
It restricts investment and savings opportunities for individuals and businesses.
What are the consequences of poor infrastructure in developing countries?
It hinders trade and business operations, making services and production unreliable.
What is the impact of poor education on economic growth?
It results in low-skilled workers with low productivity.
What are property rights?
Property rights allow individuals to own resources and protect their assets legally.
How does corruption affect economic development?
Corruption leads to decisions that maximize bribes rather than development outcomes.
What is trade liberalization?
It involves removing trade barriers to promote export-led growth.
What does FDI stand for?
Foreign Direct Investment
What are some benefits of Foreign Direct Investment (FDI)?
- Job creation
- Transfer of knowledge
- Increased labor productivity
- Filling the savings gap
What can be a negative consequence of FDI?
Repatriation of profits and potential exploitation of local labor.
What is the effect of the removal of government subsidies?
It can lead to increased efficiency and reduced absolute poverty.
What was the impact of Samsung’s investment in Vietnam?
Crucial for local firms becoming part of their supply chain and the establishment of surrounding businesses like hotels and restaurants.
What are subsidies?
Financial support from the government on essential items to increase output and investment.
What is a major problem with subsidies?
They are often poorly targeted and may benefit everyone, not just the poor.
What alternative to subsidies does economic theory suggest?
Providing cash payments directly to poor households.
What can happen if subsidies are maintained over a long period?
They can lead to inefficiency and become ineffective in increasing development.
What unintended consequence can arise from fuel subsidies?
High emissions due to increased fuel consumption.
True or False: Removing a subsidy is often politically popular.
False
What is a floating exchange rate system?
A system where market forces determine the currency value without government intervention.
What is a microfinance scheme?
A program providing poor households access to financial services like loans and savings.
Fill in the blank: Microfinance institutions deliver small loans to _______.
[unsalaried borrowers]
What is a potential issue with microfinance schemes in South Africa?
They can lead to financing consumption spending rather than investment.
What does privatization aim to achieve?
End corruption and increase efficiency through competition.
What is a downside of privatizing a monopoly?
There will be no competition in the market.
What is one of the benefits of developing human capital?
Improved efficiency and productivity in the workforce.
What is protectionism?
Policies that protect domestic industries from foreign competition.
What is the Lewis model’s assumption about developing countries?
They have dual economies with a traditional agricultural sector and a modern industrial sector.
What does buffer stock scheme aim to achieve?
Stabilizing prices by controlling supply and demand.
What is a major challenge of a buffer stock scheme?
It requires significant start-up and administration costs.
What are some benefits of developing tourism?
- Provides funds for development
- Creates local jobs
- Increases foreign currency inflow
What is Fairtrade?
A trading partnership aimed at promoting equity in international trade.
What does a fair price in Fairtrade mean?
Guaranteed purchase agreements at prices above market value.
What is one criticism of the Fairtrade system?
It may leave non-Fairtrade producers worse off due to decreased demand.
What is the significance of joint ventures with global companies?
They help retain profits within the country for local investment.
What is a managed exchange rate?
A system where the government controls the currency value to reduce volatility.
What infrastructure is essential for development?
- Roads
- Airports
- Schools
- Hospitals
- Railways
What is one potential problem with government-provided infrastructure?
It may suffer from inefficiency and corruption.
What is the impact of primary product dependency?
It can lead to economic volatility and corruption.
What is the Dutch Disease?
Economic phenomenon where resource-rich countries suffer from currency appreciation, harming other sectors.
What are some potential negative externalities of tourism?
- Pollution
- Environmental damage
- Cultural impact
What do Fairtrade producers experience compared to those not under fair trade?
Greater understanding of the market and a more optimistic view of the future
They were able to save for the future and invest or provide financial support for their children, but still felt their income was insufficient.
What is a criticism of the Fairtrade system regarding its impact on the developing world?
It benefits Fairtrade producers but can leave non-Fairtrade producers worse off due to a fall in demand
The long-term impact may bring prices back down depending on the price elasticity of supply.
How can higher incomes from Fairtrade affect farmers’ activities?
Reduces the incentive to diversify and keeps farmers engaged in low profit activities
However, it may allow parents to send their children to school, gaining skills for future opportunities.
What is tied aid?
Aid with conditions attached, such as economic or political reforms or a commitment to buy goods from the donor country.
What are the three types of aid?
- Tied aid
- Bilateral aid
- Multilateral aid
Which countries are the greatest recipients of aid?
- Egypt
- Afghanistan
- Vietnam
Who are the largest donors of aid?
- European Union
- United States
How can aid reduce absolute poverty?
By providing emergency relief, particularly after disasters
Example: Haiti earthquake (2010).
What does aid fill according to Harrod-Domar?
The savings gap
What is a potential downside of aid?
It can create a dependency culture where countries are unconcerned about their finances.
What is a consequence of corruption in aid distribution?
Money does not always go to where it is meant to.
What is debt relief?
Writing off the debt of developing countries to ease government finances.
What is a potential risk of debt relief?
Moral hazard, creating a precedent for all poor countries to expect debt relief.
What is the aim of the World Bank?
To bring about long-term development and a reduction in poverty.
What are the components of the World Bank?
- International Bank for Reconstruction and Development (IBRD)
- International Development Association (IDA)
- International Finance Corporation (IFC)
- Multilateral Investment Guarantee Agency (MIGA)
- International Centre for Settlement of Investment Disputes (ICSID)
What type of projects has the World Bank funded since 1947?
Over 12,000 development projects through interest-free loans and grants.
What is the primary role of the International Monetary Fund (IMF)?
To ensure that exchange rate systems work well.
What does the IMF require from countries when providing loans?
Macroeconomic reforms to resolve their problems.
Why do some countries turn to the IMF for help?
To avoid defaulting on their loans.
What is one criticism of IMF reforms?
They can reduce domestic resources available for consumption.
What is the role of NGOs?
To provide direct assistance and act as pressure groups for pro-development strategies.
What is a limitation of NGOs in solving development issues?
They cannot solve the problem alone; governments must also address the issues.
What is a common perception of NGOs regarding their agenda?
They are seen as having an anti-capitalist agenda.
